A F A R A K
G R O U P
ANNUAL REPORT
2016
WE ARE
AFARAK
THE SPECIALITY ALLOY PRODUCER.
2
STRATEGIC REVIEW
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 Helsinki Stock
Exchange and the London Stock Exchange.
CONTENTS
STRATEGIC REVIEW
Global Footprint
2016 Group Highlights
CEO Report
Growth Strategy
2016 Highlights
Market Review
Group Overview
Balance Sheet, Cash Flow and Financing
Operational Review
Ferroalloys Segment Overview
2016 in Review
Speciality Alloys Segment Overview
2016 in Review
Risk Management
Sustainability Review
Health & Safety
Environment
Community Investment
RESOURCE STATEMENT
7
8
11
12
14
15
17
18
20
21
22
24
28
30
32
35
35
36
38
39
GOVERNANCE REVIEW
Chairman’s Letter
Information Presented by Reference
Our people
The Board of Directors
The Executive Management Team
The Corporate Management Team
Governance structure
The board of Directors
The board of 2016
Board Committees
Corporate Governance Statement
Internal Control
Insider Administration
Annual General Meeting
Additional Information
Remuneration Report
Shares and Shareholders
47
2
4
6
8
10
12
15
17
18
19
20
22
23
24
25
29
4
STRATEGIC REVIEW
FINANCIAL STATEMENTS
79
PARENT COMPANY’S FINANCIAL
Key fi gures
Consolidated fi nancial statements
Consolidated income statement and
statement of comprehensive income
Consolidated statement of fi nancial position
Consolidated statement of cash fl ows
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 Interests
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
2
5
5
7
9
11
12
12
12
26
26
29
33
36
67
70
71
Income Statement (FAS)
Statement of Dinancial Position (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 fi nancial statements
Auditor’s Note
AUDITOR’S REPORT
150
72
73
74
75
76
76
77
78
81
83
83
86
88
167
STRATEGIC REVIEW
5
6
STRATEGIC REVIEW
STRATEGIC
REVIEW
GLOBAL
FOOTPRINT
1
3
7
2
6
4
5
1. HELSINKI
Registered offi ce, Primary listing
2. MALTA
Corporate Offi ce
3. LONDON
Secondary listing
4. SOUTH AFRICA
Mines – Ferroalloys mines
5. SOUTH AFRICA
Mogale – Ferroalloys processing plant
6. TURKEY
Mines – Speciality alloys mines
7. GERMANY
EWW – Speciality alloys processing plant
8
STRATEGIC REVIEW
SEGMENTS
FERROALLOYS
SPECIALITY ALLOYS
FeCr
Mc FeCr
SiMn
Products
LLL FeCr
ELC FeCr
HCr FeCr
Products
End-user
Industry
Stainless steel
End-user
Industry
Aerospace
Renewable Energy
Automotive
Oil & Gas
STRATEGIC REVIEW
9
10
STRATEGIC REVIEW
2016 GROUP
HIGHLIGHTS
Afarak’s performance in 2016 highlights its strong fundamentals.
GROUP MINING
GROUP PROCESSING
262,266
tonnes
95,739
tonnes
GROUP SALES
95,095
tonnes
REVENUE
€153.6
million
EBITDA
€5.5
million
EBIT
-€1.0
million
ASSETS
€260.2
million
GEARING RATIO
INTEREST-BEARING DEBT
EQUITY RATIO
-3.3%
€3.7
million
67.7%
STRATEGIC REVIEW
11
CEO
REPORT
GUY KONSBRUCK
CEO
12
STRATEGIC REVIEW
Afarak delivered a set of
solid results in 2016 against
a very challenging year.
The commodity market sentiment weakened considerably
throughout most of the year and only improved in December.
The chrome and ferrochrome market was particularly
adversely affected with a good number of producers going
into either business rescue or reducing their production
outputs. Weakened demand and defl ationary pricing
pressures due to de-stocking also contributed.
ROBUST PERFORMANCE DESPITE
DIFFICULT ENVIRONMENT.
Against these severe headwinds, Afarak registered a
solid performance. EBITDA for the year amounted to €5.5
million, compared to €17.2 million in 2015.
With prices gravitating downwards, our sales volumes
were hit hard, particularly in the speciality segment. Our
mining and production volumes were also lower due to the
closure of Mecklenburg, safety stoppages at the mines
and the temporary closure of Mogale Alloys.
Management focused its efforts on prudent capital
management, debt collection, optimising production,
inventory management – including the decision to temporarily
stop production in our German smelter EWW, which created
an opportunity for successful placing of TMS’ chrome ore onto
the higher priced market during quarter four.
During the fourth quarter, Afarak confirmed its
responsiveness to expected market conditions. With
a recovery in market prices and a strengthening in
demand; Afarak responded in a timely and effective
manner. As benchmark prices reached an eight-year high
in December, Afarak brought on stream three projects
that will enable the Company to benefit from the market
upswing running into the first quarter of 2017. The Mogale
plant operates as a swing plant and switched one of
its silicomanganese furnaces to ferrochrome enabling
better margins in the current market. During the first
quarter of 2017, the last silicomanganese furnace will
also start producing charge chrome. Preparations to
resume opencast mining at Mecklenburg started in
December with the first successful blasts happening in
March. Full production is expected to commence in April.
The shaking table project at the Ilitha mine is now also
in full production. These factors have allowed Afarak to
register a stronger performance in the fourth quarter
and confirmed the Company’s entrepreneurial nature in
identifying and reaping opportunities.
investments and projects. We feel privileged to be able to make
a difference in people’s lives through our commitments.
The environment remains an important element in our
drive towards sustainability. Throughout 2016, we have
focused our efforts on water management in South Africa
with several initiatives and investments being undertaken.
LOOKING AHEAD
STRENGTHENING OUR BALANCE SHEET
In response to the market conditions, our focus became
prudent capital management and cash preservation.
Cash flow generated from operations totalled €9 million.
During the year, we used our cash to pay €5.2 million in
capital redemptions as well as to reduce external debt by
€11.8 million. This brought down our debt-to-equity ratio
to 2.1% from 8.2% a year earlier.
The markets in which we trade remain volatile. The prices of
chrome ore and ferrochrome are expected to remain strong
in quarter one 2017, positively affecting Afarak´s fi nancial
performance. We expect signifi cantly better results in quarter
one 2017 compared to a year earlier. It is however diffi cult
to predict the longer-term outlook. Afarak will continue
concentrating on its core activity, ferrochrome specialties.
Our results for 2016 encourage us to continue moving forward
with our strategy. We will always continue pursuing our drive
towards an effi cient and effective organisation that creates
value to all our stakeholders, including our shareholders.
Currency effects positively affected Afarak’s balance
sheet due to the strengthening of the Rand.
THANK YOU
GROWTH STRATEGY
Afarak was able to deliver its results despite the
challenging environment because it was focused on its
long-term growth strategy. Its agility to respond quickly
to changing market circumstances, its vertical-integration
and a focused management team have allowed it to reap
market opportunities.
We are now focused on further implementing our growth
plan. We are focusing our efforts on process innovations
and product development. Work is well underway to
expand our product portfolio and reduce our dependency
on third parties by strengthening our core capacities.
SUSTAINABILITY
Since joining Afarak, I had the pleasure of meeting our
teams across all our operations. All our colleagues played
an important role in ensuring Afarak’s resilience and
strength throughout the challenging year. We are now
focused on ensuring that Afarak remains a competitive
and efficient company. The current market upswing
will enable us to register positive quarter one results
and allow us to pursue further efforts to consolidate
our vertically-integrated business model. We continue
exploring the appropriate business opportunities through
continuous innovation, leveraging also of our technical
expertise and the proven ability to timeously adapt to ever
changing market conditions, identify and explore higher
yielding strategies. Supported by our strong balance
sheet, we remain well positioned to prudently take
advantage of the appropriate investment opportunities.
It is with sadness to report that during 2016 one of our
colleagues lost his life at one of our plants. Any loss of life
is unacceptable and we continue to strengthen our efforts
in this regard. In 2017, we will be embarking on a drive to
strengthen the safety culture across all our operations.
As we look forward to the coming months, I would like to also
thank all of our clients for their support and trust backed by
Afarak’s commitment to continue delivering the highest level
quality of our products and service. Also, I would like to thank
our host communities for accepting us as partners.
We have continued to work and engage with our host
communities, especially in South Africa. Working together
with local charities we continued to support various community
Lastly, I thank all the members of the Board, ably led by
our Chairman, for putting their trust in me and for sharing
their extensive collective expertise and insight.
STRATEGIC REVIEW
13
GROWTH
STARTEGY
Afarak’s strategy is to
grow and strengthen its
business through industry
acquisitions, vertical-
integration, product
development and continuous
process innovation.
Throughout 2016, Afarak was focused on cash fl ow
optimisation, debt reduction and working capital reduction.
We are now in a position of having available capital and the
opportunity to support our growth, both organically and
through selected merger and acquisition activity.
Afarak’s organic growth strategy is very much focused
on product development and process innovation. Our
shaking table technology has started to perform and is
contributing to improved efficiencies and a lower cost of
production in our mines in Turkey and South Africa. We
are also improving our product portfolio with a focus on
research & development.
Our acquisition strategy is both selective and opportunistic.
We have developed a list of targets which would either
increase our market share or support us is our vertical-
integration efforts. Our assessment and focus is on long-
term prospects of the assets considered as well as their
contribution to maximising shareholder value.
14
STRATEGIC REVIEW
2016
HIGHLIGHTS
MINING LICENCE GRANTED, TMS,
TURKEY, SPECIALITY ALLOYS
In January 2016, the Speciality Alloys mining segment,
TMS, has been granted the exploitation mining licence for
“Eagle Field.”
NEW EXECUTIVE MANAGEMENT TEAM, AFARAK GROUP
Dr Alistair Ruiters resigned as Chief Executive CEO in
December 2016. Guy Konsbruck was appointed as the new
Chief Executive Officer and Predrag Kovacevic as Chief
Financial Officer. Keith Scott also resigned as a Director.
SHAKING TABLE PROJECT COMPLETING;
SOUTH AFRICA, FERROALLOYS
TEMPORARY CLOSURE OF EWW, GERMANY,
SPECIALITY ALLOYS
The €3 million investment in a 24 shaking table project
was completed. The in-house technology enables the
treatment of tailing dumps for chrome.
Due to the weak market conditions and in a drive to reduce
piling of inventory and working capital, EWW temporarily
halted production during the fourth quarter.
AFARAK MOGALE OPERATES AS A SWING PLANT;
SOUTH AFRICA, FERROALLOYS
WATER USE LICENSE GRANTED; AFARAK MOGALE,
SOUTH AFRICA, FERROALLOYS
Mogale successfully transitioned one of its
silicomanganese furnaces to ferrochrome. This enabled
Afarak Group to benefi t from the market upswing towards
the end of the year as an additional 7,000 tonnes of on-
grade ferrochrome was produced.
OPENCAST MINING AT MECKLENBURG TO RESTART;
SOUTH AFRICA, FERROALLOYS
Work has started towards the end of the year to increase the
high-wall and restart opencast mining. It is expected that
more than 200,000 tonnes of chrome ore will be mined. The
project is also expected to facilitate underground mining
with access to 4.5 million tonnes of chrome ore.
Afarak Mogale was granted the water use license following
various investments and interventions by the Company to
preserve, conserve and manage its water consumption
responsibly in line with its environmental policy.
FATALITY AT AFARAK MOGALE, SOUTH AFRICA,
FERROALLOYS
Unfortunately, one of our colleagues succumbed to grievous
injuries sustained in an accident at the Mogale Plant. The
Company organised various counselling sessions and a
memorial service at a plant. Following the incident, the
Company has further strengthened the safety culture.
STRATEGIC REVIEW
15
16
STRATEGIC REVIEW
MARKET
REVIEW
Global activity continued to improve throughout 2016,
especially in the fourth quarter. Data released suggests
a relatively stable expansion in advanced economies and
a slight improvement in emerging market economies.
The medium-term outlook for global activity remains
one of strengthening growth, albeit below its pre-crisis
pace. The global outlook continues to be overshadowed
by several factors, including the gradual rebalancing of
the Chinese economy, and policy uncertainty in the United
States and the United Kingdom.
Global activity continued to improve throughout 2016,
especially in the fourth quarter. Data released suggests
a relatively stable expansion in advanced economies and
a slight improvement in emerging market economies.
The medium-term outlook for global activity remains
one of strengthening growth, albeit below its pre-crisis
pace. The global outlook continues to be overshadowed
by several factors, including the gradual rebalancing of
the Chinese economy, and policy uncertainty in the United
States and the United Kingdom.
In quarter four, commodity prices in general showed an
increased momentum and the main factors determining
specific commodities are addressed below.
STAINLESS STEEL MARKET
Following the prolonged period of low and depressed
prices, stainless steel is picking up in price levels.
The expansions seen are primarily driven by increased
cost pressures, specifically raw materials such as
ferrochrome and nickel. Stainless steel prices also
improved following the US presidential election on
account of growth-friendly policies and protectionist
measures. On the other hand, Chinese producers have
excess output capacity as a result of the anti-dumping
policies that have been introduced in numerous markets.
FERROCHROME MARKET
Demand for ferrochrome, reflecting the trend seen
in the stainless-steel sector, continued putting
upward pressures on price. On the back of increased
demand, prices started to increase even as market
supply continued to tighten following the cutbacks in
ferrochrome production from South Africa due to several
producers going into business rescue or cutting their
production and in China due to environmental restrictions.
The prices for ferrochrome continued to increase and
towards the end of the quarter the European benchmark
for South African charge chrome reached an eight-year
high. The expansion is seen to persist into 2017 as demand
for ferrochrome and steel continues to increase, even if
we might see some correction in the price levels.
CHROME ORE MARKET
The prices for chrome ore continued to accelerate on
account of increased demand from Chinese ferro-chrome
producers. With supply from South Africa still being tight,
this increased demand will continue to support relatively
high price levels. In addition, with the strengthening of
the ZAR against the dollar and increased transportation
costs; cost-push factors have also impinged on the price
level.
SILICO MANGANESE MARKET
The rapid gains in manganese ore prices seen throughout
2016 had yet to be refl ected in silico-manganese prices
outside of China, due to excess supply in the market and
subdued demand. However, in the fourth quarter, the price of
silico-manganese reversed its downward trend and started
to increase due to cost-push factors started having an
impact on prices. This trend reversed in Q1/2017.
STRATEGIC REVIEW
17
GROUP
OVERVIEW
Afarak’s performance in 2016 highlights its strong
fundamentals. The Company registered a positive
operational result despite another the highly challenging
market conditions persisting for most of the year.
Nevertheless, due to strategic planning and timely
capital investments, the Company was well-positioned
to benefi t from the market upswing towards the
end of the year. During the year, the Company also
managed to signifi cantly reduce its external debt.
REVENUE
€153.6mln
(€187.7mln)
PROFIT
EBIT
EBITDA
€-0.9mln
(€8.5mln)
€-1.0mln
(€9.9mln)
€5.5mln
(€17.2mln)
EQUITY RATIO
67.7%
(64.2)
GROUP SALES
GROUP MINING
95,095mt
(105,777mt)
262,266mt
(461,781mt)
GROUP PROCESSING
97,095mt
(105,777mt)
HUMAN RESOURCES
813
(773)
18
STRATEGIC REVIEW
Throughout 2016, Afarak faced largely depressed market
conditions, affecting most chrome and ferrochrome
producers. During the past year, a good number of South
African producers either went into business rescue or
reduced their ferrochrome output.
FINANCIAL REVIEW
Due to the suppressed markets, Afarak saw its revenue
decline by 18% to EUR 153.6 (187.7) million. The decrease
was mostly seen in the Speciality Alloys segment which
decreased by 28.1% due to lower sales volumes of processed
material resulting from weak demand and excess supply as
producers from BRICS countries continued destocking their
positions, hence lowering prices. Revenue in the Ferro Alloys
segment decreased by 8.0% due to lower sales prices of both
silicomanganese and charge chrome which only recovered in
the last quarter of 2016.
200
150
100
50
0
Revenue (EUR million)
Q1
Q2
Q3
Q4
2015
2016
EBITDA (EUR million)
Notwithstanding the drop in revenues and the diffi cult
market conditions, Afarak still managed to register a positive
EBITDA of EUR 5.5 (17.2) million. It was primarily driven by
the positive fourth quarter on the back of a strong market
recovery in ferrochrome prices in December. The diffi cult
second and third quarter results were primarily affected by
the decline in selling prices and lower sales volumes.
Q3
Q1
Q2
Q4
The Synergy joint venture managed to register a profi t during
2016 amounting to EUR 0.1 (-0.1) million.
Profi t from discontinued operations during 2016 amounted
to EUR 1.9 (0.8) million that includes a release of EUR 0.8
(0.2) million from the provision in relation to the discontinued
wood segment as the Company sold part of the saw mill
equipment that was acquired in 2008.
5
4
3
2
1
0
-1
-2
-3
20
15
10
5
0
2015
2016
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Profi t for the period
The full year earnings per share was EUR 0.00 (0.03)
Q1
40.8
3.3
8.0%
1.7
4.2%
0.2
Q2
39.5
0.8
2.0%
-0.9
Q3
28.9
-2.8
-9.8%
-4.5
-2.2%
-15.7%
-1.0
-2.2
Q4
44.4
4.3
9.6%
2.7
6.1%
2.0
FY16
153.6
5.5
3.6%
-1.0
-0.7%
-0.9
FY15
187.7
17.2
9.2%
9.9
5.3%
8.5
STRATEGIC REVIEW
19
BALANCE SHEET, CASH
FLOW AND FINANCING
Throughout the year, the Group focused its efforts on strengthening its balance sheet despite the adverse market conditions.
Management focused on optimising working capital and debt reduction
Net assets (EUR million)
Cash position (EUR million)
Interest-bearing debt (EUR million)
20
15
10
5
0
2015
2016
20
15
10
5
0
2015
2016
2015
2016
200
150
100
50
0
The Group’s total assets on 31 December 2016 were EUR
260.2 (266.9) million, and net assets totalled EUR 176.2
(171.2) million. During the year, currency movements
positively affected Afarak’s balance sheet with the
translation reserve improving by EUR 11.9 (-16.6) million
mainly due to the strengthening of the South African rand on
conversion of our South African investments.
Mogale Alloys; and capitalisation of expenditure related to
prospecting activities at the Vlakpoort mine.
During the fi rst half of 2016 the Synergy Africa joint venture
completed the shaking table plant at Ilitha mine which
signifi cantly reduced the operating cost per ton, increasing
both yield and production capacity.
The Group’s cash position, as at 31 December 2016, was
EUR 9.7 (19.6) million. The reduction in the cash balance
is attributed to the payment of capital redemptions and to
debt reduction. Interest-bearing debt stood at EUR 3.8 (15.1)
million, with the equity ratio standing at 67.7% (64.2%).
One of the Group’s Maltese subsidiaries has been granted a trade
fi nance loan facility amounting to US$ 5.0 million. The Group did
not utilise the facility provided as at 31 December 2016, but has
given a corporate guarantee of US$ 5.0 million as collateral.
INVESTMENTS, ACQUISITIONS AND DIVESTMENTS
Capital expenditure for the full year 2016 totalled EUR
2.8 (8.0) million. In the Speciality Alloys segment, capital
expenditure was incurred both at TMS as the company
purchased a press fi lter system at the new plant in Tavas
mine to improve tailing concentration, and at EWW, where
the de-dusting system was completed during the fi rst
quarter of the year. Capital expenditure within the Ferro
Alloys segment included the replacement of the furnace
refractories and the acquisition of new plant vehicles at
RESEARCH AND DEVELOPMENT
Research and development projects at Afarak aim to ensure
the Group’s future growth by assessing the introduction of
new products, and evaluating new technologies to improve
operational effi ciency and increase production. R&D work is
administered separately by each operation and additionally
Afarak appoints external experts for R&D.
In 2016, Afarak’s R&D expenditure totalled EUR 0.4 (0.5)
million. During the fi rst half of 2016, the Synergy Africa
joint venture completed the shaking table plant at Ilitha
mine which signifi cantly reduced the operating cost per
ton, increasing both yield and production capacity. During
the fi rst quarter of 2017, the Group announced that it has
entered into a Mining Services Agreement with Pholagolwa
Mining to continue the opencast mining at the Mecklenburg
mine. The high wall is to increase from 40 metres to 65
metres and will allow better access to the underground
mining area which has the potential to produce 4.5 million
tons of chrome ore.
20
STRATEGIC REVIEW
OPERATIONAL
REVIEW
In the fi rst half of the year, Afarak faced declining prices.
Sales volumes fell by 8.2% and were mainly driven by the
decrease in volumes in the speciality segment.
Afarak faced declining prices during most of the year. Sales
volumes fell by 8.2% and were mainly driven by the decrease
in volumes in the speciality segment.
Sales volumes of processed material in the Speciality Alloys
segment decreased by 26.8% when compared to the previous
year as a result of both lower demand as well as pricing
pressures from BRICS country producers who dampened
prices on account of destocking their position. Sales volumes
in the FerroAlloys segment decreased marginally on
account of a decrease in sales volumes of silico manganese
material which was only partly offset by the increases in
sales volumes of both charge chrome and medium carbon
ferrochrome.
120000
100000
80000
60000
40000
20000
0
Sales volumes (tonnes)
Speciality Alloys
FerroAlloys
2015
2016
Group production (tonnes)
Speciality Alloys
FerroAlloys
2015
2016
600000
550000
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
Group production for the year decreased by 36.7% to 358,005
(565,372) tonnes.
Lower mining activity in the FerroAlloy segment was the
main driver due to the depletion of the open cast mining
activity at Mecklenburg and idle activity at the Vlakpoort
mine contrary to a year earlier. Together, these factors
led to a halving of mining activity when compared to 2015.
The subdued market activity, particularly in the Speciality
Alloys segment, contributed to a shrinkage in processing
levels in the Speciality Alloy segment following a decision
by management not to produce during the fourth quarter
to reduce piling of inventory. These reductions were partly
offset by the increase in mining activity in the Speciality
Alloys segment due higher concentrate production levels at
the Turkish mine of Tavas.
STRATEGIC REVIEW
21
FERROALLOYS
SEGMENT OVERVIEW
FERROCHROME
PRODUCTION
PROCESS
SILICOMANGANESE
PRODUCTION
PROCESS
Mecklenburg
Ilitha
Vlakpoort
3rd parties
Cr Ore
Mn Ore
Mogale
Mogale
FeCr/MCFeCr
SiMn
Stainless
steel
Construction
Stainless
steel
Construction
Extraction
Processing plant
End-user
Raw material
Processed material
22
STRATEGIC REVIEW
VLAKPOORT MINE – SOUTH AFRICA
The Vlakpoort Mine is situated on the Northern part of the
western limb of the Bushveld complex in South Africa. The
surface right acquired in 2011 after the prospecting right
was granted to Afarak by the DMR.
Since then extensive exploration work was conducted which
include geological drilling, trenching and a bulk sample of
the LG5 and LG 6 seams that were taken to test the market.
The property has a resource of in excess of 6.656m tons
including UG of Chromeand 330,314 ounces of PGMs. The
resource consists of the LG1-6, MG1-4 and the UG1- 2
and Merensky reefs outcropping on the property. Afarak
has applied to have the prospecting right converted into a
mining right.
THE STELLITE MINE – SOUTH AFRICA
The Stellite mine was acquired in late 2010, as part of the
Chromex acquisition and will be the primary concentrate
ore supply to Mogale Alloys, thereby integrating the
FerroAlloys business. Excess concentrate ore and a small
amount of lumpy chrome ore mined at Stellite is
exported directly to China.
Stellite is located on the western limb of the Bushveld
complex in South Africa, where 70% of the world’s chrome
resources are located and 40% of chrome production
is sourced. The mine has a chromite resource of 28.318Mt
comprising of four seams, namely the LG6, MG1, MG3 and
MG4. All four seams outcrop on the property.
MECKLENBURG MINE – SOUTH AFRICA
The Mecklenburg Mine, also acquired as part of the
Chromex transaction, is located on the Eastern Limb
of the Bushveld Complex, well known for hosting much
of the world’s known resources of platinum, but also
a major source of chromite. The Mecklenburg mine
started full production in July 2013. The Company is
currently evaluating underground mining at Mecklenburg.
Following the depletion of the open cast mine to a 40m high
wall in November 2015, Afarak commenced preparatory
works in December 2016 to restart opencast by raising
the high-wall to 65m with a projected 240,000 tons to be
mined in the opencast. The mine has a chromite resource
of 8.656Mt comprising of mainly of the LG6 and LG6A seam.
It is expected to produce 5.2million tons of saleable Run of
Mine material.
AFARAK MOGALE PLANT – SOUTH AFRICA
Afarak acquired Mogale in 2009, providing it with access
to the bulk minerals processing sector in South Africa.
The acquisition marked a strategic step forward for the
Group by providing access to direct current (DC) furnace
technology, which has been in operation at Mogale since
1983 and is considered to be a centre of excellence.
Mogale operates four furnaces; two submerged arc
furnaces and two DC furnaces, with a total production
capacity of 110,000 tonnes per annum. These furnaces are
capable of producing four key 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. In
2016, the plant started operating as a swing plant as one of
its furnaces was switched from producing SiMn to FeCr. The
fourth furnace will also be switched from silicomanganese
to charge chrome.
The remaining active furnace will also be switched from
silicomanganese to charge chrome and the company is
planning on possibly switching on the fourth furnace in
STRATEGIC REVIEW
23
2016 IN REVIEW
2017 to further bolster its FeCr producing capacity taking
advantage of the notably improved market conditions.
The FerroAlloys segment faced a challenging year
primarily due to the depressed markets for chrome ore.
Following the market upswing towards the end of the year,
the segment registered a very positive fourth quarter. In
terms of operational performance, mining activity was
significantly lower due to the temporary cessation of
SALES OF
PROCESSED MATERIALS
77,092mt
(78,441mt)
PRODUCTION
REVENUE
278,833mt
(75,386mt)
€84.5mln
(€91.8mln)
EBITDA
€5.0mln
(€7.5mln)
EBIT
€0.9mln
(€2.8mln)
HUMAN RESOURCES
369
(365)
2016 was a particularly challenging year for ferrochrome
producers in South Africa, with a number of producers
either going into business rescue or drastically reducing
their ferrochrome output. With prices gravitating
downwards, Afarak’s FerroAlloys Segment was not
immune to these challenges with specific circumstances
affecting both the mining and the processing arms of the
Segment.
Annual production decreased to 278,833 (489,986) tonnes,
representing a decrease of 43.1% when compared to the
previous year.
Mining operations decreased significantly due to the
temporary cessation of open cast mining activity at
Mecklenburg together with the idle activity at the
Vlakpoort mine. Annual processing levels at Mogale
Alloys were marginally lower than those registered
during the previous year. In response to market
conditions, management decided to switch one of the
silicomanganese furnaces at Mogale to charge chrome.
The shaking table project at Ilitha mine came on stream
and started contributing to a lower cost of production.
These contributed to Afarak’s positive fourth quarter.
24
STRATEGIC REVIEW
Mining
Processing
FerroAlloys Production (tonnes)
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2015
2016
STRATEGIC REVIEW
25
Revenue for the full year decreased to EUR 84.5 (91.8) million,
representing a decrease of 8.0% compared to the equivalent
period in 2015. Revenue decreased as a result of lower selling
prices of both silicomanganese and charge chrome in the
fi rst three quarters of 2016. Lower selling prices together
with a signifi cant increase in both manganese ore cost and
energy tariffs during the second half of 2016 caused EBITDA
to decrease to EUR 5.0 (7.5) million and EBIT to decrease to 0.9
(2.8) million. During the last quarter of 2016 prices of charge
chrome recovered signifi cantly and contributed to a positive
end-of-year result in this segment. The joint venture share of
profi t for 2016 amounted to EUR 0.1 (-0.1) million.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
22.3
1.9
8.6%
0.9
4.2%
Q2
21.1
0.5
2.4%
-0.5
Q3
17.5
-1.6
Q4
23.6
4.2
-9.1%
17.9%
-2.7
3.1
-2.4%
-15.2%
13.2%
FY16
84.5
5.0
5.9%
0.9
1.0%
FY15
91.8
7.5
8.1%
2.8
3.0%
8
7
6
5
4
3
2
1
0
EBITDA
5
4
3
2
1
0
-1
-2
Q3
Q1
Q2
Q4
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2015
2016
2015
2016
EBIT
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
Q2
Q3
Q1
Q4
Afarak’s share of joint ventures revenue for the full year
decreased to EUR 5.3 (9.7) million representing a decrease
of 45.4% compared to the equivalent period in 2015.
Sales volumes at the joint venture decreased signifi cantly
following the depletion of open cast mining activity at the
Mecklenburg mine in November 2015. Sales volumes at the
Stellite mine increased primarily due to an increase in the
sales volumes of concentrate material as a result of the
Shaking Tables investment. Share of joint venture EBITDA
for the full year amounted to EUR 1.3 (1.3) million. EBITDA
was negatively affected by an increase in the rehabilitation
provision during the fourth quarter amounting to EUR 1.0
(0.1) million which was caused by a change in legislation.
This negative impact on EBITDA was offset by the recovery
in the chrome ore market in the fourth quarter of 2016, as
well as to a reversal of an asset write-down on the assets
of Stellite mine amounting to EUR 1.1 (0.0) million. Share of
joint venture profi ts amounted to EUR 0.1 (-0.1) million.
26
STRATEGIC REVIEW
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
LOOKING AHEAD
Towards the end of the year, the market for ferrochrome
experienced an upswing. To this end, Afarak started
preparations to convert yet another furnace from
silicomanganese to charge chrome. Opencast mining
Q1
0.8
-0.1
-11.9%
-0.2
Q2
0.9
0.1
5.6%
-0.0
Q3
0.7
-0.1
Q4
2.8
1.4
FY16
FY15
5.3
1.3
9.7
1.3
-9.3%
50.1%
24.4%
13.2%
-0.2
1.3
0.8
-20.6%
-5.3%
-29.6%
45.1%
15.7%
0.3
3.4%
has restarted at Mecklenburg with the first successful
blasts taking place in March. Full operation is set to
start in April and a total of 200,000 tonnes of chrome
ore are expected to be mined. Afarak is also working to
strengthen its in-house ore capabilities thus reducing its
dependence from third parties.
STRATEGIC REVIEW
27
SPECIALITY ALLOYS
SEGMENT OVERVIEW
LOW LOW LOW
FERROCHROME
PRODUCTION PROCESS
EXTRA LOW CARBON
FERROCHROME
PRODUCTION PROCESS
TMS
3rd parties
CrOre
SiCr
EWW
EWW
LLL FeCr
ELC FeCr
Aerospace
Turbines
Automotive
Extraction
Processing plant
End-user
Raw material
Processed material
28
STRATEGIC REVIEW
HIGH CHROME
FERROCHROME
PRODUCTION PROCESS
Lime
HCr FeCr
3rd parties
EWW
Oil & gas
Nuclear
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.
TMS produces two chrome ore types: special grade
chromite concentrates and lumpy chrome ore.
EWW – 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.
STRATEGIC REVIEW
29
2016 IN REVIEW
The Speciality Alloys segment was not immune to the
challenges faced by the industry at large. Sales were hit
particularly hard during the first half of the year due to
falling prices. Management took decisive action in the
third quarter by temporarily stopping production in its
German smelter EWW in a drive towards prudent capital
management, production optimisation and inventory
management. This temporary stoppage created an
opportunity for the successful placing of TMS’ chrome ore
onto the higher priced market during the fourth quarter.
SALES OF
PROCESSED MATERIALS
20,003mt
(27,336mt)
PRODUCTION
79,172mt
(75,386mt)
REVENUE
€68.7mln
(€95.6mln)
EBITDA
€5.4mln
(€12.7mln)
EBIT
€3.1mln
(€10.1mln)
HUMAN RESOURCES
438
(402)
The subdued market conditions led to a significant fall in
the sales volumes of Afarak’s speciality alloys on account
of lower demand as well as due to pricing pressures from
BRICS country producers who destocked their positions.
prices on account of increased pressure by BRICS
producers who reduced their prices to destock their
positions of low carbon ferrochrome.
Despite the temporary closure of EWW, annual production
during 2016 increased by 5.0% to 79,172 (75,386) tonnes.
Speciality Alloys Production (tonnes)
Mining
Processing
The increase is solely derived from higher concentrate
production levels at the Turkish mine of Tavas which
benefited from the development of the new plant during
the previous year. Towards the end of the year, a market
opportunity for TMS’ chrome ore opened up further
driving production. On the other hand, processing levels
decreased significantly at EWW due to the temporary
stoppage during the fourth quarter as part of a wider plan
to optimise production and manage inventory.
Revenue for the full year 2016 was EUR 68.7 (95.6) million,
representing a decrease of 28.1% when compared to
the previous year. The decrease in revenue is mainly
attributable to lower sales volumes of processed material
on the back of weak demand, as well as the subdued
80000
60000
40000
20000
0
30
STRATEGIC REVIEW
2015
2016
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
18.4
2.3
12.3%
1.7
9.2%
Q2
18.4
1.5
8.4%
0.9
Q3
11.4
-0.7
-6.5%
-1.4
4.9%
-12.1%
Q4
20.5
1.8
8.8%
1.4
6.6%
FY16
68.7
5.4
FY15
95.6
12.7
7.8%
13.3%
3.1
10.1
4.4%
10.6%
EBITDA
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Q3
Q1
Q2
Q4
15
12
9
6
3
0
2015
2016
LOOKING AHEAD
Afarak will continue concentrating on its core activity,
ferrochrome specialities. Management is focused on
optimising production and prudent capital management.
The Company is focused on expanding its product
portfolio throughout 2017. Various avenues of production
optimisation, cost reduction and long-term investments
are being investigated at present.
Despite the market pressures, Afarak’s Speciality Alloys
segment still registered a positive EBITDA and EBIT, albeit
lower than the previous year. EBITDA was EUR 5.4 (12.7)
million and EBIT for the year was EUR 3.1 (10.1) million.
EBIT
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
Q3
Q1
Q2
Q4
12
10
8
6
4
2
0
2015
2016
STRATEGIC REVIEW
31
RISK
MANAGEMENT
Afarak’s prudent approach to risk management is a
crucial component of our continued success and is
present in managing all aspects of our performance.
By understanding and managing risk, we provide greater
certainty and confidence for our shareholders, employees,
customers, suppliers and host communities. In fact, we
believe that successful risk management can be a source
of competitive advantage.
Our risks are viewed and managed on a Group-wide
basis. As a truly global operation, manging diversity
in our operations, portfolio of products, geographies,
economies and currencies is a key characteristic of our
risk management approach.
Risk management is one of the key responsibilities of the
Board and its Audit and Health & Safety Committees.
this challenge, the Management and the Board responded
by focusing on prudent working capital management,
including temporarily halting production in Germany.
As part of its risk management mandate, the Audit Committee
embarked on a continued assessment of the Group’s key
performance indicators and fundamentals, including
adequate levels of liquidity, credit risk and management of
any undue currency exposure. A formal hedging policy is in
process of being fi nalised aimed at systematically managing
the company’s natural exposure to fi nancial effects of
fl uctuating currencies in different markets.
The Board has also embarked on prioritising health
and safety matters at its plants and units through a gap
analysis of policies and a number of interventions to
ensure that the goal of ‘Zero Harm’ is adhered to.
2016 DEVELOPMENTS
PRINCIPAL RISKS
The market risk stemming from the significant fall in
commodity prices for most of the year was the key feature
of 2016 . The price declines in ferrochrome have impacted
our marketing and financial performance. In response to
While a number of different risks may have an effect the
results and operations to various degrees,the following
describes the key types of risks faced by Afarak in the
normal course of business.
EXTERNAL RISKS
RISK
Consequences
Controls to mitigate risk
Foreign exchange exposure
• Direct risk – commercial cash fl ows and
Interest rate risks
Volatility of energy costs
currency positions
• Indirect risk – loss of competitiveness
within the industry
Changes in interest rates can
• Infl uence the repayment of loans
• Impact the profi tability of investments
• Alter the fair value of the Group’s assets
May negatively impact Afarak’s current
operations, particularly its processing
plants, which could have a consequent
effect on the Group’s operating and fi nancial
results. It may also impact the plans to
expand its operations and implement its
growth strategy
The Group constantly evaluates the need to
enter into forward contract arrangements
The Group constantly evaluates the need to
enter into forward contract arrangements
The Group constantly evaluates the need to
enter into fi nancial arrangements to miti-
gate such risk
Political and social risks
• Changes in the mining, employment
and fi scal regulatory environment may
materially adversely affect the business
and its fi nancial results
• Operations may be affected to varying
degrees by government regulations
Afarak seeks to maintain good relationships
with stakeholders
32
STRATEGIC REVIEW
Price risks
The Group’s processing operations are
exposed to the availability, quality and price
fl uctuations in raw materials
• The price risks on input materials
and commodities are management 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
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 profi ts
• 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
FINANCIAL RISKS
RISK
Consequences
Controls to mitigate risk
Liquidity risk - whether Afarak
has suffi cient liquidity to service
and fi nance its operations and
pay back loans
Credit risks
Acquisition and organic growth
strategy risk
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
• Afarak’s key customers 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 profi tability could increase the
Group’s credit risk
• There is a risk that the investment will
not perform as expected and the group
will not achieve the desired future
operating cash fl ows and profi table
results from the investment
•There is a risk that the Group might not
be able to fi nd the appropriate site or to
obtain the necessary licences to develop
and operate or to secure the required
fi nancing
• The Group continuously assesses its’
working capital to ensure that it has
suffi cient funds to meet its liabilities
• Prepares and assess forecast reports
• Afarak assesses the likelihood that
a borrower will default on the debt
obligations
• Analyse credit limit
The Group’s policy is to carry out extensive
R&D to mitigate the risk that such
investment will not be successful
OPERATIONAL RISKS
RISK
Consequences
Controls to mitigate risk
Loss of key suppliers
Adverse effect on operations, which
could impact the Group’s operating and
financial results
• Afarak carry out continuous fi nancial
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
STRATEGIC REVIEW
33
Competition & Rivalry
May negatively impact Afarak’s current
operations which could have a consequent
effect on the Group’s operating and fi nancial
results. It may also impact the plans to
expand its operations and implement its
growth strategy
The future success depend on the ability
to attract and retain suitably skilled and
qualifi ed personnel. Afarak regularly re-
assesses its remuneration policies.
Distribution network risk
This may have adverse effect on operations
which could impact the Group’s operating
and fi nancial results
To mitigate this risk Afarak has standard
operating procedures in place for most
foreseeable circumstances
Technology risk
There may be advances in 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 fi nancial results
Afarak regularly assesses the lastest
technological equipment and software
available on the market
Loss of key personnel or the
engagement of inappropriate
personnel
Adverse effect on operations, particularly
its processing plants, which could impact
the Group’s operating and fi nancial results
• Regularly re-assesses its remuneration
policies and packages to attract and retain
suitably skilled and qualifi ed personnel
• The remuneration commitee is focused on
attracting and retaining such talent
COMPLIANCE RISKS
RISK
Legal risks
Consequences
Controls to mitigate risk
Legal disputes may relate to contractual or
other liabilities or environmental or other
regulatory matters
Currently there is no signifi cant legal
case pending and the group policy is to
publish all signifi cant legal cases and their
outcomes
Employment legislation
If not observed may negatively impact
Afarak’s fi nancial 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 fi nancial 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 fi nancial results
Data protection law is closely and regularly
assessed in terms of the Group operations
SUSTAINABILITY RISKS
RISK
Consequences
Controls to mitigate risk
Risk of mining and smelting
accidents (fi re, fl ooding, rock
bursts, weather conditions,
seismic events and other
natural phenomena)
Social risk
This could affect both employees’ and
operations, resulting in suspension of
operations
• “Zero Harm” policy
• Health and safety guidelines, policies and
procedures
• Continuous employee training
Industry or social unrest and labour
actions may materially adversely affect
the business and its fi nancial results by
temporarily closing down operations.
Afarak seeks to resolve the matters with
all stakeholders to reduce the impact on it
operation
Environmental risks
• Direct potential harm to the environment
• Potential post-production rehabilitation
• Environmental risks are managed closely
and regularly assessed’
or landscaping obligations
• Regular assessment of environmental
liabilities
• External experts are appointed to assist
in identifying potential liabilities and
ensuring compliance with environmental
legislation
34
STRATEGIC REVIEW
SUSTAINABILITY
REVIEW
Sustainability is core to
our business strategy
and is integrated into our
decision-making. We put
health and safety fi rst as our
sustainability priority, we
are environmentally
responsible and take
pride in supporting our
host communities.
Injury Rate
4.5
4.0
2015
2016
5
4
3
2
1
0
HEALTH AND SAFETY
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. Afarak has a Board
committee dedicated to health and safety with the aim
of integrating the Group operations to address the
social, environmental, health and safety position of all
stakeholders. While continuing the programme focused
on pro-active safety and environmental measurements
as part of aiming to achieve “Zero Harm”, the members
of HSEC are defining Group standard protocols to ensure
that all the Group activities are constantly managed,
monitored and reported according to Group policies.
In 2016, Afarak focused on improving its reporting
frameworks for health & safety and conducted a gap
analysis of its policies and procedures across its units.
A lost time injury metrics system was conducted in
conformance with internationally recognised standards.
In 2016, the number of injuries fell across the Group and
in fact; the injury rate, which measures the number of
injuries per 100 employees, declined marginally from a
year earlier.
Unfortunately, the year was marred with the Group’s fi rst
fatality which happened in Mogale where a colleague
succumbed to the grievous injuries sustained at the plant.
Afarak Group had to shut-down its operations at the
Mogale Alloys plant after the incident and has implemented
a number of health and safety initiatives at the plant.
Following the incident, management organised counselling
sessions for fellow employees and a memorial service at
the plant and supported the family of the deceased.
During 2016, the Group totalled approximately 1,823,806
working hours during which the Group suffered only 14
accidents that caused loss of time. Lost Time Injury (LTI)
is defined as any work related injury or illness which
prevents that person from doing any work the day after the
accident. The Lost Time Injury Frequency Rate measures
the number of LTI’s recorded per million hours worked. In
2016, the LTIFR edged slightly upwards despite the lower
number of injuries as the number of hours worked by the
Group was less than a year earlier.
STRATEGIC REVIEW
35
MOGALE
A number of safe walkways were installed around the plant.
Various modifi cations were made at tapping pits to enhance
tap-car safety. Investments were undertaken in providing
staff with safety suits and shoes. The fi refi ghting system
was also extended and improved.
SA MINING
The SA Mining division strengthened its health and
safety units by setting up a dedicated role within the
organisational set-up. Also, in Ilitha 3,000 fatality free
days were celebrated.
TMS
Launch of a health & safety training programme and
installation of a new underground electronic follow-up system.
EWW
Together with local authorities, a new fire rescue plan
and regulation was implemented in the plant. No injuries
were reported in 2016.
LTIFR
19.4
16.6
2015
2016
20
19
18
17
16
15
Afarak is focused on continuing to invest in its health
and safety efforts and commitment. The below provide
a summary of some of the most salient health and safety
initiatives undertook by the Group.
ENVIRONMENT
chemical reagents in its production process. In addition, at
Tavas operation the Group conducted a research program
with an aim to recycle into the production unit the fi nes
resulting from past years’ operation thus resulting in a
substantial reduction of the fi nes stock pile as well as in a
reduction of the cost of production.
In South Africa, the Group has a number of initiatives in
place to reduce its impact on the environment. Water
conservation remains an important element in our strategy.
Also, the use of shaking tables to reduce stock piles is an
important initiative that the Company is championing.
At EWW the Group is investing substantial amounts into R&D
to reduce the amount of waste from its production processes
and the aim is to achieve 100% recycling of all materials.
Both of Afarak’s processing plants, EWW and Mogale
Alloy, hold a ISO 9001 certification for adopting the
very best in quality systems and emphasises our
commitment at Group level to continuously improve and
build excellence into every process of its integrated
management systems.
We seek to demonstrate our environmental responsibility
by minimising our environmental impacts and leaving
lasting benefi ts. Our approach to environment is also
integrated in our risk management processes and
corporate planning.
Afarak respects the environment in which it operates
and aims to manage its operations in a sustainable way,
minimising its footprint as much as possible to preserve the
environment. As an example, in Turkey, TMS does not use
The sustainability of our operations, especially in South
Africa, relies in our ability to obtain an appropriate quality
and quantity of water, use it responsibly and manage it
appropriately. We recognise our role in promoting water
sustainability and to this end we have continued to invest in
water harvesting and recycling initiatives throughout 2016.
The below are some of the main environmental initiatives
undertaken by the Group in 2016.
36
STRATEGIC REVIEW
MOGALE
The focus for 2016 was water management. The plant
managed to obtain its Water Use Licence following a
number of investments and initiatives. All process water
streams have been successfully linked to the water dam
on-site. The Mogale plant is currently achieving a 20%
reduction in municipal water consumption. It is also
recycling process water. In addition, dust suppressors were
also installed to minimise the environmental impact of our
operations.
TMS
A press fi lter was installed at Tavas which will contribute
to the reduction of the environmental impact of tailings.
It also reduces the water content of such tailings and will
contribute to responsible water consumption.
SA MINING
The shaking table project was commissioned and started
producing with the ultimate result of recycling material
and reducing the amount of on-site stock piles.
EWW
A de-dusting system was commissioned and installed in
the shop floor which will result in lower dust emissions
thus further reducing the environmental impact of our
operations.
STRATEGIC REVIEW
37
COMMUNITY INVESTMENT
that this is a fundamental element in our business strategy.
We strive to be a valued partner in our host communities.
Through our interactions, we seek to foster a long-term and
meaningful relationship that respects local cultures and
creates lasting benefi ts for the community at large. We believe
Primarily in South Africa, we continue to invest in the
broader community by supporting various local charities and
educational projects. Below is a summary of key initiatives
supported by Afarak Group throughout 2016.
2,000
Children fed
600,000
Meals & Food Packs Distributed
UMEPHI JADE HOUSE, MOGALE CITY
Afarak is supporting 7 orphans who are currently residing
at Jade House. The House was built as a place of safety for
orphans and offers foster care to these children.
PATRICK MASEGO CITY, MOGALE CITY
Afarak has a number of projects at Rietvallei particularly
directed towards the Patrick Masego 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 as part of the feeding scheme that the school operates.
The Patrick Masego school provides a daily meal to close to
2,000 children including weekends and holiday periods.
POLEKEGO CENTRE, KRUGERSDORP
Afarak supports this Centre in Krugersdorp that provides
shelter for abused women and children. The Centre can hold
up to 40 mothers.
FEEDING SCHEMES
Afarak supports 5 day-care centres in the Rietvallei area
and provides daily meals to 155 children. The day-care
centres are the following; Thembelihle, Ntlanta, Wise Girl,
Little Achievers and Busy Bee. Similar schemes are also
run in conjunction with Magda Fourie at the Paardekraal and
Millenium Primary schools.
CK TRUST
Afarak supports the CK Trust by paying a non-government
teacher to provide support to destitute children at the Patrick
Mashego Primary school. The teacher is specialized in
supporting the emotional well-being of children who come
from broken families.
LOOKING AHEAD
Afarak will remain committed to upholding ad
implementing the value of sustainability in its operations.
Health and safety remains a key priority for the Board and
a review of safety policies & procedures is underway at
Mogale with a view of improving the safety culture at the
plant. Environmental concerns and investment are
important to Afarak and initiatives will continue throughout
2017 to further minimise the environmental impact of
its operations. Finally, our efforts to continue investing
in our host communities will continue as we are already
committed to continue supporting various feeding schemes
and other investments that are making a difference in
people’s lives.
38
STRATEGIC REVIEW
RESOURCE
STATEMENT
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
732
24.10
1.14 LG6-MG4
732
24.10
Stellite: Underground
Stellite: Underground
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
29
96
-
-
70
30.39
30.64
1.20 MG4
1.18 MG3
MG2
MG1
33.68
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
1.14
1.24
1.19
1.28
1.41
1.22
1.19
1.32
1.40
1.46
Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
3,416
41.85
1.57 LG6+6A
4,188
43.36
1.59
Mecklenburg: Open Pit
Mecklenburg: Open Pit
LG6+6A
354
40.76
1.58 LG6+6A
320
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
1.82
1.55
1.53
1.29
1.12
1.59
1.06
Total Proved
9,524
36.62
1.42
Measured
24,557
35.62
1.35
PROBABLE:
Stellite: Underground
MG4
MG3
MG1
LG6
INDICATED:
Stellite: Underground
MG4
MG3
MG1
1,241
34.26
1.35 LG6
Stellite: Open Pit
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
568
254
-
-
165
30.75
30.82
1.21 MG4
1.19 MG3
MG2
MG1
33.88
1.37 LG6+6A
2
RESOURCE STATEMENT
1,490
1,040
800
1,600
561
990
320
260
280
33.80
31.88
36.50
37.50
32.35
31.68
37.30
38.80
38.54
1.25
1.20
1.30
1.41
1.23
1.19
1.31
1.41
1.46
Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
2,447
41.83
1.57 LG6+6A
3,006
43.37
1.59
Mecklenburg: Open Pit
LG6+6A
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
-
40
3
37
16
9
Mecklenburg: Open Pit
LG6+6A
Vlakpoort: Open Pit
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
0
53
10
64
75
24
793
421
41.57
39.92
33.95
29.92
27.61
33.92
19.83
1.86
1.55
1.58
1.35
1.25
1.58
1.06
Total Proved
4,780
37.50
1.44 Total Indicated
11,787
36.34
1.38
Proved &
Probable
Reserves
14,304
36.91
1.43
Measured
& Indicated
Resources
INFERRED
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
36,344
35.86
1.36
1,480
790
210
80
40
33.18
32.64
37.10
38.90
37.82
1.24
1.26
1.32
1.41
1.44
Mecklenburg: Underground
LG6+6A
1,142
43.41
1.59
Mecklenburg: Open Pit
LG6+6A
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-UG2
Vlakpoort: Underground
LG6
UG2
Inferred
Resources
41
1
119
1,321
115
41.55
33.49
28.61
33.67
20.27
1.79
1.59
1.30
20.27
1.08
5,339
35.37
1.41
RESOURCE STATEMENT
3
Total Reserves
14,304
36.91
1.43
Total
Resources
(Excl
Exploration
Results2)
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)
41,683
35.79
1.36
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
1,947
33.58
43,630
35.69
1.70
1.75
2.01
1.60
2.09
1.21
1.23
1.56
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 insuffi cient exploration to defi ne 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:
Sifi so Siwela (MSA)
Mike Hall (MSA)
Andrew Scogings (Independent)
Hendrik Pretorius (Shango)
Stefanie Weise (Shango)
Position:
Affi liations:
Exploration Project Manager
Pr.Sci.Nat, MGSSA
Mineral Resources Consultant
Pr.Sci.Nat, MGSSA, MAusIMM
Geological Consultant
Geological Consultant
Geological Consultant
MAusIMM, MAIG
Pr.Sci.Nat, MGSSA
MGSSA
The combined Stellite, Mecklenburg and Vlakpoort Measured and Indicated Resource categories declared as at 31 December 2016, decreased
from that declared in December 2015 by 0.2 million tonnes mainly due to depletion at Stellite (rounded up to nearest 0.1 million).
The combined total Stellite, Mecklenburg and Vlakpoort Mineral Resources declared as at 31 December 2016, decreased from that declared in
December 2015, by 0.183 million tonnes but the grade and the Cr to Fe ratio remained the same.
The Mineral Resources for Stellite declared as at 31 December 2015, decreased by 0.198 million tonnes from that declared in December 2015, mainly
due to depletion in the MG4 open pit. The Mineral Resources were positively impacted by the addition of tailings material of 0.049 million tonnes.
The Mineral Resources for Mecklenburg and Vlakpoort declared as at 31 December 2016 remained the same as those declared in December 2015
because no mining was conducted during 2016.
The combined Stellite, Mecklenburg and Vlakpoort Mineral Reserves¹ declared as at 31 December 2016, increased from that declared in
December 2015, by 0.896 million tonnes mainly due to the increase in the highwall in the MG4 open pit at Stellite from 20 to 40m and in the LG6
open pit at Mecklenburg from 40 to 65m. The Cr2O3 grade increased by 0.13% to 36.91% Cr2O3 and the Cr to Fe ratio remained at 1.43.
4
RESOURCE STATEMENT
Mineral Resource and Mineral Reserve¹ Statement for Chromite for the Afarak Group in Southern-Africa as at 31 December
2016.
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
Vlakpoort: Open Pit
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-MR
LG1-3
LG5
LG6
MG1-4
159
1.40
7,158 UG1-MR
Vlakpoort: Underground
Vlakpoort: Underground
LG6
UG2
MR
LG6
UG2
MR
Total
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
1.40
7,158
Measured
13,000
1.26
525,521
PROBABLE:
Stellite: Underground
MG4
MG3
MG1
LG6
INDICATED:
Stellite: Underground
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
MG1-4
UG1-MR
LG1-3
LG5
LG6
MG1-4
9
0.19
55 UG1-UG2
3,020
2,141
1,810
3,220
561
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
21,286
35,277
13,878
3,093
1,080
375
212
823
2,050
239
RESOURCE STATEMENT
5
Vlakpoort: Underground
Vlakpoort: Underground
LG6
UG2
MR
LG6
UG2
MR
793
421
208
0.43
4.45
2.96
10,964
60,240
19,797
Total Proved
9
0.19
55 Total Indicated
13,550
1.19
520,241
Proved &
Probable
Reserves
168
1.34
7,213
Measured
& Indicated
Resources
INFERRED
Stellite: Tailings
26,550
1.22
1,045,762
LG6-MG4
732
1.37
32,246
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-MR
Vlakpoort: Underground
LG6
UG2
MR
Inferred
Resources
Total
Resources
(Excl
Exploration
Results2)
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
-
7,749
1.04
259,833
34,299
1.18
1,305,595
Exploration Results2
Vlakpoort: Underground
LG6
UG2
MR
1,243
0.41
16,387
-
-
Total Reserves
168
1.34
7,213
6
RESOURCE STATEMENT
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
36,246
1.15
1,335,533
• 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 insuffi cient exploration to defi ne 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 2016, 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 2016 remained the same as that
declared in December 2015 because no mining was conducted during 2016.
The combined Stellite and Vlakpoort Mineral Resources declared as at 31 December 2016, increased from that declared
in December 2015, by 0.027 million tonnes, but the PGM grade remained the same. The depletion in the MG4 open pit at
Stellite was positively impacted by the addition of tailings material.
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 Scientifi c 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 suffi cient 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 defi ned 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.
H.B. Swart
Pr.Sci.Nat and FGSSA
Principal Geologist – Shango Solutions
RESOURCE STATEMENT
7
GOVERNANCE
REVIEW
CHAIRMAN’S
LETTER
IVAN JAKOVCIC
Chairman
2
GOVERNANCE REVIEW
Dear Shareholders,
2016 was a challenging year for companies operating in
the ferrochrome sector, as prices continued to decline for
most of the year. It was only towards the very end of the
year, particularly in December, that a market turn-around
was registered. Despite these adverse market conditions,
Afarak managed to have a positive EBITDA and to further
reduce its debt.
As the scale of the challenges became clearer during the year,
your Board acted decisively in a timely and effective manner.
Afarak takes a disciplined approach towards market
fundamentals. This year, your Board has been involved
in making a number of difficult decisions, including the
temporary halting of production at our EWW plant in
Germany. These decisions have not been made lightly,
however they proved pivotal. Following the market’s
upswing towards the fourth quarter, the Company
managed to close the year with a stronger balance sheet.
Afarak’s unique position as a vertically-integrated
producer of speciality alloys; acting as a miner, producer
and marketer of commodities, enables it to extract value
at every stage of the commodity chain. As a result, your
Company is better positioned than many to withstand the
downward pressures and the number of firms that went
into business rescue in South Africa is a testimony to this.
On behalf of the Board, I would like to thank all the local
teams that have worked hard throughout the year. Their
effort and dedication supported the Board throughout
these challenging times.
The Board has embarked on prioritising health and safety
matters. We are continuing our efforts to strengthen our
safety culture at all our operations and I am confident that
our ambition to achieve Zero Harm is achievable.
Further on in the report, we have set out the main
activities of the Board and its Committees during the year.
I would like to highlight in particular:
* the work of the Audit Committee, particularly on
currency exposure and on improving financial reporting at
Group level;
In line with the Group’s policy, distributions to
shareholders will be reviewed depending on the results
of the first half of 2017. 2016 was a positive year for the
Afarak share in Helsinki. Trading increased and the
closing share price at end 2016 was close to double the
price at end-2015. Shareholders experienced a 94%
increase in the value of their shares throughout the year.
* the work with executive management and subsidiaries
concerning the Group’s ongoing strategy and balance
sheet strengthening;
* the focus on health & safety by the Board.
Afarak Group follows the Finnish Corporate Governance
Code. As a Board, we are committed to our obligations
as a publicly listed company and management is focused
on strengthening the company’s structure. Throughout
2016, we have enhanced our communication efforts as a
Group and have published various releases on our ongoing
projects and initiatives. Last year’s AGM and Question and
Answer session with investors was well received and will
be replicated this year. You may have seen some negative
comments and even untruths that were recently spread
about the Company in the Finnish press. Afarak remains
an open company that adheres to the highest standards
of ethics, professionalism and corporate governance
as required by listing authorities. We are proud of our
multi-national and multi-cultural team. We will continue
working together as a team with deep mutual respect
and will not be perturbed by any unjust and unfounded
comments.
As a business, we are committed to delivering
shareholder value. Our distribution policy remains
unchanged from last year and that includes prudence in
deciding on our distributions, based on budgets and cash
flows. Following the 2016 loss and in the light of lower
cash reserves and an uncertain market, in line with our
policy, a decision was made not to propose a distribution.
We recognise that we will also be able to successfully
deliver this commitment through creating long-term
sustainable benefits for all our stakeholders. To this end,
your Board is proud of its continued efforts to support
host communities in South Africa through numerous
social investments and initiatives, our continuous efforts
to maintain highest possible safety standards, our respect
for the environment and continuous investment in ever
cleaner production tools and methods.
In conclusion, our response to the considerable
challenges that the Group faces over the past year
reflects the strong leadership of the Group’s management
team and the continued effort of all our colleagues in
our operations, who are all working together to ensure
the ongoing success of your Company. Following the
resignation of Dr Alistair Ruiters in December, Mr Guy
Konsbruck became Chief Executive Officer in January.
The role of Chief Financial Officer was also created and
Predrag Kovacevic was appointed to serve this function.
We remain focused and committed on operating efficient,
low-cost and safe operations which give us confidence
that the Company’s medium and long-term fundamentals
remain strong.
I, and my fellow Directors, thank you for your
continued suppor t.
Ivan Jakovčić
Chairman
GOVERNANCE REVIEW
3
INFORMATION PRESENTED
BY REFERENCE
The Group’s key financial figures, related party
disclosures, information on share capital and option
rights are presented in the notes to the consolidated
financial statements. The share ownership of the parent
company’s Board members and Chief Executive Officer is
presented in the notes to the parent company’s financial
statements.
The Corporate Governance Statement and the
Remuneration Report are presented as separate reports
in this Annual Report.
For the purposes of United Kingdom Listing Authority listing
rules (“LR”) 9.8.4C R, the information required to be disclosed
by LR 9.8.4 R can be found in the following locations:
SECTOR
(1)
2
4
5
6
7
8
9
10
11
12
13
14
TOPIC
LOCATION
Interest capitalised
1.7. Notes to the statement of fi nancial position,
10. Property, plant and equipment.
Publication of unaudited fi nancial information
Not applicable
Details of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Item (7) in relation to major subsidiary
undertakings
Parent participation in a placing by a listed
subsidiary
1.7. Notes to the statement of fi nancial position,
19. Share-based payments
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Contracts of signifi cance
1.7. Notes to the statement of fi nancial position,
1.8.2 Related party transactions
Provision of services by a controlling
shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
Agreements with controlling shareholders
Not applicable
Not applicable
Not applicable
Not applicable
All the information cross-referenced above is hereby incorporated by reference into this Board of Directors report.
4
GOVERNANCE REVIEW
GOVERNANCE REVIEW
5
OUR PEOPLE:
THE BOARD OF DIRECTORS
CHAIRMAN
A
F
A
R
A
K
G
R
O
U
P
Ivan Jakovčić
BA (Foreign Trade Faculty) Born 1950
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. Mr Jakovčić was appointed to the Board of Afarak on 11 February 2013
and appointed Chairman on 11 May 2015.
EXECUTIVE DIRECTOR
Dr Alistair Ruiters
BA Hons (Economic History), Ph.D. (Sociology) Born 1964
Dr Ruiters served as a public servant in the South African Democratic Government
between 1994 and 2005. He has held 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 company and also served on numerous Boards. He joined Afarak in October 2009 as
a consultant and in 2010 was appointed to head the South African operations. He served
as the Group’s Chief Executive Offi cer between May 2015 and December 2016. He holds
degrees from the University of Cape Town and a Doctorate from Oxford University.
DEPENDENT NON-EXECUTIVE DIRECTOR
Dr Jelena Manojlovic
Ph.D. (Medicine), Clin. D. (Psychology), MA (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. She is also a member of the Remuneration
and Nomination Committee. She is an established university lecturer and organizational
consultant and has 35 years’ experience in the human resources fi eld 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.
6
GOVERNANCE REVIEW
INDEPENDENT NON-EXECUTIVE DIRECTORS
Barry Rourke
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 & Gas and Mining sectors. He currently holds a number of non-
executive directorships and positions on the audit committees in other listed companies.
Mr Markku Kankaala
B.Sc. (Eng.) 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 a Branch
Director in Ruukki Group Plc (currently, Afarak Group Plc) until 31 August 2006. Previously
he worked for 10 years as an entrepreneur in the wood products industry and before that
in different positions in Ahlstrom and Rautaruukki. Markku Kankaala resigned from the
Board of Afarak on 17 March 2017.
Mr Milan Djakov
M.Sc (Global Banking & Finance); BA (Hons) International Business
Milan Djakov is a graduate in banking and fi nance. Following his studies, Milan gained
considerable experience working in the public sector in Serbia particularly with the Ministry
of Agriculture, Forestry and Water Management. Following his experience in the public-
sector Milan moved to the private sector and joined Afarak Group. He has been actively
involved in the running of the Company and worked on a number of diverse projects.
GOVERNANCE REVIEW
7
OUR PEOPLE:
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.
Dr Alistair Ruiters
CEO till 15 January 2017
BA Hons (Economic History), Ph.D. (Sociology)
Guy Konsbruck
Chief Executive Offi cerBA (Hons); MBA (SHU Fairfi eld); MA (Strasbourg);
Born 1965
Guy Konsbruck was appointed Chief Executive Offi cer of Afarak on 15 January 2017.
He has previously served as an Executive Vice-President of MFC Industrial since 2014.
Before that he served as CEO of FESIL’s global sales companies and was also the co-
founder of Luxalloys.
Predrag Kovacevic
Chief Financial Offi cer
BA (Hons), MA (Business Administration & Economics) Born 1974
Predrag Kovacevic is a corporate fi nance expert with 17 years of broad international
experience. He joined Afarak in the beginning of 2016 with a focus on fi nance and
business development and was appointed the CFO in December 2016. Prior to joining
Afarak, Mr Kovacevic held a number of senior advisory and leadership positions in both
government and private sector, including acting as a Special Advisor to Ministers of
Finance and Economy in Serbia and a Director of Financial Advisory Services at Deloitte
Central Europe. He lived for over 10 years in South Africa completing his studies and
worked as the Vice President – Head of Banking in an international credit rating agency.
8
GOVERNANCE REVIEW
Dr Danko Koncar
Business Development Director
Diploma (Engineering), M.Sc. (Engineering), Ph.D. (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 20 years in
ferrochrome processing with six 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.
Michael Lillja
Executive Director, Head of Marketing and Sales
M.Sc (Economics) Born 1962
Michael Lillja is currently the Head of Marketing of Afarak Trading Limited, the
marketing arm of Afarak. Prior to Afarak Trading, Mr. Lillja has served for decades
in several different positions in the mining and metals industry, the energy sector,
and in international trade for companies such as, Alloy 2000 SA/ENRC-Kazakhstan,
International Ferro Metals Ltd, and SamChrome Ltd/Samancor Cr.
GOVERNANCE REVIEW
9
OUR PEOPLE:
THE CORPORATE MANAGEMENT TEAM
The Company’s Corporate Management includes, in
addition to the Executive Management Team, the following
personnel responsible for corporate functions:
Willem Smith
Managing Director, Afarak Mogale
B. Eng Metallurgy; MA Business Leadership Born 1976
Willem Smith is a metallurgist by profession and joined Afarak Mogale in 2006. He
was appointed General Manager of Afarak Mogale 2012. Prior to joining Afarak Group,
Willem gained extensive experience in the steel and ferroalloys sector working at
ArcelorMittal and Samancor Chrome.
Seyda Caglayan
Managing Director, Afarak TMS
MSc Mining Engineering Born 1958
Seyda Caglayan joined Afarak TMS in December 2007. Prior to joining Afarak, she held
a number of senior management and directorate positions in the mining and chrome
industry including the Istanbul Mineral Exporters’ Association and the International
Chromium Development Association (ICDA). Seyda currently serves as Member of
the Board of Turkish Miners Association, Member of Chrome Committee of ICDA and
Member of the Board of Trustees of the Turkish Mining Development Foundation.
Christoph Schneider
Managing Director, Afarak EWW
MA Economics Born 1964
Christoph Schneider is currently the Managing Director of Afarak EWW. He joined EWW
in 1992 as Sales Manager. Over the years, Christoph rose the ranks of EWW and was
appointed as Managing Director in December 2003.
Dr Kurt Maske
Acting Managing Director, Afarak SA Mining
PhD (Minerals Engineering) Born 1955
Kurt Maske is the acting General Manager for the SA Mining Operations and manages
the South African marketing and logistics processes. Prior to joining Afarak in 2011,
Kurt was with BHP Billiton for nearly 25 years where he started his career as a Process
Engineer responsible for developing the DC arc furnace technology for FeCr production
at what is now Mogale Alloys. After serving as Works Manager he was transferred to
Samancor’s marketing team to globally manage the sale of the group’s low and medium
carbon ferrochrome products.
10
GOVERNANCE REVIEW
Melvin Grima
Finance Director
ACCA, 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 fi nance 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.
Jean Paul Fabri
Investor Relations & Communications Manager
BA (Hons) Economics; MA (Economics) Born 1983
Jean Paul Fabri joined Afarak in 2016 as Investor Relations and Communications
Manager. Prior to joining Afarak, he worked as a speechwriter & press secretary to
the former Prime Minister of Malta and Governor of the Central Bank. He also served
as a Technical Consultant to The Commonwealth Secretariat and is a visiting assistant
lecturer at the University of Malta.
GOVERNANCE REVIEW
11
GOVERNANCE
STRUCTURE
The management and control of Afarak Group Plc
and its subsidiaries (“Group”) is divided between the
shareholders, the Board of Directors (“Board”), supported
by the Board’s audit and risk management committee,
nomination and remuneration committee and the Chief
Executive Officer.
M
M
A
C
E
C H I E F E X E C UTIVE OFFICER (CEO)
A
ATE MANAGE M E N T T E
TIVE MANAGE M E N T T E
afety & Sustainable
U
C
E
X
E
nt Com
mittee
R
O
P
R
O
C
e
m
p
lo
e
v
e
D
, S
h
t
l
a
e
H
A udit & Risk
M a n a g ement Committee
F D I R E C T O RS & BOARD CO
M
M
IT
T
E
E
S
R
e
m
N
u
o
n
e
r
m
i
n
D O
BO A R
SHAREHOLDERS
(AGM)
O
R
P
O
R
X
E
C
U
A
T
E
T
I
V
M
A
E
N
M
A
A
G
N
E
A
M
G
E
M
E
E
N
T
N
T
T
E
T
A
M
E
A
M
a
t
i
o
n
a
t
i
o
n
C
o
&
m
m
i
t
t
e
e
12
GOVERNANCE REVIEW
A
ATE MANAGE M E N T T E
TIVE MANAGE M E N T T E
R
O
P
R
O
C
U
C
E
X
E
M
M
A
mittee
afety & Sustainable
nt Com
e
m
, S
h
t
l
a
e
H
p
lo
e
v
e
D
D O
BO A R
C
E
C H I E F E X E C UTIVE OFFICER (CEO)
A udit & Risk
M a n a g ement Committee
F D I R E C T O RS & BOARD CO
M
M
IT
T
E
E
S
SHAREHOLDERS
(AGM)
O
R
P
O
R
X
E
C
U
A
T
E
T
I
V
M
A
E
N
M
A
A
G
N
E
A
M
G
E
M
E
E
N
T
N
T
T
E
T
A
M
E
A
M
R
e
m
N
u
o
n
e
r
m
i
n
a
t
i
o
n
a
t
i
o
n
C
o
&
m
m
i
t
t
e
e
GOVERNANCE REVIEW
13
GENERAL MEETING
capital redemption;
Afarak’s ultimate decision-making body is the shareholders’
General Meeting which convenes once a year and is held
within six months of the end of the fi nancial year. Pursuant to
the Company’s Articles of Association, the convening notice
for a General Meeting will be published on the Group’s website
and in a stock exchange release no earlier than two months,
and no later than 21 days, prior to the General Meeting or nine
days prior to the record date of the General Meeting.
The notice of a General Meeting, the proposals for
resolutions, and the documents to be submitted to the
General Meeting, such as the fi nancial statements, the
annual report and the auditor’s report, will be available on
the Group’s website and at the Group’s offi ce in Helsinki
at least three weeks before the meeting. The resolutions
passed by the General Meeting will be published as a stock
exchange release without undue delay and will be available
on the Group’s website, along with the minutes of the
General Meeting, no later than two weeks after the meeting.
Shareholders have the right to add items falling within
the scope of the Annual General Meeting to the meeting’s
agenda. The request must be submitted to the Board of
Directors in advance so that the item can be included to
the notice. Afarak publishes the details of how and when to
submit the requests to the Board on its website.
The Company uses the Annual General Meeting to develop
an understanding of the views of its shareholders about the
Company.
An Extraordinary General Meeting can be convened if the
Board of Directors deems it necessary or if the auditor
of the Company or the shareholders owning at least 10
percent of the shares demand one in writing in order to deal
with a specifi c matter, or if it is required by law or other
regulations.
The most signifi cant items on the Annual General Meeting’s
agenda include:
• Approving the year’s fi nancial statements;
• Confirming the financial year’s profit or loss, the
dividend distribution or other distribution, such as
• Determining the number of directors on the 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 amending the Articles of Association or deciding
on a capital increase) require a resolution by the
shareholders in a General Meeting.
General Meetings are organised in a manner that permits
shareholders to exercise their ownership rights effectively.
A shareholder wishing to exercise his or her ownership
rights shall register for a General Meeting in the manner
stated in the notice of meeting. All the shareholders who
have been registered in the Company’s shareholder register,
maintained 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 the
meeting. Holders of nominee registered shares may be
registered temporarily on the shareholder register, and
they are advised to request further instructions from their
custodian bank regarding the temporary registration and
issuing of a proxy document.
Resolutions by a General Meeting usually require a simple
majority. Certain resolutions, however, such as amending
the Articles of Association and directed share issues require
a qualifi ed majority represented by shares, and the votes
conferred by the shares, at the General Meeting.
The majority of the Board members, if not all, attend General
Meetings together with the CEO and the auditor. In addition,
if a person is proposed for election as a director for the fi rst
time, he or she will also attend the General Meeting.
GENERAL MEETINGS IN 2016
The Annual General Meeting was held on 11 May 2016 at
Restaurant Palace in Helsinki, Finland.
All the resolutions of the above-mentioned General Meeting
can be found at:
http://www.afarak.com/en/investors/shareholder-
meetings/2016/
14
GOVERNANCE REVIEW
THE BOARD OF
DIRECTORS
TASKS AND RESPONSIBILITIES
The Board of Directors is composed of between three and
nine members who are elected by 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 service contract with the Company and none of the
directors has waived or agreed to waive any emoluments
from the Company or any subsidiary undertaking.
The duties of a Board member are specifi ed in the Finnish
Companies Act. The Afarak Board also has a written charter
governing its functions.
The Board of Directors oversees the administration of
the Group and is responsible for the internal control of its
assets, fi nances and accounts on behalf of shareholders. Its
specifi c responsibilities include:
• Formulating the Group’s business strategy and
overseeing its implementation;
• Deciding on the Group’s capital structure;
• Making decisions on signifi cant investments,
divestments, credits and collaterals, guarantees and
other commitments;
• Approving the quarterly interim reports, the Board of
Directors Report, the annual fi nancial results 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 operations are:
•
It convenes on prearranged dates, with a view to meeting
approximately once a month, or more often if necessary.
Meetings can be arranged as conference calls;
• Matters to be dealt with by the Board are presented
by the Chairman, the CEO or another person who has
participated directly in assessing 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.
•
•
•
The Board oversees all communications and other
requirements stipulated by the rules of the relevant
stock exchanges and fi nancial supervision authorities
and conducts regular self-assessments to ensure these
requirements continue to be fulfi lled. The Group has
established specifi c targets for the development of its
administrative functions and processes, and continues to
implement these.
The Board also evaluates and decides on acquisitions and
disposals of subsidiaries and associated companies. To
ensure the effi ciency of board and committee work, the
Board regularly evaluates the operations and working
methods of each committee and the Board. The evaluation
is conducted as internal self-evaluation. The Board is also
regularly in contact with the major shareholders of the
Company to ensure that the Board is aware of their views.
The 2016 Annual General Meeting elected seven members
to Dr Jelena Manojlovic, Mr Barry Rourke, Mr Markku
Kankaala, Mr Ivan Jakovcic and Dr Alistair Ruiters were
re-elected and Mr Keith Scott and Mr Milan Djakov were
newly elected. Mr Keith Scott resigned from the Board in
December 2016. Mr Markku Kankaala resigned from the
Board in March 2017.
DIRECTOR SKILLS, EXPERIENCE AND ATTRIBUTES
The Board considers that a diversity of skills, backgrounds,
knowledge, experience, geographic location, nationalities
and gender is required to effectively govern the business.
The Board and its Nomination and Remuneration Committee
work to ensure that the Board continues to have the right
balance of skills, experience, independence and Group
knowledge necessary to discharge its responsibilities in
accordance with the highest standards of governance.
To govern the Group effectively, Non-Executive Directors
must have a clear understanding of the Group’s overall
strategy, together with knowledge about the Group and the
industries in which it operates. Non-Executive Directors
must be suffi ciently familiar with the Group’s core business
to be effective contributors to the development of strategy
and to monitor performance.
The Board requires that Directors commit to the collective
decision-making processes of the Board. Individual
Directors are required to debate issues openly and
constructively, and are free to question or challenge the
opinions of others. Each Director must ensure that no
decision or action is taken that places his or her interests in
front of the interests of the Company.
GOVERNANCE REVIEW
15
CURRENT BOARD PROFILE
The Board considers that each of the Non-Executive
Directors has the following attributes:
time to undertake the responsibilities of the role;
• unquestioned honesty and integrity;
• a willingness to understand and commit to the highest
standards of governance;
• knowledge of commodity markets and mining
• an ability to think strategically
• a preparedness to question, challenge and critique
• experience of managing in the context of uncertainty,
and an
• understanding of the risk environment of the Group,
including the potential for risk to impact our health and
safety, environment, community, reputation, regulatory,
market and fi nancial performance;
• knowledge of world capital markets.
SENIOR INDEPENDENT DIRECTOR
During the year under review, Barry Rourke held the
role of Senior Independent Director of Afarak Group in
accordance with the UK Corporate Governance Code. He
acted independently in the best interests of the Group. His
expertise and broad international experience materially
enhanced the skills and experience profi le of the Board. He
is available to shareholders who have concerns that cannot
be addressed through the Chairman, CEO or CFO. As Senior
Independent Director, he also provides a sounding board
for the Chairman and serves as an intermediary for other
Directors if necessary.
BOARD INDEPENDENCE
The Finnish Corporate Governance Code requires that the
majority of the directors are independent of the Company.
In addition, at least two of the directors representing
this majority must be independent of the signifi cant
shareholders of the Company. The Company believes that
Mr Barry Rourke, Mr Ivan Jakovcic, Mr Milan Djakov and
Mr Markku Kankaala are independent of the Company and
signifi cant shareholders whilst Dr Jelena Manojlovic is
dependent of the Company.
Current
Position
Appointed to the
Board
Status
Audit & Risk
Management
Committee
Nomination &
Remuneration
Committee
Health
& Safety
Committee
Ivan Jakovcic
Chairman
11 February 2013
Independent
Member
Member
11 July 2008
Dependent
Member
Chair
8 May 2015
Independent
Chair
-
Member
-
-
N/A
N/A
-
-
N/A
N/A
-
-
N/A
N/A
Member
Chair
Jelena Manojlovic
Barry Rourke
Markku Kankaala
Keith Scott
Milan Djakov
NED
NED
N/A
N/A
NED
30 June 2003 to 17
March 2017
11 May 2016 to 08
December 2016
Independent
Independent
11 May 2016
Independent
Alistair Ruiters
Executive
08 May 2015
Independent
16
GOVERNANCE REVIEW
THE BOARD
IN 2016
The new Board of Directors made it a priority to review
various elements relating to the operation and corporate
governance of Afarak. Highlights of the main discussions and
decisions are presented below. A strategic workshop was
held by the Board soon after election and various elements
relating to Afarak’s core business were reviewed.
well as reporting frameworks. Through various initiatives,
the Company is today leaner and more able to respond
in a timely manner to changing market circumstances.
The Board supported Mogale in becoming a swing-plant
and during the year, the plant embarked on a process of
switching its silicomanganese furnaces to charge chrome.
CORPORATE STRUCTURE & GOVERNANCE
The Board focused on implanting the provisions under the
Market Abuse Directives in 2016. It continued reviewing
corporate structures and streamlining management and
information fl ows within the organisation. Work has also
commenced on a review of the Company’s IT systems.
The Board also supported the strengthening of internal
processes and procedures especially those relating to health
& safety as well as the annual budget process.
RISK MANAGEMENT
Given the market’s volatility, the Board focused on main
factors that constituted risk to the company. Various
measures mitigating such risks were implemented and
a detailed review of currency exposures and risk was
undertaken.
HEALTH & SAFETY
The Board highlighted health & safety as a key priority.
An in-depth review and gap analysis of all health & safety
policies and procedures was initiated. The Board is working
closely with the respective units to strengthen the health &
safety culture within the Company. The Board is committed
to continue investing in training, equipment and reporting to
ensure that its policy of ‘Zero Harm’ is practiced throughout
the Company.
REVIEW OF POLICIES & PROCEDURES
Throughout the year, the Board continued with its in-
depth review of the Company’s policies & procedures. The
Board has taken a very holistic approach and in line with
its risk management efforts, it is currently drawing up a
set of policies & procedures that will mitigate some of the
largest risk factors that the Company faces. A manual for
employees is also being drawn up as part of this initiative.
COMPANY PERFORMANCE
A total of 11 meetings of the Board were held during the
reporting period and the attendance of the directors is
tabled below:
Meetings attended
Ivan Jakovcic
Jelena Manojlovic
Barry Rourke
Markku Kankaala
Alistair Ruiters
Milan Djakov
Keith Scott
Alfredo Parodi
Michael Lillja
10/11
11/11
11/11
11/11
11/11
7/7
4/6
4/4
4/4
A total of 11 meetings were held during the reporting period.
The differences in the meetings attended, related to the
changes in Board composition.
REMUNERATION
The Annual General Management resolved that the
Chairman of the Board shall be paid EUR 4,500 per month,
the Chairman of the Audit and Risk Management Committee
shall be paid EUR 5,550 and 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 committee work. The executive Board
members shall not be paid remuneration for their work on
the Board of Directors.
Those members of the Board of Directors that are executives
of the Company are not entitled to receive any remuneration
for Board membership.
As part of the focus to improve the Company’s performance,
it was decided to strengthen the oversight of subsidiaries as
During the fi nancial year 2016, the Board members received
a total of EUR 363,000 and Committee membership fees.
GOVERNANCE REVIEW
17
BOARD
COMMITTEES
AUDIT AND RISK MANAGEMENT COMMITTEE
The Audit and Risk Management Committee had two
members till 31 December 2016: Barry Rourke (Chairman) and
Markku Kankaala. The third member, Keith Scott, resigned
from the Board and from the Committee on December 8.
Following Markku Kankaala’s resignation from the Board and
Committee on 17 March 2017, Dr Jelena Manojlovic and Ivan
Jakovcic were nominated to the Committee.
The Board has defi ned the Committee’s duties in
accordance with the recommendations of the Finnish
and the UK Corporate Governance Codes. The Audit
and Risk Management Committee reviews the auditors’
work and monitors the Group’s fi nancial position and the
appropriateness of its fi nancial reporting. The Committee
oversees risk management procedures and internal
controls, maintaining contact with auditors and evaluating
their reports. The Committee reports regularly to the Board.
In 2016, the Committee continued to oversee the Group’s
fi nancial performance and reporting. The Committee
also worked with management to continue improving the
management information fl ow to the Board. Regular scrutiny
of the Group’s compliance with laws, regulations and best
practice was also an area of focus and during the year, the
Committee was particularly focused on implementing the
directives that fall under the Market Abuse Regulations.
Throughout the year, the Committee continued reviewing
and analysing in-depth its corporate cost structures and
together with management it worked on improving the
internal budgeting and forecasting models and processes.
The committee is currently reviewing the Group’s exposure
to exchange rate risks and how these risks can be mitigated.
The committee also reviewed each quarterly report before
release and recommended changes where necessary, before
recommending the reports to the Board.
NOMINATION AND REMUNERATION COMMITTEE
The combined Nomination and Remuneration Committee
of the Company had three members till 31st December
2016 Dr Jelena Manojlovic (committee chairman), Markku
Kankaala and Ivan Jakovcic. Mr Markku Kankaala resigned
from the Committee on 17 March 2017.
The Committee leads the process for making appointments
to the Board and the executive management and
submits recommendations to the Board in this regard.
The Committee also leads the process relating to the
remuneration of the executive management and the Board,
and makes recommendations to the Board and to the
General Meeting in relation to the Board’s remuneration.
Following the resignation of Dr Alistair Ruiters as Chief
Executive Offi cer, the Committee has conducted the process
of recruiting a new Chief Executive Offi cer and supported
the creation of the new role of Chief Financial Offi cer to
complement the executive management of the Group.
THE COMMITTEE FOR HEALTH, SAFETY AND
SUSTAINABLE DEVELOPMENT
The combined Nomination and Remuneration Committee of
the Company had three members till 31st December 2016
Dr Alistair Ruiters, Barry Rourke, Markku Kankaala and
Milan Djakov. Dr Ruiters replaced Keith Scott who served
as Chairman before resigning from his post as Director in
December 2016. Mr Markku Kankaala resigned from the
Committee on 17 March 2017.
The Committee’s stated mission is to ensure that Afarak
conducts its business in a responsible and ethical manner
for the benefi t of all its stakeholders. Throughout 2016, the
Committee conducted a gap analysis of all its safety policies
and procedures within its subsidiaries and set-out to start
addressing the gaps. Reporting frameworks are also being
updated as part of this exercise. Following the fatality at
Mogale, the Committee is currently focused on enhancing the
safety culture at the plant.
Afarak is continuously investing in environmental
initiatives and projects. We are committed to
rehabilitating our mines and installing technologies that
reduce the impact on the environment. The Committee
also continued to monitor Afarak’s work and social
investment programmes with local communities,
particularly in South Africa.
18
GOVERNANCE REVIEW
CORPORATE
GOVERNANCE STATEMENT
Afarak Group Plc (“Afarak”, the “Company” or the “Group”)
is a Finnish public limited company listed on the NASDAQ
Helsinki Stock Exchange (AFAGR) and the Main Market of the
London Stock Exchange (AFRK).
Afarak’s corporate governance is based on, and complies
with, the laws of Finland, the Articles of Association of the
Company, the Finnish Corporate Governance Code and the
regulations of the Finnish Financial Supervisory Authority,
the UK Listing, Disclosure and Transparency Rules, the
NASDAQ Helsinki Stock Exchange and the London Stock
Exchange. As Afarak primarily follows the Finnish Corporate
Governance Code, certain sections of the UK Corporate
Governance Code issued in September 2012 (“UK CG”) are
not strictly complied with. However, in the areas that the
Company diverges from the UK CG the Company believes
that its policies are acceptable for the reasons which are set
out below:
UK CG Section
Description
The Reason for Non-Compliance
C.3.8
E.2.1
E.2.2
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 is not 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.
Miscellaneous general meeting
procedures
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.
Afarak’s foreign subsidiaries operate under the local laws and
regulations of the countries in which they are located, including
but not limited to local accounting and tax legislation as well as
exchange controls. This Corporate Governance Statement for
the fi nancial period 1 January to 31 December 2016 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 Code which can be found on
the Securities Market Association’s website at www.cgfi nland.
fi . Afarak has made no exceptions in its Finnish Corporate
Governance Code compliance.
GOVERNANCE REVIEW
19
INTERNAL
CONTROL
The principles of internal control are confi rmed by the Board.
The Group’s EMT members are in charge of the day-to-day
business management and administrative control in their
respective responsibility areas.
MAIN PRINCIPLES OF RISK MANAGEMENT AND
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 defi nes 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 fi nancial
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.
The Board of Directors decides on the Group’s management
system and the corporate and organisational structure
required by each business unit with a view to providing solid
foundations for effective internal control. Internal control
and risk management related to fi nancial reporting at the
Group level are performed in a coordinated way by a function
independent of the business areas. Each subsidiary’s
executive management is responsible for the implementation
of internal control and risk management to the agreed Group
principles and guidelines.
The system of internal control provides reasonable rather than
absolute assurance that Afarak’s business objectives will be
achieved within the risk tolerance levels defi ned by the Board.
Internal control refers to elements of fi nancial and
operational management which are designed to ensure:
• Achievement of defi ned performance targets;
•
Effi cient use of resources and protection of assets;
20
GOVERNANCE REVIEW
Effective management of risks;
•
• Accurate, timely and continuous delivery of fi nancial and
•
operational information;
Full compliance with laws and regulations as well as
internal policies; and
• Business continuity through secure systems and stable
operating procedures.
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 defi ned by the Board;
Implementation of the policies and principles under the
supervision of Group management;
Supervision of the effi ciency and functionality of the
business operations by Group management;
Supervision of the quality and compliance of the fi nancial
reporting by the Group fi nance 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 INTERNAL CONTROL OF THE FINANCIAL
REPORTING PROCESS
The Group’s fi nancial organisation is structured so that
each business unit has its own fi nance function, but overall
fi nancial management including accounting, taxation and
fi nancing is centralised within the Group’s parent company.
The Group fi nance department is responsible for ensuring
the compliance, quality and timeliness of the Group’s
external and internal fi nancial reporting. The internal
control mechanisms are based on the policies, procedures
and authorisations established and approved by the Board.
In addition to control mechanisms, training and sharing of
knowledge are also signifi cant tools of internal control.
Each business unit has its own fi nance function which
reports to the Group Finance. The business unit’s fi nance
function is responsible for the unit’s accounting and daily
fi nancial operations and internal reporting. The fi nance
function and administration is overseen by the unit’s
management team and reports to the head of the business
unit’s segment.
The tasks of the Group Finance consist, among other
things, of monthly consolidation of the Group’s accounts,
preparation of the quarterly interim reports and
consolidated fi nancial statements, fi nancing of the Group,
and tax planning.
resources to the work and continuous review of the risk
management policies, as well as defi ning the principles of
operation and overall processes.
External Audit
Consolidated fi nancial statements are prepared by using
consolidation software. The accounting of the Company’s
subsidiaries is carried out by accounting systems and the
accountants within each subsidiary enter the accounting
information directly into the consolidation system, or in some
cases send the information in a predefi ned format to the
Group’s fi nancial administration to be consolidated.
According to the Articles of Association, the Annual General
Meeting of shareholders elects the Company’s auditor, which
must be a fi rm authorised by the Finnish Central Chamber
of Commerce; otherwise the Company will have one main
auditor and one deputy auditor. The auditor’s term is for
one year and fi nishes at the end of the fi rst General Meeting
following election.
On Afarak’s General Meeting elected Authorised 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 2016, the Group paid EUR 369,000 (EUR365,000) for audit
fees and EUR 51,000 (EUR29,000) for non-audit services to EY.
ROLES AND RESPONSIBILITIES REGARDING RISK
MANAGEMENT AND INTERNAL CONTROL
Board of Directors
The Board of Directors is ultimately responsible for
the administration and the proper organisation of the
Group’s operations and approves all 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 fi nancial
statements;
Supervising the fi nancial reporting process;
•
• Monitoring the effi ciency of the Group’s internal control,
internal audit and risk management systems; and
• Monitoring the statutory audit of the fi nancial
statements and consolidated fi nancial statements.
Group Management
The Group’s management is in charge of the day-to-
day management of the Group in accordance with the
instructions and orders given by the Board. It sets the
framework of the internal control environment and is
in charge of the Group’s risk management process and
its continuous development. This includes allocation of
GOVERNANCE REVIEW
21
INSIDER
ADMINISTRATION
The Company complies with the legal provisions applying
to the management of insiders as defi ned by the Market
Abuse Regulations (EU) No. 596/2014, the Guidelines for
Insiders issued by the NASDAQ Helsinki Stock Exchange
and the stipulations and guidelines of the Finnish Financial
Supervision Authority.
relevant fi nancial year up to and including the time of the
announcement.
Compliance with the insider regulations is monitored by
taking samples at certain intervals of trading by insiders in
the Company’s shares.
PUBLIC INSIDER REGISTER
COMPANY-SPECIFIC INSIDER REGISTER
The Company’s permanent public insiders comprise the
Board members, the CEO, the Executive Management Team
and the auditors. All permanent public insiders and the
statutory information about them, their related parties and
the entities controlled by them or in which they exercise
infl uence, have been entered into the Company’s public
insider register which is published on the Group’s website.
In addition to the public insider register, the Company holds
a company-specifi c insider register of persons who regularly
receive information that can have material impact on the
value of its securities. These persons include all Afarak
Group Plc employees, corporate management and subsidiary
and other third-party service providers who regularly obtain
insider information.
Afarak imposes a restriction on trading for insiders which
forbids trading in the Company’s shares for 30 days before
the publication of fi nancial reports. Prior to the preliminary
announcement of the Company’s annual results and the
publication of its annual fi nancial report the closed period
is 60 days or, if shorter, the period from the end of the
When necessary, the Company sets up a separate project-
specifi c insider register. Project-specifi c insiders are
those who, in connection with the insider project receive
information that might have material impact on the value
of the Company’s shares. The establishment of a project is
decided by the Board or the CEO.
Shareholdings of the Public Insiders at 31 December 2016
Members of the Board
Title
Shares
Related Party Shares
Options
Ivan Jakovcic
Barry Rourke
Jelena Manojlovic
Markku Kankaala
Milan Djakov
Alistair Ruiters
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar
Chairman
Non-Executive Director
Non-Executive Director
0
150,000
150,000
Non-Executive Director
7,066,116
Non-Executive Director
0
Executive Director
900,000
Auditor
Executive
0
0
0
0
0
0
0
0
0
0
0
0
0
0
600,000
0
70,945,967
800,000
22
GOVERNANCE REVIEW
ANNUAL
GENERAL MEETING
RESOLUTIONS OF 2016 ANNUAL GENERAL MEETING
The Board Committees and their composition are as follows:
The Company’s Annual General Meeting (“AGM”) was held
on 11 May 2016. The AGM adopted the fi nancial statements.
The AGM resolved that no dividend would be paid for 2015.
The AGM agreed to a new dividend policy that the Company
will in future review its distributions to shareholders either
through a capital redemption or dividend twice yearly at the
time of full year and the half year announcements. This new
policy will allow the Board to take prudent decisions based
on market conditions whilst continuing to share its positive
results with shareholders.
In line with this new policy, the AGM resolved that a capital
redemption of EUR 0.01 per share for the year ended on 31
December 2015. The capital redemption was paid from the
company’s fund for invested unrestricted equity EUR 2.6
(5.1) million on 20 May 2016 and EUR 2.6 (0.0) million on 16
September 2016.
The AGM authorized the Board of Directors to decide on
its discretion on additional dividend from the Company’s
profi ts and/or on the distribution of assets from the invested
unrestricted equity fund or from both as follows: the total
amount of the additional dividend/capital redemption shall be
a maximum of EUR 0.01 per share.
The AGM resolved that the Chairman of the Board would
be paid EUR 4,500 per month, the Chairman of the Audit
and Risk Management Committee would be paid EUR 5,550
and 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
committee work. The executive Board members shall not be
paid remuneration for their work on the Board of Directors.
Audit Committee
Barry Rourke (Chairman),
Markku Kankaala
Keith Scott
Nomination and Remuneration Committee
Dr Jelena Manojlovic (Chairperson),
Markku Kankaala
Ivan Jakovcic
Health, Safety and Sustainable Development Committee
Keith Scott (Chairman)
Markku Kankaala
Milan Djakov
Barry Rourke
The AGM resolved that authorised public accountant fi rm
Ernst & Young Oy was re-elected as the Auditor of the
Company for the year 2016.
The AGM 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.
2017 ANNUAL GENERAL MEETING
Afarak’s 2017 Annual General Meeting will be held on 23 May
2017 in Helsinki, Finland.
DIVIDEND PROPOSAL
The AGM resolved that the Board of Directors comprises of
seven members. Mr Markku Kankaala, Dr Jelena Manojlovic,
Mr Barry Rourke, Dr Alistair Ruiters and Mr Ivan Jakovcic
were re-elected. Mr Keith Scott and Mr Milan Djakov were
elected. The Board appointed, from its among its members,
the following Directors to the Committees:
Due to the net loss for the year 2016, the Board of
Directors will propose to the Annual General Meeting,
which will be held on 23 May 2017 that no capital
redemption or dividend would be distributed. In line with
the Group’s policy, distributions to shareholders will be
reviewed at the time of the half year announcement.
GOVERNANCE REVIEW
23
ADDITIONAL
INFORMATION
SHARE INFORMATION
Afarak Group Plc’s shares are listed on NASDAQ Helsinki
(AFAGR) and on the Main Market of the London Stock
Exchange (AFRK).
On 31 December 2016, the registered number of Afarak
Group Plc shares was 263,040,695 (263,040,695) and the
share capital was EUR 23,642,049.59 (23,642,049.59).
On 31 December 2016, the Company had 3,744,717 (4,244,717)
own shares in treasury, which was equivalent to 1.42%
(1.61%) of the issued share capital. The total amount of
shares outstanding, excluding the treasury shares held
by the Company on 31 December 2016, was 259,295,978
(258,795,978).
At the beginning of the period under review, the Company’s
share price was EUR 0.43 on NASDAQ Helsinki and GBP
0.33 on the London Stock Exchange. At the end of the
review period, the share price was EUR 0.78 and GBP
0.38 respectively. During the fourth quarter of 2016 the
Company’s share price on NASDAQ Helsinki ranged from
EUR 0.40 to 0.90 per share and the market capitalisation, as
at 31 December 2016, was EUR 203.9 (1 January 2016: 105.7)
million. For the same period on the London Stock Exchange
the share price ranged from GBP 0.35 to 0.38 per share and
the market capitalisation was GBP 98.6 (1 January 2016: 85.5)
million, as at 31 December 2016.
Based on the resolution at the AGM on 11 May 2016, the
Board is authorised to buy-back up to a maximum of
15,000,000 of its own shares. This authorisation is valid until
12 November 2017. The Company did not carry out any share
buy-backs during the fourth quarter of 2016.
FLAGGING NOTIFICATIONS
On 21 June 2016, Afarak has received a fl agging notifi cation
in accordance with Chapter 9, Section 5 of the Finnish
Securities Markets Act from Hino Resources Co. Ltd (“Hino”),
a company incorporated and existing under the laws of Hong
Kong, regarding the shares of Afarak. In accordance with the
fl agging notifi cation, Hino has completed a sale of shares in
Afarak Group Plc and the transaction has resulted in Hino
decreasing its shareholding in the Company to under 15 per
cent and becoming a 14.06% per cent holder of the shares
and voting rights in Afarak.
24
GOVERNANCE REVIEW
REMUNERATION
REPORT
This report sets out the remuneration policy and practices
for Afarak’s Board and Executive Management Team
(“EMT), and provides details of their remuneration and
share interests for the year ended 31 December 2016.
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 CEO. Dr
Alistair Ruiters received one share transfer in 2016, and
the shares were paid on 14th September 2016.
The Group makes no pension arrangements for the CEO
beyond the statutory pension coverage and there is no set
retirement age.
Dr Alistair Ruiters resigned from his post on December 8,
and the new CEO’s agreement is the same as above.
NON-EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
The remuneration of members of the Board of Directors
is agreed at the Company’s General Meetings. Directors’
remuneration consists of monthly fi xed fees. The Annual
General Meeting held on 11 May 2016 approved that the
Chairman of the Board would be paid EUR 4,500 per month,
the Chairman of the Audit and Risk Management Committee
would be paid EUR 5,550 and 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 committee work. The executive
Board members shall not be paid remuneration for their
work on the Board of Directors.
Those members of the Board of Directors that are
executives of the Company are not entitled to receive any
remuneration for Board or committee membership.
As some of the Board members have also had executive
management roles, both the Board fees and the salaries in
relation to executive role have been presented below.
REMUNERATION POLICY
Afarak operates in a very competitive sector in terms
of human capital with a shortage of highly qualified and
experienced executives. The Group’s remuneration
policy is designed to attract, retain and incentivise high-
calibre executives to implement its business strategy and
enhance shareholder value.
The policy seeks to align the interests of the business
and shareholders by rewarding executives appropriately
for achieving individual and group targets and thereby
ensuring long-term value creation for the benefit of all
shareholders.
NOMINATION AND REMUNERATION COMMITTEE
The Nomination and Remuneration Committee makes
recommendations to the Board regarding executive
remuneration, and submits proposals to the Annual General
Meeting of shareholders regarding the Board’s remuneration.
The committee is responsible for the overall direction of
the remuneration policy, as well as determining, within
agreed terms of reference, the specific remuneration
packages of the EMT. This includes pension rights,
executive incentive schemes and any compensation
payments. To ensure that the Group’s remuneration
packages are both appropriate and competitive, the
committee evaluates information on market-based
remuneration levels for comparable companies.
The members of the committee in 2016 were Dr Jelena
Manojlovic (Chairman), Mr Markku Kankaala and Mr Ivan
Jakovcic.
CEO SERVICE AGREEMENT
The Board appotnis the Chief Executive Offi cer (CEO) to manage,
develop, guide and supervise the Group’s activities and leads
the EMT. The Board decides upon the CEO’s remuneration
based on the recommendations made by the Committee.
GOVERNANCE REVIEW
25
RELATED PARTY TRANSACTION WITH PERSONS BELONGING TO GROUP BOARD AND MANAGEMENT
EUR ‘000
2016
2015
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
Board member 8.5.2015
onwards, Chairman
12.5.2016 onwards
Board member 8.5.2015
onwards, CEO 21.5.2015
- 9.12.2016
Board member 8.5.2015
onwards
Board member
11.7.2008 onwards,
Chairperson 17.6.2009 -
7.5.2015
Board member
12.5.2016 onwards
Board member
12.5.2016 - 9.12.2016
Board member
30.6.2003 - 17.03.2016
CEO 11.2.2013 –
20.5.2015, Board
member 11.8.2010 –
7.5.2015
Board member
11.2.2013 - 12.5.2016
Board member
11.2.2013 – 12.5.2016,
Chairman 8.5.2015 –
12.5.2016
Board member
11.2.2013 - 7.5.2015
Jakovcic Ivan
Ruiters Alistair
Rourke Barry
‘Manojlovic
Jelena
Djakov Milan
Scott Keith
‘Kankaala
Markku
‘Koncar Danko
‘Lillja Michael
‘Parodi Afredo
Smart Bernice
Total
360
0
54
68
0
80
60
35
35
60
26
178
242
86
120
414
363
178
448
39
0
47
58
58
66
19
286
0
183
0
0
0
0
183
26
GOVERNANCE REVIEW
OTHER EMT MEMBERS’ SERVICE CONTRACTS
telephony services.
As Afarak operates within highly competitive environment,
its performance depends on the individual contributions of
the executive directors and other senior employees. The
remuneration packages are designed to attract, motivate and
retain executives to manage the Group’s operations effectively
and to reward them for enhancing shareholder value.
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, unless otherwise agreed.
The table below includes the EMT but excludes the CEO since
the compensation for Board members and CEO has been
presented separately.
The EMT remuneration package is a combination of a base
salary and long-term based incentives, fringe benefi ts
include liability insurance, traveler’s insurance and
None of Afarak’s executive directors have received any
compensation for serving as a NED in other companies.
Management remuneration
EUR ‘000
Short-term employee benefi ts
Total
2016
366
366
2015
258
258
SHARE-BASED COMPENSATION
the maximum number of 2,900,000 options has been issued.
Share options
The Company has three incentive-related option schemes,
known as I/2003, I/2008 and I/2011.
Option rights relating to the I/2005 scheme are granted
to the EMT 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 – 0.82 (with dividend and capital
redemption adjustment). To date, options on A, B, C, D, E and
F series of the I/2005 scheme have been issued totaling
1,175,000 option rights.
Option rights relating to the I/2008 scheme were granted
to the Company’s previous CEO, Alwyn Smit, in October
2008. The scheme entitled 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 matured on 31 December 2015, and
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. To date,
the total of 6,291,997 options have been issued. 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.
In May 2015 the Group has granted the outgoing CEO, Alistair
Ruiters 1,000,000 shares in the Company. The agreement
provided that these would be awarded in two tranches
and vested based on completed year of service. The fi rst
500,000 Company shares have effectively been received on
14 September 2016. The second 500,000 Company shares
had to be received by the employee on 22 May 2017 after
completing his second year as CEO. As the full term was not
completed the second 500,000 will be given prorate over the
second year which results to 322,581 shares. These shares
have a lock-up period of two years from 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 of the
unvested portion EUR 121,505.
GOVERNANCE REVIEW
27
DIRECTORS’ AND EMT MEMBERS’ SHAREHOLDINGS AND OPTIONS AT 31 DECEMBER 2016
Members of the Board
Title
Shares Related Party Shares
0
0
0
0
0
0
0
Options
0
600,000
0
0
0
0
0
70,945,967
800,000
Ivan Jakovcic
Alistair Ruiters
Jelena Manojlovic
Markku Kankaala
Barry Rourke
Milan Djakov
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar
Chairman
Executive Director
Non-Executive Director
0
900,000
150,000
Non-Executive Director
7,066,116
Non-Executive Director
150,000
Non-Executive Director
Auditor
Executive
0
0
0
28
GOVERNANCE REVIEW
SHARES AND
SHAREHOLDERS
SHARES AND SHARE CAPITAL
Afarak’s shares are listed on the NASDAQ Helsinki Small
Cap list under the trading code AFAGR. All shares in Afarak
carry equal voting and dividend rights.
SHAREHOLDERS BY GROUP ON DECEMBER 31, 2016
Non-fi nancial corporations and housing corporations
Financial and insurance corporations
Households
Non-profi t institutions serving households
International and nominee registered
Total
Shares
18,021,195
754,564
30,763,180
2,001
213,499,755
263,040,695
%
6.9
0.3
11.7
0.0
81.2
100.0
As of December 31, 2016, the total number of Afarak
shares was 263,040,695 of which 3,744,717 shares
belonged to Afarak.
Shareholders by group on December 31, 2016
7% 0% 1
2
%
0
%
%
81
Non-financial corporations and housing corporations
Financial and insurance corporations
Households
Non-profit institutions serving households
International and nominee registered
GOVERNANCE REVIEW
29
PRINCIPAL SHAREHOLDERS ON DECEMBER 31, 2016
Hino Resources Co Ltd
Joensuun Kauppa ja Kone Oy
Hanwa Company Limited
Kankaala Markku Olavi
Hukkanen Esa Veikko
Lemmetti Juhani
Kakkonen Kari Heikki Ilmari
Nominee accounts held by custodian banks
Treasury shares
Other shareholders
Total
Shares
36,991,903
12,176,240
9,000,000
7,066,116
4,164,848
1,065,034
1,000,000
71,464,141
167,328,388
3,744,717
20,503,449
263,040,695
%
14.1
4.6
3.4
2.7
1.6
0.4
0.4
27.2
63.6
1.4
7.8
100
DISTRIBUTION OF SHAREHOLDERS ON DECEMBER 31, 2016
Number of shares
Number of shareholders
% of
shareholders
Total shares
% of share capital
1-100
101-1000
1001-10000
10001-100000
100001-1000000
1000001-10000000
10000001-
Total
of which Nominee registered
806
2,372
1,632
287
32
8
3
5,140
9
15.7
46.1
31.8
5.6
0.6
0.2
0.1
100.0
0.2
48,707
1,272,843
5,786,185
7,801,039
7,176,798
31,596,324
209,358,799
263,040,695
167,328,388
0.0
0.5
2.2
3.0
2.7
12.0
79.6
100.0
63.6
Afarak’s shares are also listed on the London Stock Exchange Main Market under the trading code AFRK.
AFARAK IN THE CAPITAL MARKETS
Afarak continued its dialogue with investors and fi nancial
advisors in 2016. Several conference calls and meetings
were held during the year and Afarak held its Annual General
Meeting in Helsinki, Finland. An interactive workshop session
was held with shareholders as part of the AGM and this will
be replicated during 2017. The Company kept regular contact
through various releases focusing on specifi c initiatives and
investments. Looking ahead, Afarak has appointed Inderes as
its Analyst and will be rolling out various initiatives to increase
communication with its shareholders. Shareholders can also
contact the company on its dedicated email for shareholders
(investors@afarak.com).
30
GOVERNANCE REVIEW
Share price development (EUR)
Market capitalisation (EUR million)
0,900
0,800
0,700
0,600
0,500
0,400
0,300
0,200
0,100
0,000
3
1
0
2
n
a
J
3
1
0
2
r
a
M
3
1
0
2
y
a
M
3
1
0
2
l
u
J
3
1
0
2
p
e
S
3
1
0
2
v
o
N
4
1
0
2
n
a
J
4
1
0
2
r
a
M
4
1
0
2
y
a
M
4
1
0
2
l
u
J
4
1
0
2
p
e
S
4
1
0
2
v
o
N
5
1
0
2
n
a
J
5
1
0
2
r
a
M
5
1
0
2
y
a
M
5
1
0
2
l
u
J
5
1
0
2
p
e
S
5
1
0
2
v
o
N
6
1
0
2
n
a
J
6
1
0
2
r
a
M
6
1
0
2
y
a
M
6
1
0
2
l
u
J
6
1
0
2
p
e
S
6
1
0
2
v
o
N
250
200
150
100
50
0
2013
2014
2015
2016
Monthly trading volumes
20000000
15000000
10000000
5000000
0
5
1
0
2
n
a
J
6
1
0
2
n
a
J
6
1
0
2
c
e
D
SHARE PRICE DEVELOPMENT AND MARKET
CAPITALISATION
During 2016, the price of the Afarak share peaked at
EUR0.90 and was EUR0.39 at its lowest (2015 high/low:
EUR0.67/ EUR0.33). The Afarak share price closed at the
end of the year at EUR0.78 marking an increase of 95%
from the closing price of 2015 (Dec 31, 2015: EUR0.40).
At the end of 2016, the Company’s market capitalisation
was EUR 203.8 million, compared to EUR 105.7 million at
the previous year’s end.
In 2016, EUR 18.3 million were traded in Afarak shares on
the NASDAQ Helsinki compared to EUR 16.9 million a year
earlier with trading spiking in December 2016.
GOVERNANCE REVIEW
31
DISTRIBUTION POLICY
Afarak is committed to delivering shareholder value. We have
always aimed at making a distribution to shareholders and
did so prudently to safeguard the Company’s fundamentals.
Due to the net loss for the year 2016, lower cash reserves
and an uncertain market, in line with our policy, the Board of
Directors decided to propose to the Annual General Meeting,
which will be held on 23 May 2017 that no distribution would be
made. However, in line with the Group’s policy, distributions to
shareholders may be reviewed depending on results during the
fi rst half of 2017.
EBIT (EUR million)
Cash & cash equivalents (EUR million)
Distribution (EUR million)
Distribution per share (EUR)
2016
-1.0
9.6
-
-
2015
2014
2013
9.9
19.6
5.2
0.02
1.7
13.3
5.2
0.02
-7.9
13.8
4.8
0.02
32
GOVERNANCE REVIEW
FINANCIAL
STATEMENTS
KEY
FIGURES
FINANCIAL INDICATORS
Continuing Operations
2016
2015
2014
Revenue
EBITDA
% of revenue
EUR’000
EUR’000
Operating profi t / loss (EBIT)
EUR’000
% of revenue
Profi t / loss before taxes
EUR’000
% of revenue
Return on equity
Return on capital employed
Equity ratio
Gearing
Personnel at the end of the accounting period
%
%
%
%
153,570
5,478
3.6 %
-1,010
-0.7 %
-3,137
-2.0 %
-1.6 %
0.9 %
67.7 %
-3.3 %
813
187,711
17,190
9.2%
9,888
5.3%
6,520
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
2
FINANCIALS
KEY
FIGURES
SHARE-RELATED KEY INDICATORS
2014
Continuing
Operations
0.00
0.00
0.69
2015
Continuing
Operations
0.03
0.03
0.65
2016
Group
Continuing
Operations
-0.01
-0.01
0.66
Earnings per share, basic
Earnings per share, diluted
Equity per share
EUR
EUR
EUR
Distribution*
EUR’000
Distribution per share*
Price to earnings
Average number of shares
Average number of shares,
diluted
Number of shares at the end of
the period
EUR
EUR
1000
1000
1000
Share price information (NASDAQ Helsinki)
Average share price
Lowest share price
Highest share price
Market capitalisation
Share turnover
Share turnover
EUR
EUR
EUR
EUR’000
EUR’000
%
0.00
0.00
0.66
0
N/A
-328.6
258,945
259,796
263,040
0.51
0.39
0.90
203,857
18,315
13.7 %
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
%
0.37
0.30
0.34
0.28
0.46
0.38
115,210
98,640
902
739
0.9 %
Group
0.03
0.03
0.65
5,176
0.02
11.7
256,652
259,849
263,040
0.44
0.33
0.67
105,742
16,936
14.5%
0.45
0.33
0.34
0.25
0.45
0.33
116,479
85,488
6
4
0.0%
Group
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%
* In 2015 the Company distributed a capital redemption of EUR 0.02 per share out of the paid-up unrestricted equity fund. In 2016 the Company distributed
a capital redemption of EUR 0.01 per share out of the paid-up unrestricted equity fund which were paid in two trenches of EUR 0.01 per share in May 2016
and August 2016. In 2017 the Board will propose to the AGM that no capital redemption or dividend should be distributed.
FINANCIALS
3
KEY
FIGURES
FORMULAS FOR CALCULATION OF INDICATORS
Financial indicators
Return on equity
Return on capital employed
Equity ratio
Gearing
EBITDA
Operating profi t / loss
Profi t for the period / Total equity (average for the period) * 100
(Profi t before taxes + fi nancing expenses) / (Total assets – Interest-free
liabilities) average * 100
Total equity / (Total assets - prepayments received) * 100
(Interest-bearing debt - liquid funds) / Total equity * 100
Operating profi t + depreciation + amortisation + impairment losses
Operating profi t is the net of revenue plus other operating income, plus
gain/loss on fi nished goods inventory change, minus employee benefi ts
expense, minus depreciation, amortisation and impairment and minus
other operating expense. Foreign exchange gains or losses are included
in operating profi t when generated from ordinary activities. Exchange
gains or losses related to fi nancing activities are recognised as fi nancial
income or expense.
Share-related key indicators
Earnings per share, basic
Profi t attributable to owners of the parent company / Average number of
shares during the period
Earnings per share, diluted
Profi t attributable to owners of the parent company / Average number of
shares during the period, diluted
Equity per share
Equity attributable to owners of the parent / Average number of shares
Distribution per share
Distribution / Number of shares at the end of the period. In the
during the period
attached table of share related key indicators, the dividend and capital
redemptions are presented in that year’s column on which 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
Price to earnings
Average share price
Market capitalisation
4
FINANCIALS
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefi ts expense
Depreciation and amortisation
Other operating expenses
Loss on disposal on investment in associate
Share of profi t from associates
Share of profi t / (loss) from joint ventures
Operating (loss) / profi t
Finance Income
Finance Expense
(Loss) / Profi t before taxes
Income taxes
(Loss) / Profi t for the year from continuing operations
Discontinued operations
Profi t for the year from discontinued operations
(Loss) / Profi t for the year
(Loss) / Profi t attributable to:
Owners of the parent
Non-controlling interests
Earnings per share (counted from (loss) / profi t
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.- 31.12.2016
1.1.- 31.12.2015
1
2
3
4
5
12
12
13
6
6
7
8
9
153,570
187,711
1,705
-117,185
-19,976
-6,488
-12,752
0
0
116
-1,010
2,610
-4,737
-3,137
339
-2,798
1,861
-937
-615
-322
-937
0.00
0.00
-0.01
-0.01
2,331
-142,349
-17,836
-7,302
-11,928
-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
FINANCIALS
5
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
EUR ‘000
(Loss) / Profi t for the year
Other comprehensive income
Items that will not be reclassifi ed to profi t and loss
Remeasurements of defi ned benefi t pension plans
Items that may be reclassifi ed to profi t and loss
Exchange differences on translation of foreign operations - Group
Exchange differences on translation of foreign operations –
Associate and Joint Ventures
Income tax relating to other comprehensive income
Other comprehensive income, net of tax
Total comprehensive income for the year
(Profi t/(Loss) attributable to:
Owners of the parent
Non-controlling interests
1.1.- 31.12.2016
1.1.- 31.12.2015
-937
8,539
-1,609
986
5,736
6,797
0
10,924
9,987
9,681
306
9,987
-18,844
-3,126
4,552
-16,432
-7,893
-6,790
-1,103
-7,893
6
FINANCIALS
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other fi nancial assets
Receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Note
31.12.2016
31.12.2015
10
11
11
14
14
20
15
16
17
45,131
63,780
18,311
172
34,040
4,439
165,873
48,424
36,292
9,651
94,367
43,559
58,349
17,015
597
38,638
3,260
161,418
45,153
40,779
19,644
105,576
Total assets
260,240
266,994
FINANCIALS
7
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000
Note
31.12.2016
31.12.2015
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
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
Pension liabilities
Other non-current debt
Provisions
Current liabilities
Trade and other payables
Provisions
Tax liabilities
Interest-bearing debt
Total liabilities
18
20
14
13
22
23
21
23
21
23
14
23,642
25,740
160
235,242
-16,787
-95,963
172,034
4,151
176,185
5,857
29
16,234
20,097
4,170
10,691
57,078
18,459
99
4,655
3,764
26,977
84,055
23,642
25,740
187
240,240
-28,692
-93,755
167,362
3,845
171,207
5,949
2,975
23,218
18,734
1,969
9,309
62,155
15,364
99
6,036
12,133
33,632
95,787
Total equity and liabilities
260,240
266,994
8
FINANCIALS
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
EUR ‘000
Operating activities
(Loss) / Profi t for the year
Adjustments for:
Non-cash items
Depreciation and impairment
Finance income and expense
Income from joint ventures
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 fi nancing 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 fi nance leases
Net cash used in fi nancing activities
1.1.-31.12.2016
1.1.-31.12.2015
-937
8,539
6,488
2,127
-116
-339
194
-1,093
7,792
-1,490
-189
-192
-876
207
-2,667
-831
925
9,003
0
-2,596
414
0
0
54
-2,128
-5,176
7,093
-18,802
-65
-16,950
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
FINANCIALS
9
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
EUR ‘000
Change in cash and cash equivalents
Cash at beginning of period
Exchange rate differences
Cash at end of period
Change in the statement of fi nancial position
1.1.-31.12.2016
1.1.-31.12.2015
-10,075
19,644
82
9,651
-10,075
6,518
13,332
-206
19,644
6,518
The cash fl ow from operating activities in 2016 includes discontinued operations relating to cash received during 2016 of Eur
1,080 thousand and rental income of Eur 14 thousand, less the storage costs of the saw mill equipment of Eur 61 thousand
and commissions of Eur 108 thousand. The cash fl ow from operating activities 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.
10
FINANCIALS
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
EUR ‘000
Equity at 31.12.2014
A
B
C
D
E
F
G
H
I
23,642
25,740
243,424
-12,061
-103,657
210
177,298
4,947
182,245
Profi t 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
-16,631
183
1,739
-5,106
8,854
986
9,840
91
-29
8,854
-15,645
-315
-788
8,539
-16,433
-6,791
-1,103
-7,894
274
1,739
-5,106
-29
-23
-23
1
275
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
Profi t for the period 1-12/2016
Other comprehensive income
Total comprehensive income
Share-based payments
Capital redemption
Other changes in equity
-615
11,905
-1,609
11,905
-2,224
178
-5,176
16
-27
-615
10,296
9,681
194
-5,176
-27
-322
628
306
-937
10,924
9,987
194
-5,176
-27
Equity at 31.12.2016
23,642
25,740
235,242
-16,787
-95,963
160
172,034
4,151
176,185
FINANCIALS
11
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 Unioninkatu 20-22, 00130
Helsinki, Finland. Copies of the consolidated fi nancial statements are available at Afarak Group Plc’s head offi ce or at the
Company’s website: www.afarak.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).
1.2 ACCOUNTING PRINCIPLES
BASIS OF PREPARATION
These consolidated fi nancial 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 2016. 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 fi nancial
statements also meet the requirements set forth in the Finnish accounting and company legislation.
The consolidated fi nancial statements have been prepared on the historical cost basis, unless otherwise explicitly stated. All
the fi gures in the consolidated fi nancial statements are given in EUR thousands.
Afarak Group Plc’s Board of Directors resolved on 30 March 2017 that these fi nancial statements are to be published.
According to the Finnish Companies Act, shareholders shall endorse the fi nancial statements in the Annual General Meeting
convening after the fi nancial statements have been published.
PRESENTATION OF FINANCIAL STATEMENTS
The consolidated fi nancial statements provide comparative information in respect of the previous period. In addition, the
Group presents an additional statement of fi nancial position at the beginning of the earliest period presented when there
is: a retrospective application of an accounting policy; a retrospective restatement; or a reclassifi cation of items in fi nancial
statements that has a material impact on the Group.
PRINCIPLES OF CONSOLIDATION
The consolidated fi nancial 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 fi nancial and operating policies of an enterprise so as
to obtain benefi ts 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 profi ts, as well as internal distribution of profi ts,
are eliminated when the consolidated fi nancial statements are prepared. The distribution of profi ts 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 fi nancial position under shareholders’ equity.
12
FINANCIALS
Afarak Group Plc has consolidated Elektrowerk Weisweiler GmbH to its fi nancial 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 was 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.
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. The Group’s share of net assets or liabilities in the Joint venture is recorded on one line
in the statement of fi nancial position. The Group’s share of net profi t or loss of the Joint venture is also shown on one line in the
income statement.
Associates are companies in which Afarak Group exercises signifi cant infl uence. The Group exercises signifi cant infl uence if it
holds more than 20% of the target company’s voting rights, or if the Group in other ways exercises signifi cant infl uence but not
control. Associates have been consolidated in the Group’s fi nancial 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
fi nancial position, and losses exceeding the carrying amount are not consolidated unless the Group has made a commitment to
fulfi l the associates’ obligations. Investment in an associate includes the goodwill arising from its acquisition.
TRANSLATION OF FOREIGN CURRENCY ITEMS
Amounts indicating the profi t or loss and fi nancial position of Group entities are measured in the currency of each entity’s
main operating environment (‘functional currency’). Figures in the consolidated fi nancial 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 fi nancial items, corresponding to their respective origin. Hedge accounting has
not been applied.
In the Group accounts, foreign subsidiaries’ income statements and statements of cash fl ows are converted into euro by using
average exchange rates for the period, and the statement of fi nancial 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.
In accordance with IAS 21, any foreign exchange difference arising from Intra-group loans for which settlement is neither
planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net investment in that foreign
operation. This is recognised in the group’s other comprehensive income and reclassifi ed from equity to profi t or loss on
disposal of the net investment.
FINANCIALS
13
OPERATING PROFIT
IAS 1 Presentation of fi nancial statements does not defi ne the concept of operating profi t. Afarak Group has defi ned it as follows:
Operating profi t 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 benefi ts, depreciation and impairment losses,
and other expenses. Shares of associated companies’and joint venture companies’ profi t or loss are included in the operating profi t
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 profi t; otherwise they are recorded under fi nancial items.
All other items of the income statement are excluded from operating profi t.
IAS 1 amendment introduced the requirement for grouping of items presented in Other Comprehensive Income. Items that
are reclassifi ed (or `recycled`) to profi t or loss at a future point in time will be presented separately from items which will
never be reclassifi ed. The amendment affected the presentation of Other Comprehensive Income.
REVENUE RECOGNITION
Income from the sale of goods is recognised once the substantial risks and benefi ts 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 defi ned 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 classifi ed as defi ned contribution plans or defi ned benefi t plans (Germany and
Turkey). Payments for defi ned contribution plans are recognised as expenses for the relevant period. The present value of
obligation for the defi ned benefi t plans has been estimated applying the Projected Unit Credit Method and recognised as a
non-current liability on the statement of fi nancial position. The standard IAS 19 was revised and includes changes to the
presentation and measurement of defi ned benefi t plans as well as amendments to the accounting treatment of other employee
benefi ts. 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 defi ned benefi t liability or asset are presented in full on the statement of fi nancial 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 fi nal 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 fi nancial
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).
14
FINANCIALS
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.
LEASE AGREEMENTS (THE GROUP AS THE LESSEE)
Leases of tangible assets where the Group possesses a material portion of the risks and benefi ts of ownership are classifi ed
as fi nancial leases. An asset acquired through a fi nancial 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 fi nance lease
is depreciated over the useful life of the asset or the lease term, whichever is shorter. The leases payable are divided into
fi nancial expenses and loan repayment during the lease term so that the interest rate for the remaining loan is roughly the
same each fi nancial year. Leasing obligations are included in interest-bearing liabilities. Lease agreements in which the
risks and benefi ts typical of ownership remain with the lessor are classifi ed 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 fl ows can be separated from other cash fl ows. 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 fl ows 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-specifi c 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-fl ow-
generating unit, it is allocated fi rst 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 2016 fi nancial year, testing took place on 31 December 2016.
Impairment testing and the methods used are discussed in more detail in section 1.4 in the ‘Notes to the consolidated
fi nancial 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.
FINANCIALS
15
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 benefi t 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 a dividend. Consequently the effective tax
rate is 5%. The tax refund is recognised when the dividend is declared. 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 an 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 fi nancial statement and, if necessary, they
will be adjusted to refl ect the changes that have occurred in the expected fi nancial benefi t. 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
16
FINANCIALS
also an essential factor. 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’. There are also generally accepted standards
for the classifi cation 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 fi nancial 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 fi nancial 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 signifi cant 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 fi nding and evaluating a specifi c
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 specifi c 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 fl ows 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.
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 identifi es intangible assets that are not necessarily recorded on the
FINANCIALS
17
statement of fi nancial 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 fi nancial position at cost when the costs can be reliably
determined and it is probable that the expected fi nancial benefi ts 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 fi nished goods and work in progress comprises raw materials, direct labour expenses,
other direct expenses, and an appropriate share of fi xed 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 classifi ed as fi nancial assets at fair value through profi t or loss, loans and
receivables, held-to-maturity investments, available-for-sale fi nancial assets or as derivatives designated as hedging
instruments, as appropriate. The Group determines the classifi cation of its fi nancial assets at initial recognition. All fi nancial
assets are recognised initially at fair value plus, in the case of investments not at fair value through profi t or loss, directly
attributable transaction costs.
The Group’s fi nancial assets include cash and cash equivalents, short-term deposits, money market instruments, trade and
other receivables, loan and other receivables, unquoted fi nancial instruments and derivative fi nancial instruments.
Financial assets at fair value through profi t or loss include fi nancial assets held for trading and fi nancial assets designated
upon initial recognition at fair value through profi t or loss. Financial assets are classifi ed as held for trading if they are
acquired for the purpose of selling or repurchasing in the near term. This category includes derivative fi nancial instruments
that are not designated as hedging instruments. Financial assets at fair value through profi t and loss are carried in the
statement of fi nancial position at fair value with changes in fair value recognised in fi nance income or fi nance cost.
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an
active market. After initial measurement, such fi nancial assets are subsequently measured at amortised cost using the
effective interest rate method (EIR), less impairment. The EIR amortisation is included in fi nance income. The impairment
losses are recognised as fi nance costs.
18
FINANCIALS
Non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities are classifi ed 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 classifi ed as available-for-sale are those which are neither classifi ed as held for trading nor designated
at fair value through profi t or loss. After initial measurement, available-for-sale fi nancial 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 fi nance income or cost, or determined to be
impaired, at which time the cumulative loss is recognised as fi nance costs and removed from the available-for-sale assets.
The fair value of fi nancial 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 fi nancial 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 fl ow analysis; or other valuation models.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
When necessary, the Group utilises derivative fi nancial instruments, such as forward currency contracts and interest
rate swaps, to hedge its foreign currency risks and interest rate risks. Such derivative fi nancial 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 fi nancial assets when the fair value is positive and as fi nancial 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 classifi ed 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 refl ect the fair
value of the liability. In the earlier fi nancial 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 fi x 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 classifi ed as fi nancial liabilities at fair value through profi t or loss; loans
and borrowings; or derivatives designated as hedging instruments, as appropriate. The Group determines the classifi cation
of its fi nancial liabilities at initial recognition. All fi nancial liabilities are recognised initially at fair value, and in the case of
loans and borrowings, plus directly attributable transaction costs. The Group’s fi nancial liabilities include trade and other
payables, bank overdrafts, loans and borrowings, and derivative fi nancial instruments.
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 fi nance cost.
FINANCIALS
19
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 outfl ow of resources embodying economic benefi ts 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 refl ects, where appropriate, the risks specifi c to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognised as a fi nance 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 fl ows. The cash
fl ows are discounted at a current pre-tax rate that refl ects the risks specifi c 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 profi t 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 fi nancial statements requires management to make estimates, assumptions and forecasts regarding
the future. Future developments may deviate signifi cantly 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
fi nancial statements’ preparation principles.
The scope of the fi nancial statements
The consolidated fi nancial 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.
IFRS 11 requires considering all facts and circumstances relating to joint arrangements instead of legal form only, which
infl uences 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 identifi able assets and liabilities. Determining a
value for intangible assets, such as trademarks and customer relationships, requires estimation and discretion because in
20
FINANCIALS
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 fl ows.
Impairment testing
Goodwill is tested annually for impairment, and assessments of whether there are indications of any other asset
impairment are made at end of reporting period, 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 defi nition 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
identifi ed in accordance with IFRS 3, and in determining the amortisation period. This affects the fi nancial 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 classifi cation 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.
Rehabilitation provisions
The Group assesses the rehabilitation liabilities associated with its mines and production facilities annually. The amount of
provision refl ects 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.
STANDARDS AND INTERPRETATIONS EFFECTIVE AND ADOPTED IN THE CURRENT YEAR
The Group applied, for the fi rst time, certain standards and amendments, which are effective for annual periods beginning
on or after 1 January 2016. The Group has not early adopted any other standard, interpretation or amendment that has been
issued but is not yet effective.
FINANCIALS
21
Several other amendments apply for the fi rst time in 2016. However, they do not impact the annual consolidated fi nancial
statements of the Group or the interim condensed consolidated fi nancial statements of the Group and, hence, have not
been disclosed.
The nature and the effect of these changes are disclosed below. Although the new standards and amendments applied for
the fi rst time in 2016, they did not have a material impact on the annual consolidated fi nancial statements of the Group. Other
than the changes described below, the accounting policies adopted are consistent with those of the previous fi nancial year.
» IFRS 11 JOINT ARRANGEMENTS: ACCOUNTING FOR ACQUISITIONS OF INTERESTS IN JOINT OPERATIONS –
AMENDMENTS TO IFRS 11
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 combination 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 if 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 applied prospectively. These amendments do not have any impact on the Group
as there has been no interest acquired in a joint operation during the period.
» IAS 16 AND IAS 38: CLARIFICATION OF ACCEPTABLE METHODS OF DEPRECIATION AND AMORTISATION
The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue
refl ects a pattern of economic benefi ts that are generated from operating a business (of which the asset is a part) rather than
the economic benefi ts that are consumed through use of the asset. As a result, a revenue-based method cannot be used to
depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets.
The amendments are applied prospectively and did not have any impact on the Group, given that it has not used a revenue-
based method to depreciate its non-current assets.
» IAS 27: EQUITY METHOD IN SEPARATE FINANCIAL STATEMENTS – AMENDMENTS TO IAS 27
The amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and
associates in their separate fi nancial statements. Entities already applying IFRS and electing to change to the equity method
in their separate fi nancial statements have to apply that change retrospectively. These amendments do not have any impact
on the Group’s consolidated fi nancial statements.
ANNUAL IMPROVEMENTS 2012-2014 CYCLE
These improvements include:
» IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
Assets (or disposal groups) are generally disposed of either through sale or distribution to the owners. The amendments
clarify that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather
it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5.
This amendment is applied prospectively.
» IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES
(i) Servicing contracts
The amendments clarify that a servicing contract that includes a fee can constitute continuing involvement in a fi nancial
asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in
22
FINANCIALS
IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute
continuing involvement must be performed retrospectively. However, the required disclosures need not be provided for any
period beginning before the annual period in which the entity fi rst applies the amendments.
(ii) Applicability of the amendments to IFRS 7 to condensed interim fi nancial statements
The amendments clarify that the offsetting disclosure requirements do not apply to condensed interim fi nancial statements,
unless such disclosures provide a signifi cant update to the information reported in the most recent annual report. This
amendment is applied retrospectively.
» IAS 19 EMPLOYEE BENEFITS
The amendments clarify that market depth of high quality corporate bonds is assessed based on the currency in which the
obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively.
» IAS 34 INTERIM FINANCIAL REPORTING
The amendments clarify that the required interim disclosures must either be in the interim fi nancial statements or
incorporated by cross-reference between the interim fi nancial statements and wherever they are included within the
interim fi nancial report (e.g., in the management commentary or risk report). The other information within the interim
fi nancial report must be available to users on the same terms as the interim fi nancial statements and at the same time. This
amendment is applied retrospectively.
» IAS 1 DISCLOSURE INITIATIVE – AMENDMENTS TO IAS 1
The amendments to IAS 1 clarify, rather than signifi cantly change, the existing IAS 1 requirements. The amendments clarify:
•
•
•
•
The materiality requirements in IAS 1
That specifi c line items in the statement(s) of profi t or loss and other comprehensive income and the statement of
fi nancial position may be disaggregated
That entities have fl exibility as to the order in which they present the notes to fi nancial statements
That the share of other comprehensive income of associates and joint ventures accounted for using the equity
method must be presented in aggregate as a single line item, and classifi ed between those items that will or will not
be subsequently reclassifi ed to profi t or loss
STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE
The Group will apply the following new or amended standards and interpretations in the fi nancial statements for the year
2017 or subsequent fi nancial years:
» IFRS 9: FINANCIAL INSTRUMENTS
In July 2014, the IASB issued the fi nal version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting
for fi nancial instruments project: classifi cation and measurement, impairment and hedge accounting.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for
hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively, with some limited exceptions.
During 2016, the Group performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary
assessment is based on currently available information and may be subject to changes arising from further detailed analysis
or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group
expects no signifi cant impact on its statement of fi nancial position or equity from the adoption of IFRS 9.
FINANCIALS
23
(a) Classifi cation and measurement
The Group does not expect a signifi cant impact on its statement of fi nancial position and equity on applying the classifi cation
and measurement requirements of IFRS 9. However, there could be some changes impacting trade receivables relating to
provisionally priced sales.
(b) Impairment
IFRS 9 requires the Group to now use an expected credit loss model for its trade receivables measured at amortised cost.
The Group expects to apply the simplifi ed approach and record lifetime expected losses on all trade receivables measured at
amortised cost. The Group does not expect these changes will have a signifi cant impact.
(c) Hedge accounting
The changes in IFRS 9 relating to hedge accounting will have no impact as the Group does not currently apply hedge
accounting.
» IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS
IFRS 15 was issued in May 2014 and establishes a new fi ve-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15 revenue is recognised at an amount that refl ects the consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS.
Either a full or modifi ed retrospective application is required for annual periods beginning on or after 1 January 2018 with
early adoption permitted.
The Group plans to adopt the new standard (including the clarifi cations issued by the IASB in April 2016) on the required
effective date using the full retrospective method. During 2016, the Group commenced its preliminary assessment of IFRS 15
and some of the key issues it has identifi ed, and its initial views and perspectives, are set may be subject to changes as more
detailed analysis is completed and as interpretations evolve more generally. Furthermore, the Group is considering and will
continue to monitor any further development in relation to the key issues such as provisionally priced sales.
Revenue is recognized when the Group transfers the control to customer either over time or at the point of time. The transfer
of control depend on, among other, terms of delivery (incoterms). The most often used terms are FCA and FOB. Based on
the preliminary assessment of IFRS 15 the Group expects that the adoption will have no material impact on the timing of the
revenue recognition. Presentation requirement will increase the volume of disclosures in Group’s fi nancial statements.
» AMENDMENTS TO IFRS 10 AND IAS 28: SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR
AND ITS ASSOCIATE OR JOINT VENTURE
The amendments address the confl ict between IFRS 10 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 defi ned 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.
The IASB has deferred the effective date of these amendments indefi nitely, but an entity that early adopts the amendments
must apply them prospectively.
The Group will apply these amendments when they become effective.
24
FINANCIALS
» IAS 7 DISCLOSURE INITIATIVE – AMENDMENTS TO IAS 7
The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide
disclosures that enable users of fi nancial statements to evaluate changes in liabilities arising from fi nancing activities,
including both changes arising from cash fl ows and non-cash changes. On initial application of the amendment, entities are
not required to provide comparative information for preceding periods.
These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted.
Application of the amendments will result in additional disclosures provided by the Group.
» IAS 12 RECOGNITION OF DEFERRED TAX ASSETS FOR UNREALISED LOSSES – AMENDMENTS TO IAS 12
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profi ts against
which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments
provide guidance on how an entity should determine future taxable profi ts and explain the circumstances in which taxable
profi t may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the
change in the opening equity of the earliest comparative period may be recognised in the opening retained earnings (or in
another component of equity, as appropriate), without allocating the change between opening retained earnings and other
components of equity. Entities applying this relief must disclose that fact.
These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If
an entity applies the amendments for an earlier period, it must disclose that fact.
These amendments are not expected to have any impact on the Group.
» IFRS 2 CLASSIFICATION AND MEASUREMENT OF SHARE-BASED PAYMENT TRANSACTIONS —
AMENDMENTS TO IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting
conditions on the measurement of a cash-settled share-based payment transaction; the classifi cation of a share-based
payment transaction with net settlement features for withholding tax obligations; and accounting where a modifi cation to the
terms and conditions of a share-based payment transaction changes its classifi cation from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is
permitted if elected for all three amendments and other criteria are met.
The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted.
These amendments are not expected to have any impact to the Group.
» IFRS 16 LEASES
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains
a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form
of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and
requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for fi nance leases
under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal
computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease,
a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use
FINANCIALS
25
the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the
interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in
the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those
payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to
the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue
to classify all leases using the same classifi cation principle as in IAS 17 and distinguish between two types of leases:
operating and fi nance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modifi ed retrospective
approach. The standard’s transition provisions permit certain reliefs.
The Group is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.
1.3 BUSINESS COMBINATIONS AND ACQUISTION OF NON-CONTROLLING
INTERESTS
1.3.1 FINANCIAL YEAR 2016
Afarak did not carry out any acquisitions during the fi nancial year 2016.
1.3.2 FINANCIAL YEAR 2015
Afarak did not carry out any acquisitions during the fi nancial year 2015.
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 2016. The following cash
generating units were defi ned for the impairment testing:
» Speciality Alloys business (Türk Maadin Sirketi and Elektrowerk Weisweiler) with a vertically integrated mining-
benefi ciation-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 unfi nished 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 2016, 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.
26
FINANCIALS
CHANGES IN GOODWILL DURING 2016
During the fi nancial year 2016, the total goodwill of the Group increased by EUR 5.4 million to a total of EUR 63.8 million. The
increase was entirely attributable to an exchange rate movement of EUR 5.4 million. In 2014, the synergy goodwill identifi ed
in the Mogale acquisition, related to Afarak Trading acting as a global sales entity for the whole Group, was initially tested
within Speciality Alloys segment, into which segment Afarak Trading was included. To refl ect the change in segments, where
Afarak Trading is now divided to both segments to refl ect the nature of serving the whole Group, the Afarak Trading synergy
related goodwill is now considered as a group asset and also annually allocated to both segments based on their relative
revenue, refl ecting the volume of Afarak Trading related benefi ts enjoyed by the CGU. The changes are described below:
EUR ‘000
Goodwill 1.1.2016
Exchange rate movement
Goodwill 31.12.2016
Speciality Alloys Business
FerroAlloys Business
Group Total
40,434
2,337
42,771
17,915
3,094
21,009
58,349
5,431
63,780
The changes in goodwill during 2015 are presented 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
Goodwill as a ratio of the Group’s equity on 31 December 2016 and 31 December 2015 was as follows:
EUR ‘000
Goodwill
Equity
Goodwill/Equity, %
31.12.2016
31.12.2015
63,780
176,185
36%
58,349
171,207
34%
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 fl ows based on the conditions and assumptions prevailing at
the time of the testing. Future cash fl ows have been projected for a fi ve-year period, after which a growth rate equalling
projected long-term infl ation has been applied (Speciality Alloys: 2%, South African minerals processing: 6%). For the
terminal year after the fi ve-year estimation period, the essential assumptions (e.g. revenue, variable costs and fi xed costs)
have been based at the estimation period’s previous year’s fi gures.
The weighted average cost of capital (WACC) has been calculated separately for each cash generating unit and assets being
tested, 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 fi nancing. The Group has used publicly available information on the peer group companies’ capital structure, risk
premium and other factors. The market interest rates refl ect the rates applicable on 31 December 2016.
FINANCIALS
27
The information used in the 31 December 2016 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 profi tability 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 fl ow models have been prepared at constant foreign exchange rates. The
management’s approach in preparing cash fl ow forecasts has not changed signifi cantly from the previous impairment testing.
These pre-tax discount rates applied in 2016 impairment testing were the following:
Cash Generating Unit
Pre-tax discount rate
Speciality Alloys
South African minerals processing
2016
12.1%
22.7%
2015
11.9%
24.1%
The key reasons for the changes in the discount rates compared to 2015 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:
< 100%
101-120%
121-150%
> 150%
TEST RESULTS 31 DECEMBER 2016
The impairment test results were as follows:
Conclusion:
Impairment
Slightly above
Clearly above
Signifi cantly above
Cash generating unit
Speciality Alloys
South African minerals processing
Goodwill (MEUR),
pre-testing
Goodwill
(MEUR),
post-testing
Carrying amount
(MEUR),
pre-testing
Conclusion
42.8
21.0
42.8
21.0
63.1
69.2
Signifi cantly above
Signifi cantly above
28
FINANCIALS
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 fl ow forecasts of the impairment testing process are summarised in the
following table:
Cash generating unit
Sales volume
Sales prices
Costs
Speciality Alloys business
South African minerals processing
FeCr:
23,500 t/a
Cr ore:
21,000 t/a
LC/ULC ferrochrome with
average Cr content of
70 %, based on external
experts (Heinz Pariser)
price forecasts
Metal alloys:
91,000 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 infl ation
rate
Raw material costs
generally change in line
with sales price; other
costs growing at infl ation
rate
Moreover, the USD/ZAR foreign exchange rate affects signifi cantly the testing of the South African minerals business. The
foreign exchange rate used in the test was 13.72.
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 2016 are given below:
Cash generating unit
Speciality Alloys
South African minerals processing
Change in pre-tax
discount rate (compared
to the level used in
testing)
Change in free cash fl ow
(annual average)
Change in CGU’s average
EBITDA margin
15.9% - points
49.0% - points
-59.7%
-70.7%
11.2% - points
20.7% - 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 defi ned consistently with the consolidated EBITDA.
FINANCIALS
29
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, 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 benefi ciation 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 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 signifi cant
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 fi nancial
statements.
Operating segment information 2016
Year ended 31.12.2016
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
68,679
68,679
1,052
69,731
321
84,152
84,473
48
321
152,831
153,152
1,100
84,521
154,252
129
289
418
1,349
1,767
0
0
0
-2,449
-2,449 1
Items related to joint ventures (core)
0
116
116
0
Segment EBITDA
5,363
5,024
10,387
-4,909
Depreciation and amortisation
-2,312
-4,161
-6,473
-15
Segment operating
profi t/loss
Finance income
Finance cost
Income taxes
3,051
863
3,914
-4,924
0
0
0
0
Profi t / loss for the period from continuing Operations
Profi t for the period from discontinued operations
30
FINANCIALS
450
153,120
153,570
0
153,570
116
5,478
-6,488
-1,010
2,610
-4,737
339
-2,798
1,861
Profi t / loss for the period
-937
Segment’s assets 2
135,743
135,359
271,102
12,641
-23,503
260,240
Segment’s liabilities 2
44,777
56,959
101,736
2,737
-20,418
84,055
Other disclosures
Gross capital expenditure 3
1,427
1,331
Investment in joint ventures 4
0
-16,234
Provisions 4
2,481
8,309
2,758
-16,234
10,790
39
0
0
0
0
0
2,797
-16,234
10,790
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 2015
Year ended 31.12.2015
EUR ‘000
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
Speciality
Alloys
Ferro
Alloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
0
95,555
95,555
924
259
91,515
91,774
0
259
187,070
187,329
924
96,480
91,774
188,254
125
257
382
1,133
1,516
0
0
0
-2,058
-2,0581
Items related to joint ventures (core)
0
-414
-414
0
Segment EBITDA
12,740
7,467
20,207
-3,017
Depreciation and amortisation
-2,617
-4,678
-7,295
-7
Segment operating
profi t / (loss)
Finance income
Finance cost
Income taxes
10,123
2,789
12,912
-3,024
Profi t / (loss) for the period from continuing Operations
0
0
0
0
384
187,327
187,711
0
187,711
-414
17,190
-7,302
9,888
7,906
-11,274
1,236
7,756
FINANCIALS
31
Profi t for the period from discontinued operations
Profi t / loss for the period
783
8,539
Segment’s assets 2
150,216
129,187
279,403
12,519
-24,929
266,994
Segment’s liabilities 2
52,367
58,855
111,222
2,565
-18,000
95,787
Other disclosures
Gross capital expenditure 3
4,035
3,952
7,988
Investment in joint ventures 4
0
-23,218
-23,218
Provisions 4
2,954
6,455
9,408
0
0
0
0
0
0
7,988
-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.
Geographical information - Revenues from external customers
2016
83,251
24,420
2,644
18,121
4,596
20,538
2015
74,945
42,244
15,407
23,834
5,704
25,577
153,570
187,711
2016
50,591
6,988
1
5,862
2015
46,183
6,636
14
7,741
63,442
60,574
Revenue fi gures are based on the
location of the customers.
The largest customer of the
Group is in the Speciality Alloys
business segment and represents
approximately 5.5% (13.5%) of the
Group’s revenue in 2016. In the
FerroAlloys business segment the
largest customer represents 5.2%
(4.6%) of the Group’s revenue in 2016.
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.
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
32
FINANCIALS
1.6 NOTES TO THE INCOME STATEMENT
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
3. Employee benefi ts
EUR ‘000
Salaries and wages
Share-based payments
Pensions costs
Other employee related costs
Total
Average personnel during the accounting period
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
2016
153,120
450
153,570
2016
2
0
295
1,408
1,705
2016
-17,741
-195
-531
-1,509
-19,976
2016
417
355
7
779
2016
438
369
6
813
2015
187,327
384
187,711
2015
50
57
307
1,917
2,331
2015
-16,330
-293
237
-1,450
-17,836
2015
372
365
5
742
2015
402
365
6
773
FINANCIALS
33
4. Depreciation, amortisation and impairment
EUR ‘000
Depreciation / amortisation by asset category
2016
2015
Intangible assets
Clientele and technology
Other intangible assets
Total
Property, plant and equipment
Buildings and constructions
Machinery and equipment
Other tangible assets
Total
5. Other operating expenses
EUR ‘000
Rental costs
External services1
Travel expenses
Other operating expenses2
Total
-1,517
-283
-1,800
-520
-2,784
-1,384
-4,688
2016
-390
-2,808
-1,001
-8,553
-12,752
-1,740
-350
-2,090
-523
-3,280
-1,409
-5,212
2015
-673
-3,122
-1,059
-7,074
-11,928
1. Audit fees paid to EY totalled EUR 369 (2015: 365) thousand in the fi nancial year. The fees for non-audit services totalled
EUR 51 (2015: 29) thousand.
2. Other operating expenses include shutdown costs of EUR 2,879 (2015: 2,093) thousand in the fi nancial year.
6. Financial income and expense
EUR '000
Finance income
Interest income on loans and trade receivables
Foreign exchange gains
Other fi nance income
Total
Finance expense
Interest expense on fi nancial liabilities measured at amortised cost
Impairment losses on receivables
Foreign exchange losses
Loss on disposal, assets available for sale
Unwinding of discount, provisions
Other fi nance expenses
Total
Net fi nance expense
34
FINANCIALS
2016
967
1,632
11
2,610
-833
0
-3,186
0
-579
-138
-4,737
-2,127
2015
1,327
6,530
49
7,906
-1,734
-1
-8,867
-113
-642
83
-11,274
-3,368
7. Income taxes
EUR '000
Income tax for the period
Income tax for previous years
Deferred taxes
Total
EUR '000
(Loss) / Profi t before taxes
Income tax calculated at parent company income tax rate
Tax exempt income
Difference between domestic and foreign tax rates
Tax credit
Items recognised only for taxation purposes
Income tax for previous years
Income from JV and associates
Tax losses not recognised as deferred tax assets
Non-tax deductible expenses
Previously unrecognised tax losses now recognised
Total adjustments
Income tax recognised
2016
-1,809
6
2,142
339
2016
-1,276
255
0
-74
286
922
6
23
-83
-1,486
490
84
339
2015
494
0
742
1,236
2015
7,303
-1,461
60
-1,542
3,717
723
0
-83
-352
-96
270
2,697
1,236
On 31 December 2016 the Group companies had unused tax losses totalling EUR 30.0 (26.2) million for which the Group has
not recognised deferred tax assets.
8. Discontinued operations
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 profi t by EUR 1.9 (2015: 0.8) million that
includes a release of EUR 0.8 (2015: 0.2) million from the provision in relation to the discontinued wood business.
EUR ‘000
Other operating income
Other operating expenses
Gain on disposal from discontinued operations
Profi t for the period
2016
828
-47
1,080
1,861
2015
580
-357
560
783
FINANCIALS
35
9. Earnings per share
(Loss) / Profi t attributable to owners of
-2,476
1,861
Continuing
operations
Discontinued
operations
Total
-615
Continuing
operations
Discontinued
operations
8,071
783
Total
8,854
2016
2015
the parent company (EUR '000)
Weighted average number of shares,
basic (1,000)
Basic earnings per share (EUR)
total
(Loss) / Profi t attributable to owners of
the parent company (EUR '000)
Weighted average number of shares,
basic (1,000)
258,945
258,945
258,945
256,652
256,652
256,652
-0.01
0.01
-2,476
1,861
0.00
-615
0.03
8,071
0.01
783
0.03
8,854
258,945
258,945
258,945
256,652
256,652
256,652
Effect of share options on issue (1,000)
851
851
851
3,197
3,197
3,197
Weighted average number of shares,
diluted (1,000)
Diluted earnings per share
(EUR) total
259,796
259,796
259,796
259,849
259,849
259,849
-0.01
0.01
0.00
0.03
0.00
0.03
Basic earnings per share is calculated by dividing profi t attributable to the owners of the parent company by weighted
average number of shares during the fi nancial 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
Balance at 1.1.2016
Additions
Disposals
Reclass between items
Land and
water
property
2,049
Effect of movements in exchange rates
Balance at 31.12.2016
243
2,292
Accumulated depreciation and
impairment 1.1.2016
Depreciation
36
FINANCIALS
Buildings and
constructions
Machinery and
equipment
Mines and
mineral assets
Other tangible
assets
7,500
785
-202
8,083
50,134
1,041
-162
2
6,158
57,173
-3,326
-18,027
-520
-2,784
10,931
243
-1,449
9,725
-7,554
-1,148
Total
73,942
2,239
-162
411
4,992
81,422
3,328
170
409
242
4,149
-1,476
-30,383
-238
-4,690
Disposals
2
Effect of movements in exchange rates
164
-2,297
0
1,193
0
-280
2
-1,220
Accumulated depreciation and
impairment at 31.12.2016
Carrying amount at 1.1.2016
Carrying amount at 31.12.2016
Balance at 1.1.2015
Additions
Disposals
Reclass between items
Effect of movements in exchange rates
Balance at 31.12.2015
Accumulated depreciation and
impairment 1.1.2015
Depreciation
Disposals
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
0
-3,682
-23,106
-7,509
-1,994
-36,291
2,049
2,292
2,346
-297
2,049
4,174
4,401
6,515
1,520
-535
7,500
32,107
34,067
54,475
4,971
-893
-28
-8,391
50,134
-3,060
-18,256
-523
257
-3,280
54
3,455
3,377
2,216
11,802
437
-1,308
10,931
-7,230
-1,164
840
1,852
2,155
43,559
45,131
2,915
78,053
408
-5
339
-329
3,328
7,336
-898
311
-10,860
73,942
-1,534
-30,080
-245
3
300
-5,212
57
4,852
0
-3,326
-18,027
-7,554
-1,476
-30,383
2,346
2,049
3,455
4,174
36,219
32,107
4,572
3,377
1,381
1,852
47,973
43,559
Machinery and equipment include the prepayments made for them.
11. Intangible assets
EUR '000
Goodwill
Intangible assets
identifi ed in
acquisitions
Other intangible
assets
Exploration and
evaluation assets
Balance at 1.1.2016
98,454
102,893
4,368
Additions
Disposals
Reclass between items
Effect of movements in exchange rates
11,514
5,265
169
-96
-1
129
1,121
388
133
17,041
Total
206,836
557
-96
-1
Balance at 31.12.2016
109,968
108,158
4,569
1,642
224,337
Accumulated amortisation and
impairment at 1.1.2016
Amortisation
Effect of movements in exchange rates
-40,105
0
-6,083
-89,441
-1,517
-3,132
-1,914
-274
244
-12
-10
-2
-131,472
-1,801
-8,973
FINANCIALS
37
Accumulated amortisation and
impairment at 31.12.2016
-46,188
-94,090
-1,944
-24
-142,246
Carrying amount at 1.1.2016
Carrying amount at 31.12.2016
58,349
63,780
13,452
14,068
Balance at 1.1.2015
110,481
109,232
Additions
Disposals
Reclass between items
-307
Effect of movements in exchange rates
-11,720
-6,339
2,454
2,625
4,863
123
-3
30
-645
1,109
1,618
699
529
75,364
82,091
225,275
652
-310
30
-107
-18,811
Balance at 31.12.2015
98,454
102,893
4,368
1,121
206,836
Accumulated amortisation and
impairment 1.1.2015
Amortisation
Effect of movements in exchange rates
7,325
-47,430
-92,683
-1,740
4,982
-1,753
-338
174
0
-12
-141,866
-2,090
12,481
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
699
1,109
83,409
75,364
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
2016
Non-core associates
Incap Furniture Oy *
Finland
Valtimo Components Oyj *
Finland
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profi t
0
0
0
24.1
24.9
38
FINANCIALS
EUR '000
Domicile
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profi t
2015
Non-core associates
Incap Furniture Oy *
Finland
Valtimo Components Oyj *
Finland
0
0
0
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 fi nancial items.
During the fi nancial year 2016, Afarak did not acquire or
EUR ‘000
1.1.2016
dispose holdings in associates.
Share of profi t
Movements in 2016
During the fi nancial year 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.
Exchange rate differences
Proceeds from disposal
Movements in 2015
EUR ‘000
Share of profi t
Exchange rate differences
Proceeds from disposal
31.12.2016
1.1.2015
31.12.2015
0
0
0
0
0
92
2
15
-109
0
13. Investments in joint ventures
At the end of the fi nancial year 2016, 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 Africa Group has been consolidated as a joint
venture company in the fi nancial reporting of the Group starting at 31 December 2010. Following the 2012 changes in the ac-
counting standards the company changed the accounting method from proportionate consolidation method to equity method.
Summarised fi nancial statement information (100% share) of the joint venture, based on its IFRS fi nancial statements, and rec-
onciliation with the carrying amount of the investment in the Group’s consolidated fi nancial statements are set out below:
FINANCIALS
39
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefi ts expense
Depreciation and amortisation
Other operating expenses
Impairment, net
Operating profi t / loss
Finance income
Finance expense
Profi t/(loss) before taxes
Income taxes
Profi t/(loss) for the year
Group’s share of profi t/(loss) for the year
Profi t/(loss) attributable to:
Joint venture owners
Non-controlling interests
Assets and liabilities
EUR '000
Non-current assets
Intangible assets
Mines and mineral assets
Property, plant and equipment
Non-current assets total
Current assets
Inventories
Trade and other receivables
Trade and other receivables from JV owners
Cash and cash equivalents
Current assets total
40
FINANCIALS
2016
10,355
83
-4,348
-1,199
-906
-4,487
2,127
1,625
1,214
-2,190
649
-422
227
116
248
-132
116
2015
18,954
289
-13,595
-1,124
-1,855
-2,017
0
652
1,891
-3,093
-549
306
-243
-124
-86
-38
-124
2016
2015
5,656
30,875
3,016
39,547
304
3,643
2,999
1,653
8,599
4,187
24,543
2,824
31,555
1,239
419
747
1,264
3,669
Total assets
48,146
35,224
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
22,651
28,134
3,837
8,738
5,549
68,909
8,655
2,413
11,068
79,977
26,423
32,573
1,665
7,046
5,624
73,332
5,255
2,163
7,418
80,750
-31,831
-45,526
Proportion of Group's Ownership
51 %
51 %
Carrying amount of Joint venture
-16,234
-23,218
At the end of 2016, Synergy Africa Group had 80 (65) employees. The average number of employees in full year 2016 was 72 (63).
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 2016.
The statement of fi nancial 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 unfi nished 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 fi nancial position
at the end of the fi nancial year 2016. Similarly to 2015, Synergy Group assessed whether there is any indication of impairment
and consequently the assets of the business were tested for impairment. Subsequent to the impairment assessment made
on the assets of Synergy Group, a reversal of the impairment previously recognised during 2014 was effected in view of more
favourable market conditions.
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 fl ows based on the conditions and assumptions prevailing at the time of the
testing. Future cash fl ows have been projected for the life of mine with a 6% growth rate equalling projected long-term infl ation
has been applied.
FINANCIALS
41
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 fi nancing. Synergy Africa has used publicly available information on the peer
group companies’ capital structure, risk premium and other factors. The market interest rates refl ect the rates applicable on 31
December 2016.
The information used in the 31 December 2016 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 profi tability 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 fl ow 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 2016 impairment testing was 28.31% for Mecklenburg mine and 26.89% for Stellite mine.
The cash fl ows 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 fl ows in the Mecklenburg mine impairment test review includes both opencast and
underground operation. The Stellite mine model has a life of mine of 17 years whereas the Mecklenburg mine model has a life of
mine of 14 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 2016
As a result of the tests carried out Synergy Africa reversed the net write down amounting to ZAR 26 million equivalent to EUR 1.8
million in relation to the Stellite mine due to favourable market conditions. Mecklenburg mine was also reviewed at the end of the
reporting period and the impairment tests indicated that the recoverable amounts from the mine 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 signifi cantly the testing of the South African minerals business. The foreign exchange rate
used in the test was 13.72.
Key background and assumptions used in the cash fl ow forecasts of the impairment testing process are summarised in the
following table:
42
FINANCIALS
Cash generating unit
Sales volume
Sales prices
Costs
Stellite mine
Mecklenburg mine
Concentrate:
Opencast mining
averaging 289,000t/a as
from 2017 till 2033
PGM:
4,465oz t/a from 2017 till
2027;
decreasing to an average
of 1,550oz t/a from 2028
to 2033
ROM:
Opencast mining of
219,300t/a in 2017;
Underground 38,300t/a
in 2017; 308,000t/a in
2018; and is planned to
increase to an average of
391,000t/a as from 2019
till 2030
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
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 infl ation for
the opencast life of mine.
The cost over the life of
mine excluding infl ation is
estimated to be ZAR 1,060
per saleable ton of chrome.
The costs for underground
are based on past
experiences of our mining
team in underground
operations adjusted for
infl ation rate. The cost over
the life of mine excluding
infl ation is estimated to be
ZAR 658 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 2016
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 fl ow (annual
average)
Change in CGU’s
average Cost of
Production
Change in CGU’s
average EBITDA
margin
49.8% - points
25.4% - points
-73.1%
-66.2%
3.7%
11.2%
-13.9%- points
-30.9% - points
FINANCIALS
43
14. Financial assets and liabilities
31.12.2016, EUR '000
Non-current fi nancial assets
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
Non-current interest-bearing
receivables
Trade and other receivables *
Current fi nancial assets
Current interest-bearing
receivables
Trade and other receivables *
Other Financial Assets
Cash and cash equivalents
Carrying amount of fi nancial
assets
Fair value of fi nancial assets
Non-current fi nancial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current fi nancial liabilities
Current interest-bearing liabilities
Trade and other payables *
Carrying amount of fi nancial
liabilities
Fair value of fi nancial liabilities
31.12.2015, EUR '000
172
172
172
28,134
359
3,512
25,930
487
9,651
68,073
68,073
28,306
359
3,512
25,930
487
9,651
68,245
68,245
29
4,170
3,764
14,110
22,073
22,073
29
4,170
3,764
14,110
22,073
22,073
Non-current fi nancial assets
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
Non-current interest-bearing
receivables
Trade and other receivables *
597
33,165
441
33,763
441
44
FINANCIALS
3,519
23,407
19,644
80,773
80,773
2,975
1,969
12,133
11,783
0
0
2,975
1,969
12,133
11,783
28,860
28,860
28,860
28,860
Current fi nancial assets
Current interest-bearing
receivables
Trade and other receivables *
Cash and cash equivalents
Carrying amount of fi nancial
assets
Fair value of fi nancial assets
0
0
597
597
3,519
23,407
19,644
80,176
80,176
Non-current fi nancial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current fi nancial liabilities
Current interest-bearing liabilities
Trade and other payables *
Carrying amount of fi nancial
liabilities
Fair value of fi nancial liabilities
* Non-fi nancial assets and liabilities are not included in the fi gures
FAIR VALUE HIERARCHY
31.12.2016, EUR '000
Financial assets at fair value
Derivatives
Other fi nancial assets
Total
Available-for-sale fi nancial assets
Other fi nancial assets
Financial liabilities at fair value
Carrying amounts at the end of the reporting period
Level 1
Level 2
Level 3
FINANCIALS
45
Derivatives
Total
31.12.2015, EUR ‘000
Financial assets at fair value
Derivatives
Other fi nancial assets
Total
Available-for-sale fi nancial assets
Other fi nancial assets
Financial liabilities at fair value
Derivatives
Total
31.12.2016, EUR ‘000
Level 3 reconciliation
Acquisition cost at 1.1.2016
Acquisition cost at 31.12.2016
Accumulated impairment losses at 1.1.2016
Accumulated impairment losses at 31.12.2016
Carrying amount at 31.12.2016
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
Interest-bearing debt
EUR '000
Non-current
Bank loans
Subordinated loans
46
FINANCIALS
0
0
Carrying amounts at the end of the reporting period
Level 1
Level 2
Level 3
0
0
2016
0
0
40
40
-40
-40
0
40
40
-40
-40
0
2015
2,970
5
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
29
29
3,515
76
173
0
3,764
2016
76
29
105
76
29
105
0
2,975
5,071
22
4,532
2,508
12,133
2015
22
0
22
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 fi nancial and commodity risks are presented in more detail with the related sensitivity analyses.
SUMMARY OF FINANCIAL ASSETS AND LOAN ARRANGEMENTS
Financial assets 31 December 2016
In addition to the operating result and the cash fl ow generated from it the factors described below have most signifi cantly
affected the year-on-year change in the Group’s fi nancial assets at the 2016 closing date:
The Group’s fi nancial assets decreased in consequence of various capital expenditure projects that the Group conducted
during the year. Capital expenditure within the Speciality Alloys segment included the completion of the new dust exhaustion
at EWW and the purchase of a press fi lter system at the new plant in Tavas, Turkey. Capital expenditure within the Ferro
Alloys segment included the replacement of the furnace refractories and the acquisition of new plant vehicles at Mogale
Alloys and the capitalisation of expenditure related to prospecting activities at the Vlakpoort mine. The cash fl ow effect for
capital expenditure totalled EUR 2.6 million during the year.
Also repayments of fi nancial liabilities reduced the Group’s fi nancial assets during the year.
On 31 December 2016, 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 0.0 (0.6) million. Other fi nancial
assets comprise interest-bearing loans and other receivables.
FINANCIALS
47
One of the Group’s Maltese subsidiaries has been granted a trade fi nance loan facility amounting to US$ 5.0 million. The Group
did not utilise the facility provided as at 31 December 2016, but has given a corporate guarantee of US$ 5.0 million as collateral.
Interest-bearing debt 31 December 2016
» Floating rate loans from fi nancial institutions total EUR 3.5 (7.8) million. Fixed rate loans total EUR 0.2 (7.5) million.
» The interest rate of the South African loans is tied to the market rate of JIBAR. The interest rate on 31 December 2016,
based on market interest rates at that date, was 5.50% (6.63%). The interest rate margin for fl oating 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
2016, based on market interest rates at that date, was 0.98% (0.54%). The interest rate margin for fl oating 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
2016, based on market interest rates at that date, was 0.69% (0.45%). The interest rate margin for the fi xed rate notes was
0.75% (0.75%) 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 67.7% (64.2%).
The Group’s loans from fi nancial institutions include fi nancial covenants that if breached might have a negative effect on
the fi nancial positon of the Company. The covenants that the Group is exposed to are: Interest cover ratio of Afarak Trading
Limited must not be lower than 5; Debt cover ratio of Afarak Trading Limited must be greater than 3; leverage ratio of Afarak
Trading 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 fi nancial
plans to remain within the covenant limits. As at the end of the reporting period there has not been any breach of covenants at
both Afarak Trading Limited and at Mogale Alloys.
Financial Risk Management
In its normal operations, the Group is exposed to various fi nancial risks. The main fi nancial 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 fi nancial 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.
48
FINANCIALS
The Group’s signifi cant fi nancial instruments comprise bank loans and overdrafts, fi nance leases, other long-term
liabilities, cash and short-term deposits and money market investments. The main purpose of these fi nancial instruments
is to fi nance the Group’s acquisitions and ongoing operations. The Group also has various other fi nancial 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 fi nancing, so that it has enough liquidity to
serve and fi nance its operations and pay back loans. The availability and fl exibility of fi nancing are targeted to be guaranteed by using
multiple fi nancial institutions in the fi nancing and fi nancial instruments, and to agree on fi nancial limit arrangements.
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 fi nancing could be affected.
The maturity distribution of the Group debt at the end of the fi nancial year was as follows:
31.12.2016, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Bank overdraft
Total
31.12.2015, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Bank overdraft
Total
Carrying
amount
Contractual
cash fl ows
6 months
or less
6-12
months
-3,674
-105
-3,430
-38
-18,280
-14,110
-173
-173
-164
-38
0
0
-22,232
-17,751
-202
-4,279
Carrying
amount
Contractual
cash fl ows
6 months
or less
6-12
months
-8,527
-2,744
-2,314
-22
-12
-13,310
-11,243
-4,532
-4,532
-10
-82
0
-26,391
-18,530
-2,407
-5,454
1-2
years
-80
-29
-4,170
0
1-2
years
-3,469
0
-1,984
0
2-5
years
More than
5 years
0
0
0
0
0
0
0
0
0
0
2-5
years
More than
5 years
0
0
0
0
0
0
0
0
0
0
3,515
105
18,280
173
22,073
8,042
22
13,310
4,532
25,904
(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 fl ows 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 have been recognised in the translation reserve in the equity.
The Group is exposed to currency-derived risks that affect its fi nancial results, fi nancial position and cash fl ows. In
particular the exchange rates of US Dollar and South African Rand against the Euro have a signifi cant impact on the
Euro-denominated profi tability of the Group. The cash infl ows of the business are denominated in US Dollars, whereas a
signifi cant portion of the costs are denominated in the South African Rand. The fl uctuation of the South African Rand has a
signifi cant impact on the Group’s profi t and loss as well as on the Group’s assets and liabilities. In its risk management, the
FINANCIALS
49
Group aims to match its cash infl ows and outfl ows 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.
31.12.2016, EUR ‘000
EUR exchange rate
1
1.0541
0.8562
3.7072
14.4570
Cash and cash equivalents (EUR)
EUR
1,943
USD
5,537
GBP
121
Trade and other receivables (EUR)
4,282
21,182
Loans and other fi nancial assets (EUR)
32,924
Trade and other current payables (EUR)
Loans and other liabilities (EUR)
-1,216
-173
-660
-3,067
TRY
235
217
181
-588
-154
ZAR
1,815
1,346
1,108
-11,307
-4,569
Currency exposure, net (EUR)
4,836
22,991
33,045
-109
-11,607
Currency exposure, net in currency ('000)
4,836
24,235
28,292
-405
-167,802
31.12.2015, EUR ‘000
EUR exchange rate
Cash and cash equivalents (EUR)
Trade and other receivables (EUR)
Loans and other fi nancial assets (EUR)
Trade and other current payables (EUR)
Loans and other liabilities (EUR)
1
EUR
4,026
4,514
28,895
-3,784
-1,913
1.0887
USD
13,768
22,521
821
-828
-8,061
0.7340
3.1765
16.9530
GBP
118
913
-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
The effect on the 31 December 2016 currency denominated net assets which would be caused 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%.
50
FINANCIALS
31 December 2016
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
31 December 2015
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
USD
5,748
4,057
2,555
1,210
0
-1,095
-2,090
-2,999
-3,832
USD
7,055
4,980
3,136
1,485
0
-1,344
-2,566
-3,681
-4,704
GBP
8,261
5,831
3,672
1,739
0
-1,574
-3,004
-4,310
-5,507
TRY
-27
-19
-12
-6
0
5
10
14
18
ZAR
-2,902
-2,048
-1,290
-611
0
553
1,055
1,514
1,934
GBP
TRY
ZAR
254
179
113
53
0
-48
-92
-132
-169
-41
-29
-18
-9
0
8
15
21
27
189
133
84
40
0
-36
-69
-99
-126
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 fl ow but are not accounted for according to the principles of hedge accounting impact the
Group’s operating profi t for the fi nancial year. The underlying foreign currency transactions will realise in future periods.
(iii) Interest rate risk
The Group is exposed to interest rate risk when Group companies take loans, or make other fi nancing 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 fl ows are mainly independent of the changes in market interest rates.
To manage interest rate risks, the Group has used both fi xed and fl oating rate debt instruments and derivative instruments,
such as interest rate swaps, when needed. At the end of 2016, the Group’s interest-bearing debt was mainly based on
fl oating 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
FINANCIALS
51
somewhat diversifi ed. Floating rate fi nancing is mainly tied to the market rates of different countries (United Kingdom, South
Africa), changes to which will then infl uence the Group’s total fi nancing cost and cash fl ows.
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 classifi ed into fi xed rate and fl oating rate instruments on 31
December 2016 and 31 December 2015 was as follows:
Interest rate profi le of interest-bearing fi nancial 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
31.12.2016
31.12.2015
3,500
-212
3,288
28,300
-3,476
24,541
3,500
-7,521
-4,021
33,184
-7,755
25,429
Interest-bearing net debt
27,829
21,408
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 fl oating rate fi nancial 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 2016, and if there were no changes in exchange rates.
31 December 2016
Interest rate
change
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
Change in interest income
Change in interest expense
-566
-424
-283
-141
0
70
52
35
17
0
Net
effect
-496
-372
-248
-124
0
52
FINANCIALS
0.50%
1.00%
1.50%
2.00%
31 December 2015
Interest rate
change
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
141
283
424
566
-17
-35
-52
-70
Change in interest income
Change in interest expense
-664
-498
-332
-166
0
166
332
498
664
155
116
78
39
0
-39
-78
-116
-155
124
248
372
496
Net
effect
-509
-381
-254
-127
0
127
254
381
509
(iv) Credit risk
Credit risk can be realised when the counterparties in commercial, fi nancial or other agreements cannot take care of their
obligations and thus cause fi nancial damage to the Group. The Group’s operational policies defi ne the creditworthiness
requirements for customers and for counterparties in fi nancial 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 profi tability 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 fi nancial institutions with
which the Group has established business relations. The credit rating of all signifi cant counterparties is analysed from time
to time.
FINANCIALS
53
During the fi nancial year, credit losses booked through the profi t and loss were EUR 1.6 (0.0) million. 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
Interest-free
Trade receivables
Other short-term receivables
Trade and other receivable from associate
Long-term receivables
Interest-free, total
Total
EUR ‘000
31.12.2016
EUR ‘000
31.12.2015
9,651
31,634
166
41,451
21,508
5,671
2,925
5,926
36,007
19,644
36,073
611
56,328
23,407
6,507
2,289
6,070
38,273
77,458
94,601
(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 fl uctuations 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 2016.
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 profi t and equity is illustrated below, assuming that the EUR/USD rate were constant. The analysis is based
on December 2016 price level. Since the products are priced in USD, the exchange rate changes could have a major effect on
the Group’s profi tability 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 profi tability most
probably would be lower than shown below. Electricity usage is also substantial, and hence changes in electricity prices have a
signifi cant effect on profi tability; electricity prices do not correlate with changes in commodity prices.
54
FINANCIALS
Financial year 2016
Change in Sales price
(USD / lb Cr)
Change in
Operating Profi t
Change in
Group's Equity
EUR ‘000
EUR ‘000
2.64
2.53
2.42
2.31
2.20
2.09
1.98
1.87
1.76
Financial year 2015
Change in Sales price
(USD / lb Cr)
2.72
2.61
2.49
2.38
2.27
2.15
2.04
1.93
1.81
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
20 %
15 %
10 %
5 %
0 %
-5 %
-10 %
-15 %
-20 %
23,190
17,393
11,595
5,798
0
-5,798
-11,595
-17,393
-23,190
22,031
16,523
11,015
5,508
0
-5,508
-11,015
-16,523
-22,031
Change in
Operating Profi t
Change in
Group's Equity
EUR ‘000
EUR ‘000
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
SENSITIVITY ANALYSIS – FERROALLOYS BUSINESS
The FerroAlloys business’s smelting operation, Mogale Alloys, is able to change its product mix quite rapidly and fl exibly,
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 2016 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 profi tability 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.
FINANCIALS
55
Financial year 2016
Change in Sales price
(USD / lb Cr)
Change in
Operating Profi t
Change in
Group's Equity
1.44
1.38
1.32
1.26
1.20
1.14
1.08
1.02
0.96
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
28,160
21,120
14,080
7,040
0
-7,040
-14,080
-21,120
-28,160
20,275
15,206
10,137
5,069
0
-5,069
-10,137
-15,206
-20,275
Financial year 2015
Change in Sales price
(USD / lb Cr)
Change in
Operating Profi t
Change in
Group's Equity
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
2016
21,552
83
26,789
48,424
2015
16,389
117
28,647
45,153
1.10
1.06
1.01
0.97
0.92
0.87
0.83
0.78
0.74
15. Inventories
EUR '000
Goods and supplies
Unfi nished products
Finished products
Total
56
FINANCIALS
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
2016
21,508
487
3,512
3,664
2,699
4,422
36,292
2015
23,407
415
3,519
3,307
5,058
5,073
40,779
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 fulfi l 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
17. Cash and cash equivalents
EUR '000
Cash and bank balances
Pledged deposits
2016
11,624
8,108
651
211
914
21,508
2016
9,609
3
2015
12,708
10,936
96
99
-432
23,407
2015
18,793
508
FINANCIALS
57
Cash and cash equivalents in the cash fl ow statement:
EUR ‘000
Cash and bank balances
Short-term money market investments
Total
18. Notes to equity
2016
9,609
42
9,651
2015
18,793
851
19,644
Number of
registered shares
Number
of shares
on issue
Share
capital,
EUR '000
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
Subscriptions based on share based payment
0
500,000
0
31.12.2016
263,040,695
259,295,978
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 specifi c decision.
TRANSLATION RESERVE
The translation reserve comprises all foreign currency differences arising from the translation of fi nancial statements of
foreign operations.
TREASURY SHARES
On 31 December 2016 the Company had altogether 3,744,717 (4,244,717) of its own shares, which was equivalent to 1.42 (1.61)
% of all registered shares. The total number of shares outstanding, excluding the treasury shares held by the Company on 31
December 2016 was 259,295,978 (258,795,978).
The Company’s subsidiaries do not hold any of Afarak Group Plc’s shares.
58
FINANCIALS
SHARE ISSUE AUTHORISATIONS GIVEN TO THE BOARD OF DIRECTORS
The Annual General Meeting held on 11 May 2016 resolved to authorise the Board of Directors to decide on the acquiring of
company’s own shares.
By virtue of the authorization for the acquisition of own shares, a maximum of 15,000,000 own shares could be acquired with
the funds from the Company’s unrestricted shareholders’ equity, however, in such a way that the total number of own shares,
which the Company and its subsidiaries have in their possession or as a pledge, does not exceed one tenth of all shares in
accordance with Section 11 of Chapter 15 of the Finnish Companies Act. The authorization covers acquisition of shares in
public trade in NASDAQ Helsinki Oy and also outside of the public trade. The compensation paid for acquired shares shall be
based on the market value.
Derivative contracts, share loan agreements or other agreements may be made within laws and regulations if they are
customary to capital market. The authorization entitles the Board of Directors to make a resolution on acquisition
otherwise than in the relation of the shares owned by the shareholders (directed acquisition) according the
preconditions set forth in the Companies Act.
The AGM resolved that the authorization concerning the acquisition of own shares would among other things be used in
developing the company’s capital structure, in fi nancing and executing corporate acquisitions and other arrangements, in
executing the company’s share-based incentive systems or otherwise in being transferred or cancelled. The acquisition of
shares reduces the company’s distributable non-restricted shareholders’ equity.
The AGM resolved that the authorization replaces all previous authorizations and that it is valid 18 months as from the
decision of the 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).
SHARE PERFORMANCE AND TRADING
During the fi nancial year 2016, the price of Afarak Group’s share in London Stock Exchange varied between GBP 0.28 (0.25)
and GBP 0.38 (0.33) and in NASDAQ Helsinki between EUR 0.39 (0.33) and EUR 0.90 (0.67). Afarak’s share closed in London
at the end of the fi nancial year at GBP 0.38 (0.33) and Helsinki at EUR 0.78 (0.40). The closing price on 31 December gives the
Company a market capitalisation of the entire capital stock 263,040,695 (263,040,695) shares of GBP 98.6 (85.5) million and
EUR 203.9 (105.7) million.
A total of 2,451,925 (13,248) Afarak shares were traded in London and 36,108,050 (38,224,080) shares in Helsinki during the
fi nancial year, representing 0.93% (0.01%) of stock in London and 13.73% (14.53%) in Helsinki.
SHAREHOLDERS
On 31 December 2016, the Company had a total of 5,140 shareholders (4,433 shareholders on 31 December 2015), of which
nine were nominee-registered. The registered number of shares on 31 December 2016 was 263,040,695 (263,040,695).
FINANCIALS
59
Largest shareholders on 31 December 2016
Shareholder
1 Nordea Bank Finland Plc
2 Hino Resources Co. Ltd *
3
Joensuun Kauppa ja Kone Oy
4 Hanwa Company Limited
5 Kankaala Markku Olavi
6 Hukkanen Esa Veikko
7 Afarak Group Plc
8 Skandinaviska Enskilda Banken AB
9 Clearstream Banking S.A.
10 Lemmetti Juhani
Total
Other Shareholders
Total shares registered
Shares
160,190,656
36,991,903
12,176,240
9,000,000
7,066,116
4,164,848
3,744,717
3,714,181
1,791,530
1,065,034
239,905,225
23,135,470
263,040,695
%
60.9
14.1
4.6
3.4
2.7
1.6
1.4
1.4
0.7
0.4
91.2
8.8
100.0
*According to the latest fl agging notifi cation of Hino Resources Co. Ltd (“Hino”) published 21 June 2016, the total holdings of Hino are
36,991,903 shares representing 14.06 % of the total number of shares.
Afarak Group Plc’s Board members and Chief Executive Offi cer owned in total 8,266,116 (7,813,287) Afarak Group Plc shares
on 31 December 2016, including shares owned either directly, through persons closely associated with them or through
controlled companies. This corresponds to 3.2% (3.0%) of the total number of registered shares on 31 December 2016.
Shareholders by category 31 December 2016
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
806
2,372
1,632
287
32
8
3
5,140
9
15.68
46.15
31.75
5.58
0.62
0.16
0.06
100.00
0.18
48,707
1,272,843
5,786,185
7,801,039
7,176,798
31,596,324
209,358,799
263,040,695
167,328,388
263,040,695
0.02
0.48
2.20
2.97
2.73
12.01
79.59
100.00
63.61
100.00
60
FINANCIALS
Shareholders by shareholder type on 31 December 2016
Finnish shareholders
of which:
Companies and business enterprises
Banking and insurance companies
Households
Foreign shareholders
Total
of which nominee-registered
% of share capital
18.83%
6.85%
0.29%
11.70%
81.17%
100.00%
63.61%
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 outgoing CEO, Alistair Ruiters 1,000,000 shares in the Company. The agreement provided
that these would be awarded in two tranches and vested based on completed year of service. The fi rst 500,000 Company shares
have effectively been received on 14 September 2016. The second 500,000 Company shares had to be received by the employee on
22 May 2017 after completing his second year as CEO. As the full term was not completed the second 500,000 will be given prorate
FINANCIALS
61
over the second year which results to 322,581 shares. These shares have a lock-up period of two years from 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 of the unvested portion EUR 121,505.
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
satisfi ed. 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 (EUR 0.5 per share) has been fully satisfi ed through offset against the settlement receivables of
the Vendor related to the Mogale Alloys acquisition.
In December 2016 the Group has granted the new CEO, Guy Konsbruck 1,000,000 shares in the Company. These will be awarded
in two tranches and vested based on completed year of service. The fi rst 500,000 Company shares shall be received once the
fi rst vesting period has lapsed, on 15 January 2018. The second 500,000 Company shares shall be received by the employee on
15 January 2019. 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 0.81 per share. The value at year end
was EUR 0 as the effective date of service is 15 January 2017.
Share option plan
Nature of the plan
Grant date
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
Share options
Share options
Share options
issued
1.4.2012
issued
issued
28.10.2008
28.10.2008
issued
17.5.2010
Number of options
6,191,998
1,450,000
1,450,000
100,000
Options series
Exercise period
Dividend adjustment
Exercise price (with dividend and capital
redemption adjustment)
Share price at grant date
Option life
Conditions
Execution
I/2011
I/2008
I/2008
F (I/2005)
1.7.2014-1.8.2017
1.10.2010-
31.12.2015
1.10.2009-
31.12.2015
1.7.2012-30.6.2015
yes
0.00 - 0.86
0.90
1.1 - 3.1
Employment until
the vesting date
and target share
price
yes
2.18
1.26
5.3
yes
2.18
1.26
6.3
yes
0.78
1.00
3.0
Employment until
the vesting date
Employment until
the vesting date
Employment until
the vesting date
In shares
In shares
In shares
In shares
Expected volatility
45 %
44 %
44 %
56 %
62
FINANCIALS
Expected option life at grant date (years)
5.3 years
5.0 years
5.0 years
5.1 years
Risk free rate, Euribor 12 months
2.24%
4.33%
4.33%
3.11%
Expected dividend yield
0.00%
0.00%
0.00%
0.00%
Fair value at grant date (EUR)
0.14-0.46
0.33
0.33
1.06
Valuation model
Up and in Call
Black & Scholes
Black & Scholes
Black & Scholes
Changes in share options issued and in weighted average exercise prices:
At the beginning of 2015
Forfeited options
Forfeited options
At the end of 2015
Exercisable at the end of 2015
At the beginning of 2016
At the end of 2016
Exercisable at the end of 2016
Weighted average exercise price (with
dividend and capital redemption adjustment)
EUR/share
Number of options
0.83
0.78
2.18
0.26
0.26
0.26
0.26
0.26
9,191,998
100,000
2,900,000
6,191,998
2,100,000
6,191,998
6,191,998
2,100,000
The exercise prices of existing share options and their years of forfeiting are presented below:
Year of forfeiting
2017
Exercise price (EUR)
0.00-0.86
Number of shares
6,900,000
The exercise price above represents the original contractual exercise price adjusted by dividends and capital redemptions before
the 2017 AGM.
20. Deferred tax assets and liabilities
Movements in deferred taxes in 2016
EUR '000
Deferred tax assets:
Unrealised expenses
Pension liabilities
From translation difference
Group eliminations
Total
31.12.2015
Exchange rate
differences
Recognised
in income
statement
Business
combinations
and
divestments
31.12.2016
608
815
1,127
710
3,260
-12
-35
-47
934
6
-3
289
1,226
1,530
964
1,124
964
4,439
0
FINANCIALS
63
Deferred tax liabilities:
Assets at fair value in accuisitions
Other timing differences
Total
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
Other timing differences
Total
21. Provisions
EUR ‘000
Balance at 1.1.2016
Additions
Releases and reversals
Unwinding of discount
Exchange differences
Balance at 31.12.2016
EUR ‘000
Long-term provisions
Short-term provisions
Total
4,947
1,002
5,949
704
120
824
-805
-111
-916
4,846
1,011
5,857
0
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
1,805
8,200
-7
-30
-37
-504
-182
-686
-972
-173
187
132
-826
-944
-621
-1,565
-43
-43
0
Environmental and
rehabilitation provisions
Other provisions
8,177
133
-242
642
937
9,647
2016
10,691
99
10,790
1,231
445
-412
0
-121
1,143
2015
9,309
99
9,408
608
815
1,127
710
3,260
4,947
1,002
5,949
Total
9,408
578
-654
642
816
10,790
The long-term provisions in the statement of fi nancial position relate to environmental and rehabilitation provisions of the
Group’s production facilities and mines. The provisions are based on expected liability.
22. Pension liabilities
Defi ned benefi t pension plans
The majority of the Group’s pension plans are defi ned contribution plans for which a total expense of EUR 0.8 (0.8) million has
been recognised on the 2016 statement of comprehensive income. In addition, the Group’s German subsidiary has defi ned
64
FINANCIALS
benefi t plans. The obligations relating to the plans have been defi ned by actuarial calculations. The pension scheme is
arranged by recognising a provision on the statement of fi nancial position. The present value of the obligation less fair value
of plan assets totalled EUR 20.1 (18.7) million on 31 December 2016. 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.
Retirement benefi t obligation
EUR '000
Present value of funded obligation
Fair value of plan assets
Net liability
Movements in defi ned benefi t obligation
EUR '000
Defi ned benefi t obligations at 1.1.
Benefi ts paid
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.
Interest income on plan assets
Benefi ts paid by the plan
Return on plan assets greater/(less) than discount rate
Contributions paid into the plan
Closing balance at 31.12.
2016
25,896
-5,799
20,097
2016
24,101
-783
364
524
1,690
25,896
2016
5,367
122
-144
81
374
5,799
2015
24,101
-5,367
18,734
2015
24,454
-781
393
510
-475
24,101
2015
4,500
98
-131
511
389
5,367
The funded pension plan has been fi nanced through an insurance company and therefore asset specifi cation is not available.
FINANCIALS
65
Expense recognised in statement of comprehensive income
EUR '000
Current service cost
Net interest on net defi ned benefi t liability/(asset)
Expense recognised in other comprehensive income (OCI)
EUR ‘000
Actuarial (gains)/losses due to liability experience
Return on plan assets (greater)/less than discount rate
Actuarial (gains)/losses due to liability assumption changes
Actual return on plan assets totalled EUR 0.08 (0.50) million in 2016.
Principal actuarial assumptions
Discount rate
Expected retirement age
Expected return on plan assets
Expected rate of salary increase
Infl ation
2016
-364
-402
-766
2016
-205
-81
1,895
1,609
2016
1.75 %
63
3.69 %
3.00%
2.25 %
2015
-393
-412
-805
2015
-82
-511
-393
-986
2015
2.22 %
63
1.83 %
3.00%
2.25 %
The expected retirement age has been assumed to be in accordance with German legislation (RVAGAnpG 2007). Similarly, the ex-
pected pension increases have been assumed to be in line with the German legislation, and mortality expectancy in accordance
with the German “Richttafeln 2005 G” has been applied in the valuations.
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 2016, the employee severance indemnity recognised in accordance with IAS 19 totalled EUR 0.8 (0.8) million.
23. Trade payables and other interest-free liabilities
EUR ‘000
Non-current
Other liabilities
Total non-current
66
FINANCIALS
2016
4,170
4,170
2015
1,969
1,969
Current
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 Current
1.8 RELATED PARTY DISCLOSURES
1.8.1 Group structure on 31 December 2016
Name
Afarak doo Belgrade
Afarak Holdings Ltd
Afarak Investments Ltd
Afarak Mining Ltd
Afarak Services Sagl
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
Duofl ex (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
Rekylator Oy
Rekylator Invest Oy
Rekylator Wood Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
6
13,291
339
4,349
200
4,655
274
23,114
6
9,673
209
4,797
100
6,036
579
21,400
Country of
incorporation
Group's
ownership and
share of votes
(%)
Afarak Group
Plc's direct
ownership and
share of votes
(%)
Serbia
Malta
Malta
South Africa
Switzerland
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
100.00
100.00
100.00
100.00
100.00
100.00
74.00
100.00
100.00
100.00
74.00
Germany
100.00
Turkey
Finland
Turkey
South Africa
Malta
Finland
Finland
Finland
Finland
Turkey
99.00
100.00
97.76
90.00
100.00
100.00
100.00
100.00
100.00
98.75
0.00
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
0.00
100.00
0.00
0.00
100.00
98.75
FINANCIALS
67
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 *
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
Finland
Finland
51.00
51.00
37.74
41.05
44.24
24.06
24.90
0.00
0.00
0.00
0.00
0.00
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 Afarak Suisse in 2015.
Afarak divested its holding in the associated company Speciality Super Alloys Inc in 2015. 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 defi nes 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
EUR ‘000
2016
2015
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
Kankaala Markku
Board member 30.6.2003 onwards
Koncar Danko
Lillja Michael
CEO 11.2.2013 – 20.5.2015, Board
member 11.8.2010 – 7.5.2015
Board member 11.2.2013 –
12.5.2016
0
54
Manojlovic Jelena
Board member 11.7.2008 onwards,
Chairperson 17.6.2009 - 7.5.2015
60
60
86
120
58
58
68
FINANCIALS
Parodi Afredo
12.5.2016, Chairman 8.5.2015 –
Board member 11.2.2013 –
12.5.2016
Smart Bernice
Board member 11.2.2013 – 7.5.2015
Ruiters Alistair
Board member 8.5.2015 onwards,
CEO 21.5.2015 – 9.12.2016
360
Rourke Barry
Board member 8.5.2015 onwards
Jakovcic Ivan
Board member 8.5.2015 onwards,
Chairman 12.5.2016 onwards
Scott Keith
Board member 12.5.2016 - 9.12.2016
Djakov Milan
Board member 12.5.2016 onwards
26
80
68
35
35
178
242
66
19
47
39
183
Total
414
363
178
448
287
183
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 outgoing CEO received an annual salary of EUR 360,000. On 14 September 2016 he received 500,000 Company Shares as
an incentive for the fi rst year of service acting as the Chief Executive Offi cer. The second 500,000 Company shares had to be
received by the employee on 22 May 2017 after completing his second year as CEO. As the full term was not completed the
second 500,000 will be given prorate over the second year which results to 322,581 shares. He is not entitled to any bonus
plans or severance pay in addition to the salary for the notice period.
The Group makes no pension arrangements for the CEO beyond the statutory pension coverage, and there is no set
retirement age.
Management remuneration
EUR ‘000
Short-term employee benefi ts
Total
2016
366
366
2015
258
258
The table includes the Executive Management Team remuneration excluding the CEO. The CEO and Board members
compensation has been presented separately.
FINANCING ARRANGEMENT WITH RELATED PARTIES
The Group has a EUR 28.1 (32.6) million loan receivable and EUR 8.5 (7.9) 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 0.3 (0.2)
million. Interest income from a joint venture company totalled EUR 0.8 (1.0) million during the fi nancial year 2016.
The Group had on 31 December 2016 a EUR 3.5 (3.5) 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 (0.4)
million. The Group has also made raw material purchases from a joint venture amounting to EUR 4.6 (12.0) million.
Dividends received from associated companies totalled EUR 0.0 (0.0) million.
On 31 December 2016 the Group’s parent company had short-term loan receivables from the members of the Board amounting to
EUR 0.0 (0.0) million.
FINANCIALS
69
1.9 COMMITMENTS AND CONTINGENT LIABILITIES
1.9.1 MORTGAGES AND GUARANTEES PLEDGED AS SECURITY
On 31 December 2016 the Group had loans from fi nancial institutions totalling EUR 3.5 (8.0) million. The Group has provided
real estate mortgages and other assets as collaterals for total carrying value of EUR 53.6 (64.2) million. Moreover, the Group
companies have given cash deposits totalling EUR 0.1 (0.1) million as security for their commitments. The value of other collaterals
totalled EUR 0.0 (0.5) million as at 31 December 2016. Afarak Group Plc has given guarantees for third party loans totalling EUR 0.2
(1.3) million.
1.9.2 COVENANTS INCLUDED IN THE GROUP’S FINANCING AGREEMENTS
One of the Group’s Maltese subsidiaries, Afarak Trading Ltd, was granted a loan facility from a Maltese bank in 2013. As at
year end 2016 the balance was US$ 3.2 (EUR 3.1) million and the fi nancial covenants attached to this loan were not breached
at the end of the reporting period. The Group’s South African subsidiary, Mogale Alloys also had bank facilities with local
banks amounting to ZAR 5.9 (EUR 0.4) million at year end and are disclosed as current fi nancial liability in the fi nancial
statements. The fi nancial coventants attached to this loan were not breached at the end of the reporting period.
1.9.3 RENTAL AGREEMENTS
Liabilities associated with rental and operating lease agreements totalled some EUR 0.4 (0.7) million for the period.
Typically, the rental agreements maturity varies between two to fi ve 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 2016.
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 2016 the indebtedness subject to these guarantees was EUR 0.2 (1.3) million in aggregate.
70
FINANCIALS
1.10 EVENTS AFTER THE REPORTING PERIOD
On 12 January 2017, Afarak announced that it has entered into a Mining Services Agreement with Pholagolwa Mining to
continue the opencast mining Mecklenburg. Work is currently underway on increasing the high wall to 65 metres from 40
metres. The fi rst tonnages are expected shortly and full production is expected to be reached by April for a period of six
months. Full production will be 30,000 tons of chrome ore per month and the total opencast for the project is expected to
be just over 200,000 tons of chrome ore. This will also allow better access to the underground mining area which has the
potential to produce 4.5 million tons of chrome ore. Development of the shaft is scheduled to start later this year.
On 18 January 2017, Afarak announced that an agreement was made between Afarak Mogale and the Mogale Alloys Workers Trust
on the purchase of all the shares the Trust holds in Afarak Mogale. In 2009; Ruukki Group, today Afarak Group, acquired 90% of
Afarak Mogale. The remaining 10% was held by the Mogale Alloys Workers Trust. For the past 5 years, numerous requests have been
made by the benefi ciaries of the Mogale Alloys Workers Trust for Afarak Group to acquire the additional 10%. After several years of
negotiation, an agreement was reached between the Trust and Afarak Mogale, with the approval of the majority of the benefi ciaries of
the Trust. Afarak Mogale has put forward an offer of ZAR 64.9 million to acquire the remaining 10% in a share buy-back scheme that
will see the shares transferred to Afarak Mogale over an 8-year period which was accepted by the trust.
On 17 March 2017, Afarak has received a fl agging notifi cation in accordance with Chapter 9, Section 5 of the Finnish Securities
Markets Act from shareholders Joensuun Kauppa ja Kone Oy and Esa Hukkanen (the “shareholders”). In accordance with the
fl agging notifi cation, the shareholders have agreed to use their voting rights togetherin Afarak Group Plc and their agreement
has resulted in them having their shareholding to be above 5% becoming a 6.05% per cent holder of the shares and voting
rights in Afarak.
On 17 March 2017, Afarak announced that Mr Markku Kankaala has resigned from Afarak Group’s Board of Directors.
Consequently, the Board of Directors of Afarak will have fi ve members up until the next shareholders’ meeting.
On 22 March 2017, Afarak has received a fl agging notifi cation in accordance with Chapter 9, Section 5 of the Finnish Securities
Markets Act from a group of shareholders (the “shareholders”). In accordance with the fl agging notifi cation, the shareholders
have agreed to use their voting rights together in Afarak Group Plc and their agreement has resulted in them having their
shareholding to be above the 10% benchmark, becoming a 10.01% per cent holder of the shares and voting rights in Afarak.
Their total of shares and voting rights stands at 26,325,048.
FINANCIALS
71
PARENT COMPANY’S
FINANCIAL STATEMENTS
INCOME STATEMENT
EUR '000
Revenue
Other operating income
Personnel expenses
Salaries and wages
Pension expenses
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 LOSS
Financial income and expenses:
Other fi nancial income
From Group companies
From others
Interests and other fi nancial expenses
To Group companies
To others
Financial income and expenses total
LOSS BEFORE TAXES
Income taxes
Income taxes
Note
1.1. - 31.12.2016
1.1. - 31.12.2015
1
2
3
4
5
6
1,482
0
-1,401
-8
-19
-27
-1,068
-12
-12
-2,265
-1,863
1,882
20
-51
-175
1,676
-186
1,259
57
-861
-4
-30
-34
-895
-5
-5
-1,951
-1,535
1,093
488
-51
-110
1,420
-115
0
0
LOSS FOR THE YEAR
-186
-115
72
FINANCIALS
PARENT COMPANY’S
FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
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
EUR '000
Note
31.12.2016
31.12.2015
7
8
9
1
1
215,931
8,015
223,946
223,947
43,105
0
43,105
1
9,667
1,166
31
3
13
14
14
215,931
8,015
223,946
223,960
47,965
128
48,093
1
9,318
1,164
181
8
192
10,881
10,864
291
603
54,277
59,560
278,224
285,520
Note
31.12.2016
31.12.2015
FINANCIALS
73
PARENT COMPANY’S
FINANCIAL STATEMENTS
BALANCE SHEET (FAS)
EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Share premium reserve
Paid-up unrestricted equity reserve
Retained earnings
Profi t 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
10
11
23,642
25,223
241,257
-13,953
-186
275,983
1,248
0
1,248
162
11
150
458
212
993
23,642
25,223
246,433
-13,839
-115
281,344
1,248
5
1,253
113
77
86
441
206
923
TOTAL LIABILITIES
2,241
2,176
TOTAL EQUITY AND LIABILITIES
278,224
283,520
74
FINANCIALS
PARENT COMPANY’S
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (FAS)
EUR '000
Operating activities
Loss for the year
Adjustments:
Depreciation and amortisation
Impairment, net
Unrealised foreign exchange gains and losses
Finance income and expense
Cash fl ow before working capital changes
Working capital changes:
Change in current trade receivables
Change in current non interest-bearing debt
Cash fl ow before fi nancing items and taxes
Interests received from Group companies
Interests received and other fi nancing items
Interests paid and other fi nancing items
Income taxes paid
Net cash used in operating activities
Investing activities
Acquisition of subsidiaries and associates
Proceeds from sale of tangible and intangible assets
Net cash from 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)/from fi nancing activities
Change in cash and cash equivalents
Cash at beginning of period
Cash at end of period
Change in the balance sheet
1.1. - 31.12.2016
1.1. - 31.12.2015
-186
12
-809
142
-894
-1,735
6
8
-1,721
945
20
-225
34
-947
0
2
2
5,719
84
0
6
-5,176
633
-312
603
291
-312
-115
5
0
-60
-1361
-1,530
-1,134
-324
-2,988
1,014
166
-110
1
-1,917
6
0
6
7,929
10
-555
15
-5,106
2,293
382
221
603
381
FINANCIALS
75
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.
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 fi nancial income.
The value of property, plant and equipment in the statement of fi nancial position is stated at acquisition cost, less
accumulated depreciation. Other assets have been stated in the statement of fi nancial position 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 defi ned 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
Items in the statement of fi nancial position denominated in foreign currency are translated into functional currency using
the exchange rates as at the end of the reporting year. 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 fi nancial 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 fi nancial arrangements. The
transactions have had signifi cant non-recurring effects on the Company’s income statement and statement of fi nancial
position, which make comparison of fi nancial statements and estimating the future more diffi cult.
76
FINANCIALS
2.2 NOTES TO THE INCOME STATEMENT
1. Revenue
EUR '000
By business line:
Services
Total
By geography:
Finland
EU countries
Other countries
Total
2. Other Operating Income
EUR '000
Other income
Total
3. Depreciation, Amortisation and Impairment
EUR '000
Depreciation and amortisation according to plan
Machinery and equipment
Total
4. Other Operating Expenses
EUR '000
Voluntary employee benefi ts
Premise expenses
Machinery and equipment expenses
Travelling expenses
Representation expenses
Marketing expenses
Administration expenses
Other operating expenses
Total
2016
1,482
1,482
3
786
693
1,482
2016
0
0
2015
1,259
1,259
3
616
640
1,259
2015
57
57
2016
2015
-12
-12
-5
-5
2016
2015
-72
-20
-77
-54
0
0
-1,762
-279
-2,265
-19
-63
-77
-32
-14
-9
-1,720
-17
-1,951
FINANCIALS
77
5. Financial Income and Expense
EUR '000
2016
2015
Other fi nancial income
From Group companies
From others
Other fi nancial expense
To Group companies
To others
Total
6. Income Taxes
EUR '000
Profi t 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.
78
FINANCIALS
1,882
20
-51
-175
1,676
2016
-186
-784
-970
0
0
0
0
0
0
0
1,093
488
-51
-110
1,420
2015
-115
26
-89
-34
34
0
0
0
34
0
2016
2015
277
-2
275
263
11
274
1
283
-6
277
258
5
263
14
8. Investments
Acquisition cost 1.1.2016
Acquisition cost 31.12.2016
Accumulated depreciation and
impairment 1.1.2016
Accumulated depreciation and
impairment 31.12.2016
Book value 31.12.2016
Shares in Group
companies
Shares in associated
companies
Receivables from Group
companies
285,979
285,979
8,153
8,153
19,618
19,618
Total
313,750
313,750
-70,048
-8,153
-11,603
-89,804
-70,048
215,931
-8,153
0
-11,603
8,015
-89,804
223,946
Holdings in Group and other companies
Name
Country of incorporation
Group's ownership and
share of votes (%)
AfarakGroup Plc’s direct
ownership and share of
votes (%)
Afarak doo Belgrade
Afarak Holdings Ltd
Afarak Investments Ltd
Afarak Mining (Pty) Ltd
Afarak Services Sagl
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
Duofl ex (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
Rekylator Oy
Rekylator Invest Oy
Rekylator Wood Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
Serbia
Malta
Malta
South Africa
Switzerland
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Turkey
South Africa
Malta
Finland
Finland
Finland
Finland
Turkey
100.00
100.00
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
0.00
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
0.00
100.00
0.00
0.00
100.00
98.75
FINANCIALS
79
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 *
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
Finland
Finland
51.00
51.00
37.74
41.05
44.24
24.06
24.90
0.00
0.00
0.00
0.00
0.00
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.
Afarak divested its holding in the associated company Speciality Super Alloys Inc in 2015. 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
80
FINANCIALS
2016
2015
43,105
0
43,105
7,304
2,345
3
15
9,667
2016
12
47,887
78
47,965
7,304
1,967
35
12
9,318
2015
19
VAT receivable
Total
Other interest-free receivables
EUR ‘000
Non-current
Other prepaid expenses and accrued income
Total
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.
Share Issue
Capital redemption to the shareholders
Paid-up unrestricted equity reserve 31.12
Retained earnings
Retained earnings 1.1.
Profi t for the previous fi nancial year
19
31
2016
0
0
1
1,166
3
1,170
0
1
12
13
2016
23,642
23,642
25,223
25,223
2016
246,433
0
-5,176
241,257
2016
-13,839
-115
162
181
2015
128
128
1
1,164
8
1,174
34
1
157
192
2015
23,642
23,642
25,223
25,223
2015
249,800
1,739
-5,106
246,433
2015
-13,644
-195
FINANCIALS
81
Retained earnings 31.12.
Loss for the fi nancial year
Total shareholders’ equity
Distributable funds
Retained earnings 1.1.
Profi t for the fi nancial year
Retained earnings 31.12.
Paid-up unrestricted equity reserve
Distributable funds 31.12.
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
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
-13,953
-13,839
-186
275,983
2016
-13,953
-186
-14,139
241,527
227,388
2016
1,248
1,248
2016
0
0
2016
50
50
2016
11
150
458
112
212
942
-115
281,344
2015
-13,839
-115
-13,953
246,433
232,480
2015
1,248
1,248
2015
5
5
2015
50
50
2015
77
86
441
63
206
872
Option rights
The Company’s option schemes are presented in the notes to the consolidated fi nancial 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).
82
FINANCIALS
2.5 PLEDGES AND CONTINGENT LIABILITIES
EUR million
Commitments on behalf of subsidiaries
Guarantees
Commitments on behalf of others
Guarantees
Commitments and contingent liabilities total
31.12.2016
31.12.2015
3.1
0.2
3.3
11.9
1.3
13.2
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 13 (102)
thousand.
Information on the personnel
Personnel, annual average
(all employees)
Employees
Management remuneration
Chief Executive Offi cer
Board members
2016
3
2016
360
363
2015
3
2015
425
286
The outgoing CEO received an annual salary of EUR 360,000. On 14 September 2016 he received 500,000 Company Shares
as an incentive for the fi rst year of service acting as the Chief Executive Offi cer. The second 500,000 Company shares had to
be received by the employee on 22 May 2017 after completing his second year as CEO. As the full term was not completed
the second 500,000 will be given prorate over the second year which results to 322,581 shares. 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 of the unvested portion EUR
121,505. He is not entitled to any bonus plans or severance pay in addition to the salary for the notice period.
The Group makes no pension arrangements for the CEO beyond the statutory pension coverage, and there is no set
retirement age.
FINANCIALS
83
INFORMATION ON SHARES AND SHAREHOLDERS
Changes in the number of shares and share capital
On 31 December 2016, the registered number of Afarak Group Plc shares was 263,040,695 (263,040,695) and the share capital
was EUR 23,642,049.59 (23,642,049.59).
On 31 December 2016, the Company had 3,744,717 (4,244,717) own shares in treasury, which was equivalent to 1.42% (1.61%)
of the issued share capital. The total amount of shares outstanding, excluding the treasury shares held by the Company on 31
December 2016, was 259,295,978 (258,795,978).
On 14 September 2016, Afarak announced that it had completed the transfer of 500,000 ordinary shares (the “Shares”) from
the treasury to Dr Alistair Ruiters, CEO. The Shares were issued under the authorization given by the Company’s Annual
General Meeting in May 2016 and form a part of the CEOs service based remuneration package.
More information on shares, share capital and shareholders have been presented in the notes to the consolidated fi nancial
statements.
Information obligated to a Group company
The Company is the Group’s parent company.
Afarak Group Plc, domicile Helsinki (address: Unioninkatu 20-22, 00130 Helsinki)
BOARD MEMBERS’ AND CHIEF EXECUTIVE OFFICER’S OWNERSHIP
Afarak Group Plc’s Board members and Chief Executive Offi cer owned in total 8,266,116 (7,813,287) Afarak Group Plc shares
on 31 December 2016 when including shares owned either directly, through persons closely associated with them or through
controlled companies. This corresponds to 3.2% (3.0 %) of all outstanding shares that were registered in the Trade Register
on 31 December 2016.
84
FINANCIALS
31.12.2016
Board and CEO total:
Alistair Ruiters
Jelena Manojlovic
Markku Kankaala
Barry Rourke
Ivan Jakovcic
Milan Djakov
Board and CEO total
All shares outstanding
Proportion of all shares
Executive Director
Dependent Non-Executive Director
Non-Executive Director
Non-Executive Director
Chairman & Non-Executive Director
Non-Executive Director
Shares
900,000
150,000
7,066,616
150,000
0
0
8,266,116
263,040,695
3.1%
Options
600,000
0
0
0
0
0
600,000
263,040,695
0.2 %
On 31 December 2016 the total number of registered shares was 263,040,695 and the Board and CEO’s ownership
corresponded to 3.1% of the total number of registered shares.
Auditor’s fees
EUR ‘000
Ernst & Young Oy
Audit
Other services
Total
2016
189
51
240
2015
201
28
229
BOARD’S DIVIDEND PROPOSAL
In 2017 the Board will propose to the AGM that no capital redemption or dividend would be distributed. In line with the Group’s
policy, distributions to shareholders will be reviewed at the time of the half year announcement.
FINANCIALS
85
SIGNATURES TO THE BOARD OF
DIRECTORS REPORT AND THE
FINANCIAL STATEMENTS
HELSINKI 30 MARCH 2017
IVAN JAKOVCIC
Chairman
GUY KONSBRUCK
CEO
BARRY ROURK
Member of the Board
JELENA MANOJLOVIC
Member of the Board
ALISTAIR RUITERS
Member of the Board
MILAN DJAKOV
Member of the Board
86
FINANCIALS
FINANCIALS
87
THE AUDITOR’S
NOTE
Our auditor’s report has been issued today.
HELSINKI 30 MARCH 2017
ERNST & YOUNG OY
ERKKA TALVINKO
Authorised Public Accountant
88
FINANCIALS
AUDITOR’S
REPORT
Ernst & Young Oy
Alvar Aallon katu 5 C
FI-00100 Helsinki
FINLAND
Tel. +358 207 280 190
www.ey.com/fi
Business ID 2204039-6,
domicile Helsinki
AUDITOR’S REPORT (Translation of the Finnish original)
To the Annual General Meeting of Afarak Group Oy
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of Afarak Group Oyj (business identity code 0618181-8) for the year ended 31
December, 2016. The financial statements comprise the consolidated balance sheet, income statement, statement of
comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant
accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes.
In our opinion
•
the consolidated financial statements give a true and fair view of the group’s financial position as well as its
financial performance and its cash flows in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU.
•
the financial statements give a true and fair view of the parent company’s financial performance and financial
position in accordance with the laws and regulations governing the preparation of financial statements in
Finland and comply with statutory requirements.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice
are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report.
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are
applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements
section of our report, including in relation to these matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of material misstatement of the financial statements.
The results of our audit procedures, including the procedures performed to address the matters below, provide the basis
for our audit opinion on the accompanying financial statements.
We have also addressed the risk of management override of internal controls. This includes consideration of whether
there was evidence of management bias that represented a risk of material misstatement due to fraud.
1) Goodwill
We refer to accounting principles and notes 1.4 and 13.
The Group is required to annually test the amount of goodwill for impairment. At the balance sheet date
31 December 2016, the value of goodwill amounted to 63,8 M€ representing 24 % of the total assets
and 36 % of the total equity (2015: 58,3 M€, 22% of the total assets, 34 % of the total equity).
Procedures over management’s annual impairment test were significant to our audit due to the
complexity of the assessment process and significant judgments and assumptions involved. The Group
A member firm of Ernst & Young Global Limited
1 (4)
management uses assumptions in respect of future market and economic conditions such as,
economic growth, discount rates, expected inflation rates, revenue and margin developments.
Our audit procedures included, among others, involving valuation specialists to assist us in evaluating
and comparing to the relevant peer group the assumptions and methodologies used by the Group, in
particular those relating to the weighted average cost of capital. We compared the market expectations
management used to the external market forecast providers to gain an understanding of the
assumptions used. We focused on the sensitivity in the available headroom by Cash Generating Unit
and whether any reasonably possible change in assumptions could cause the carrying amount to
exceed its recoverable amount. We also assessed the historical accuracy of managements’ estimates
but due to the very high volatility and distressed market situation within the industry, we performed also
our own sensitivity analysis based on a prolonged poor market conditions.
We assessed the Group’s disclosures in notes 1.4 and 13 in the financial statements about the
assumptions to which the outcome of the impairment tests were more sensitive.
2) Environmental Obligations
We refer to accounting principles and note 21.
The provision for rehabilitation and decommissioning costs relates to mines and processing facilities. At
the balance sheet date 31 December 2016, the value of the provision amounted to 9,6 M€ (2015: 8,2
M€). The calculation of the provisions require significant management’s judgment because of the
inherent complexity in estimating future costs. These costs are provided at the present value of
expected costs to settle the obligation using estimated cash flows. The provisions are subject to the
effects of any changes in local regulations, management’s expected approach to decommissioning and
discount rates, along with the effects of changes in exchange rates.
As at 31 December 2016, we reviewed the assumptions used by management in their calculations and
inspected the calculations and assessed the assumptions used. We also recalculated the provision
based on these assumptions used by management for the discount rates, areas to be rehabilitated, the
nature of expenses to be incurred (i.e. related to asset or expense). We assessed the competence of
the work of management’s expert, who produced the cost estimates.
We assessed the Group’s disclosures in the financial statements in respect of environmental and
rehabilitation provisions.
3) Valuation of inventory
We refer to accounting principles and note 15.
The total value of inventory as of December 31, 2016 amounted to 48,4 M€ representing 19 % of the
total assets (2015: 45,2 M€, 17 % of the total assets). Inventories are measured the lower of cost and
net realisable value, taking into consideration also the usage based depreciation of the mineral
resources originating from the business combination. The inventory is material to our audit because the
inventory is exposed to price and exchange rate fluctuation due to which the net realisable value of
inventory can fluctuate significantly, increasing the risk of inventory overvaluation. Inventory costing
was considered a significant risk also because variable and fixed costs are allocated to inventory.
A member firm of Ernst & Young Global Limited
2 (4)
Our audit procedures involved assessing the Group’s accounting policies over recognizing inventory in
compliance with applicable accounting standards. We tested the costing of the inventory and performed
net realizable value testing to assess whether the cost of the inventory exceeds net realizable value
and whether the variable and fixed costs are allocated to the inventory based on normal capacity of the
production. An analytic review was also performed on inventory.
We assessed the Group’s disclosures in the financial statements in respect of inventory.
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
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, and of financial statements that give a true and fair view in accordance with the laws and regulations
governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of
Directors and the Managing Director are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the
parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting. The financial statements are prepared using the going concern
basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there
is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of Financial Statements
Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing
practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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
parent company’s or the group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going
concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the company to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events so that the financial
statements give a true and fair view.
A member firm of Ernst & Young Global Limited
3 (4)
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Other Reporting Requirements
Other information
The Board of Directors and the Managing Director are responsible for the other information. The other information
comprises information included in the report of the Board of Directors and in the Annual Report, but does not include the
financial statements and our report thereon. We obtained the report of the Board of Directors prior to the date of the
auditor’s report, and the Annual Report is expected to be made available to us after the date of the auditor’s report.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above
and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of
Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in
accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements
and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed, we conclude that there is a material misstatement in the information included in
the report of the Board of Directors, we are required to report this fact. We have nothing to report in this regard.
Helsinki 30 March 2017
Ernst & Young Oy
Authorized Public Accountant Firm
Erkka Talvinko
Authorized Public Accountant
A member firm of Ernst & Young Global Limited
4 (4)