Annual Report
A F A R A K
G R O U P
2017 We are
Afarak.
The speciality
alloys producer
2
STRATEGIC REVIEW We are
Afarak.
The speciality
alloys producer
A F A R A K
G R O U P
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 NASDAQ OMX Helsinki Stock
Exchange and the London Stock Exchange.
Contents
Resource Statement
Resource Statement
Strategic Review
Governance Review
Global Footprint
CEO Report
Growth Strategy
2017 Highlights
Market Review
The Chrome Ore Market
Group Operational Review
Group Financial Performance
Segments Review
Ferroalloys Segment
Speciality Alloys Segment
Risk Management
Sustainability Review
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40
44
Chairman’s Introduction
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 in 2017
Board Committees
Corporate Governance Statement
Internal Control
Insider Administration
Resolutions of the AGM
Additional Information
Remuneration Report
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Resource Statement
Financial Statements
Key Figures
Consolidated Financial Statements
Consolidated Income Statement and Statement
Of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
1. Notes to the Consolidated Financial Statements
1.1 Company Information
1.2 Accounting Principles
1.3 Business Combinations and Acquistion Of
Non-Controlling Interest
1.4 Impairment Testing
1.5 Operating Segments
1.6 Notes to the Consolidated Income Statement
1.7 Notes to the Consolidated Statement Of
Financial Position
1.8 Related Party Disclosures
1.9 Commitments and Contingent Liabilities
1.10 Events After The Reporting Period
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Parent Company’s Financial
Statements
Income Statement (FAS)
Statement of Financial Position (FAS)
Statement of Cash Flows (FAS)
2. Notes to the Financial Statements of the Parent
Company (FAS)
2.1 Accounting Policies
2.2 Notes to the Income Statement
2.3 Notes to Assets
2.4 Notes to Equity and Liabilities
2.5 Pledges and Contingent Liabilities
2.6 Other Notes
Signatures to the Board of Directors Report and the
Financial Statements
The Auditor’s Note
2017 Afarak Auditor’s Report
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Strategic
Review
6
STRATEGIC REVIEW 7
STRATEGIC REVIEW Global
Footprint
1. HELSINKI
Registered office, Primary listing
2. MALTA
Corporate Office
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
Products
LLL FeCr
ELC FeCr
HCr FeCr
Products
End-user
Industry
Stainless steel
End-user
Industry
Aerospace
Renewable Energy
Automotive
Oil & Gas
9
STRATEGIC REVIEW CEO
Report
Our performance
in 2017 is the
strongest on record.
Our performance
was underpinned
by a clear focus
on improving
operational
efficiencies and
making Afarak
more adaptable
to the favourable
market conditions.
After an encouraging end to 2016, the positive
momentum in the commodity markets continued
through 2017. The chrome ore and ferrochrome
market was generally strong, driven by positive
market sentiment on stainless steel, both in China
and the Western world. The strong economic
performance in both major developed and developing
countries also played a key role in supporting positive
commodity demand conditions.
Internal restructuring leads to record results
Afarak benefited from these positive market
conditions. Our focus on vertical integration and
niche marketing, with high quality end products
helped us register an EBITDA of EUR18.0 million
compared to EUR5.5 in 2016.
Our sales volumes from processing improved from
97,095 tonnes to 101,598 tonnes. Our mining output
increased from 262,266 tonnes to 503,914 tonnes
following the resumption of mining in Mecklenburg.
At the same time, we have identified and developed
internal and external growth areas.
We have acquired a new mine, Zeerust Chrime Mine
(ZCM), and worked on preparing underground mining
in Mecklenburg. We are working on further acquisition
opportunities. In Ilitha we have commissioned
investments for 2 new beneficiation plants, one to
improve our yields in metallurgical grade extraction
and the second one for the production of foundry and
chemical grade ore. A similar installation was also
purchased in Mogale to produce separate foundry
grade from the ore before the smelting operations. We
also created Afarak Platinum, a new subsidiary that is
going to extract PGM from the Ilitha tailings.
10
STRATEGIC REVIEW
In TMS, we have installed new shaking tables and
developed further mining fields.
In EWW, we have optimised the production methods
and increased the output from 19,420 tonnes to 29,151
tonnes. We have improved a number of processes
that will entail positive effects on the cost of
production, the quality of the end products and the
reduction of waste materials.
The Company’s working capital management has
further improved. Neither inventories, nor receivables
increased substantially, although we have almost
doubled our activity. We have preserved our healthy
balance sheet, strongly growing our turnover. The
company has increased its CAPEX from EUR2.8 million
to EUR6.9 million, which is the highest spend on
investments in the recent past. Management strongly
believes that Afarak will start to reap the benefits
of this new growth vision and strategy towards
the second half of 2018. We will also continue our
investment program in 2018 and onwards.
Overall, the protection ratios remain strong, with only
a marginal increase in gearing as a result of utilising
more bank facilities for financing our working capital
requirements. Our equity ratio remains very high,
allowing for more external financing in support of
our growth initiatives, with our cash generated from
operations freed up for planned capital expenditure
and investments. During 2017, on account of the
exceptionally strong performance in the first quarter,
the Company paid out a capital redemption to our
shareholders of EUR5.2 million.
Growth strategy
In 2018, both ZCM and Vlakpoort mining operations
will commence. Our underground mining in
Mecklenburg is scheduled to be at full capacity
during quarter four 2018. Further increasing our
mining activity will be our constant focus. While we
want to remain a niche player and small producer
of specialties in the alloys business, we also want
to continue to become a more sizable market
participant when it comes to chrome ore sales. This
goal can be achieved via partnerships, acquisitions
and further internal growth, such as doubling the
capacity in Stellite in 2019. Our aim is simple, to
become more vertically-integrated and to enhance
our product portfolio to make Afarak more resilient
and adaptable to market needs and conditions.
Sustainability
Management focused its efforts on health and
safety improvements. Our smelting team in Mogale
adopted a new continuous improvement system
called Letsema, the Sotho word for a group of people
working towards one objective.
Our mining teams are also undergoing daily training
sessions and we started to raise awareness about the
new safety rules to be implemented, when we start
underground mining. We want to preserve the lives,
the physical integrity, the health and the overall well-
being of all our employees.
We continue to engage with our host communities,
in Turkey and South Africa. We don’t see our role to
be exclusively active in financial support and charity,
but also in building skills, helping and supporting local
businesses, as well as coaching local entrepreneurs.
The environment remains another important pillar of
our long-term strategy. We want to reduce our CO2
emissions, produce less waste material and include
more of our secondary and waste products into the so-
called circular economy. As a miner, we are committed
to rehabilitation efforts, but we want to exceed the
mere obligations and try to leave our production sites
as close to their pristine state as possible.
The chrome market remains volatile. The benchmark
is unfortunately continuing to show excessive swings
from quarter to quarter. By producing specialties
and reducing our cost of production, we want to
reduce the impact of this volatility. The fluctuations
in Chrome Ore prices have been less severe in 2017,
but the dependence on the Chinese market will
continue to trigger volatility. We must be able to
reduce our cost of mining, increase our yields and
extract better qualities on a continuous basis. The
opportunities for open-pit mining are becoming
rarer, even in South Africa, where two-thirds of the
world reserves lie embedded in underground reserves.
Mining will be more and more a matter of specialists
and competency centres. I feel extremely confident
that we can sustain and grow the company with our
dedicated teams in both Turkey and South Africa.
In order to be better prepared for the challenges
of the future, when it comes to acquisitions and
investments, Afarak intends to focus on its primary
listing on the London Stock Exchange and leave the
NASDAQ Helsinki Stock Exchange. Independently from
the place of our listing, Afarak will remain a global
company focused on shareholder value creation.
All our shareholders can rest assured that their
investment is in competent and capable hands.
Although the operating environment remains
challenging, Afarak looks forward to 2018 with
confidence.
Thank you
The management team of Afarak is collectively
responsible for the excellent results and positive evolution.
I would like to thank everybody for the countless hours,
the mutual respect in our diverse and multicultural
company and the valuable support to change.
I would like to thank all our clients for their support
and trust. I would also extend special thanks to our
host communities for their positive attitude.
Lastly, I thank the Board, led by our Chairman, for
putting their trust in me, and continuing to serve the
company with their experience and insight.
GUY KONSBRUCK
CEO
11
STRATEGIC REVIEW
Growth
Strategy
Afarak’s vision is to
establish itself as a
long term sustainable
value creator to
our stakeholders by
addressing market
trends and needs in
a safe and efficient
operating environment.
ORGANIC
AND
M& A GROW TH
A F A R A K
G R O U P
STRONG
PROFITABILIT Y
INTEGR ATE
SUSTAINABILIT Y
Afarak’s strategy is to grow and strengthen its
business through industry acquisitions, vertical
integration, product development and continuous
process innovation.
As Afarak continues to draw on its expertise and
knowledge of the industry, it is now focusing its efforts
of utilising available capital to support its 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 is contributing to improved
efficiencies and a lower cost of production in our mines
in Turkey and South Africa. Our interventions, increasing
the high wall at Mecklenburg, have also contributed to
the resumption of opencast mining and to the improved
performance of the Group. Investments in additional
cycles of ore processing in our mining operations are
affecting positively both the cost of production, as well
as creating additional value by producing chemical,
refractory and foundry ore grades, and the recovery of
PGM from tailings in our South African mines. Strategic
selection of sources for production of high quality ores
used in the production of Ferrochrome in our smelters
and the continuous investments in improvements in
the production processes, allow Afarak to effectively
differentiate its product range towards speciality
products in both speciality and ferroalloys segments.
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 in
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.
To achieve all of this, we are focusing on three main
strategic operating imperatives:
• To fully integrate sustainability across all our business
units
• To grow the organisation organically as well as
through M&A
• To achieve strong profitability through operational
efficiencies and cost controls
INTEGRATING SUSTAINABILITY THROUGHOUT OUR
BUSINESS
Afarak understands that sustainability is critical
to our business and our industry. We want to do
things the right way across all our business units and
processes. We are looking at continuously improving
our performance in areas such as health and safety,
energy efficiency, environmental protection and
community relations. Safety is our top priority.
It comes before anything else and we are not after
12
STRATEGIC REVIEW shortcuts. Being a resource company, we remain
committed to preserve the environment. The
communities that host us are important stakeholders
and we are proud of the reputation that we have built
with them over the years.
GROWING THE ORGANISATIONAL CAPACITY
ORGANICALLY AND THROUGH M&A
Afarak has always embodied a strong entrepreneurial
culture and spirit. By being innovative and through
strategic acquisitions & joint ventures, it has
grown to be a reputable global player. As the
company continues to consolidate its strengths &
fundamentals, it is now on a path of growth through
strategic alliances and M&A activity.
The acquisition of the Zeerust Chrome Mine in South
Africa reflects our strategy to add assets which will
strengthen our vertical-integration. This addition
further bolsters our position as a leading specialty
alloys producer. Afarak specifically targeted ZCM due to
the unique quality of its chrome ore. By leveraging our
in-house technical expertise and controlling our own
production of ZCM high quality ore, we are now in the
position to make Mogale the only South African smelter
capable of producing High Carbon ferrochrome, further
differentiating our product range and increasing the
contribution of higher yielding specialty alloys in our
production output.
R&D continues to play an important role in Afarak’s
future. With one of the most advanced labs in the
industry and an underutilised site in Germany, R&D
presents a unique opportunity for Afarak to continue
to grow its capacity organically. In cooperation with
external experts and technical solution providers, some
of the ongoing initiatives target areas of environmental
protection through slag and tailings reduction and
recovery processes, as well as energy efficiency
solutions, including electrical energy production
from furnace heat recovery. R&D has the potential of
identifying and creating new revenue streams for the
Company and it is being envisaged that increased
cooperation with universities and research institutes will
allow Afarak to engage in new projects.
Work has also started on introducing additional cycles
of beneficiation and the expansion of the product
mix through the introduction of higher value-adding
products. These projects are still in the initial stages
of development. Afarak will continue to tap into high
margin products, as well as to continuously diversify its
product range.
ACHIEVING STRONG PROFITABILITY THROUGH
OPERATIONAL EFFICIENCIES AND COST CONTROLS
We strive to achieve strong shareholder returns by
improving the competitiveness of our assets, our
products and through an ongoing focus on cost
management and operational efficiency. Afarak
continues to strengthen its marketing and trading
capacity to maximise returns.
Management continues to improve its working capital
management. There has been greater effort to control
inventory and, new measures, the Company has
managed to move more material during the year with
the same inventory levels.
Operationally, the Company has become more flexible
and adaptable to market needs. As it further secures
vertical-integration, the Group will be in a stronger
position to manage its costs of production. In South
Africa, investments into a new 2.8 MW heat recovery unit,
which will also contribute to reducing its electricity costs.
The initiatives that have been implemented throughout
the year, have allowed Afarak to benefit from the
market upswing. These improvements will further
strengthen Afarak’s resilience and flexibility, thus
allowing it to improve its operations and profitability in
the years to come.
13
STRATEGIC REVIEW 2017
Highlights
With a new leadership team and a new strategy,
Afarak embarked on a restructuring process. This
made us more responsive to the market. Also, Afarak
registered record EBITDA and EBIT performance.
Further efforts towards vertical-integration were made.
Q1 - NEW LEADERSHIP
The new management team started an
internal restructuring of the Company, making
it more responsive to market needs. A more
aggressive focus on vertical-integration was
undertaken in line with a redefined growth strategy.
Q1 - RESUMPTION OF OPENCAST MINING AT
MECKLENBURG
Afarak entered a Mining Services Agreement with Pholagolwa
Mining to continue the opencast mining at Mecklenburg. The
Company increased the high wall from 40 to 65 metres. Full
production amounts on average to 30,000 tons of chrome ore per
month. The total deposit is expected to contain just over 200,000
tons of chrome ore. The underground mining area which is gradually
being made accessible could accumulate an overall production of 4.5
million tons of chrome ore.
Q1 - PURCHASE OF TRUST AT MOGALE
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.
Afarak Mogale 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. This offer was accepted.
Q2 - MOGALE CONVERTS TO FERROCHROME
Prior to December 2016, Mogale only had one
furnace dedicated to ferrochrome. As a response
to improved market conditions, Afarak successfully
converted two of its furnaces from producing
silicomanganese to ferrochrome; the first in December
2016 and the second in April 2017.
Q2 - EUROPEAN PROTECTION DUTIES FOR EWW
Euroalliages has initiated a case calling for protection measures
in favour of EWW in response to non-European producers. This
confirms the strategic role EWW plays in Europe as the sole low
carbon ferrochrome producer.
Q2 - CAPITAL REDEMPTION
In the second quarter, the Company paid a EUR 0.02 per share capital
redemption, following the exceptional result registered in quarter one.
14
STRATEGIC REVIEW Q3 - ACQUISITION OF ZEERUST CHROME
MINE
Afarak announced that through its South
African subsidiary Afarak Mining Limited, it had
reached an agreement in principle to acquire a
70% shareholding in ZCM (Zeerust Chrome Mine).
The ZCM mine has an opencast ore resource of
about 2 million tons if mined up to 35 meters high
wall. Additional capacity exists in the 1.2 million tons
tailing dump. The high-quality ore will make Mogale the
only smelter in South Africa capable of producing high
carbon ferrochrome.
Q3 - COMMUNITY INVESTMENT
Afarak strongly supported the Magakala Community in the areas
of Sefara and Madifahlane in South Africa. Due to its growth and
water scarcity in the area, the community required an investment in
water tanks to sustain the demand for water by the community. To this
end, Afarak invested in the purchase and installation of 10 water tanks
with a capacity of 10,000 litres each. This project also supported local
entrepreneurship and local companies were entrusted with the installation
and commissioning of the tanks.
Q3 - EWW CELEBRATES 100-YEARS
Our EWW plant in Germany celebrated its 100-year anniversary.
The plant remains the sole producer of low carbon ferrochrome in Europe.
Q4 - HEALTH & SAFETY IN TURKEY
Our unit in Turkey completed and commissioned
its investment in a state-of-the-art underground
mine tracking system. Safety remains a central focus
for Afarak across its units and it continues to implement
relevant projects and initiatives across its plants.
Q4 – GROWTH PLANS FOR 2018
Afarak Group is undertaking further investment with a
view of introducing additional cycles of beneficiation and the
expansion of the product mix through the introduction of higher
value-adding products in South Africa. These projects are still in
the initial stages of development and the first production results
could be expected during 2018.
FY 2017 – RECORD PERFORMANCE
2017 was a record year for Afarak. EBITDA more than tripled to EUR 18.0
million, from EUR 5.5 million in 2016. Management’s focus on productivity
and efficiency gains throughout the Group, especially in South Africa,
supported by stronger market conditions, resulted in significant operational
and financial gains for the year.
15
STRATEGIC REVIEW Market
Review
The Chrome
Ore Market
Afarak Group’s activity in the chrome ore market
continuously increases with its mining output.
GLOBAL CHROME ORE PRODUCTION BY GRADE
Global chrome ore production by grade
Globally, most of the chrome ore is used in metallurgical
applications. However, chrome ore is also used, though to
a much lesser extent
• in the production of refractories
• as foundry sands
• as raw material in the chemical industry
Our production mainly services the demand for the
metallurgical grade chrome ore. In fact, 96% of total global
chrome ore production is used in metallurgical applications.
Global ferrochrome production by type
GLOBAL FERROCHROME PRODUCTION BY TYPE
Global ferrochrome production by type
1.90% 1.90%
0.20%
96%
Metallurgical grade Chemical grade
Foundry grade
Refractory grade
Global ferrochrome production by type
4% 2%
Global ferrochrome production by type
4% 2%
4% 2%
4% 2%
94%
94%
Primarily, ferrochrome is used in the production of
stainless steel. In fact, over three-quarters of global
ferrochrome production is used to produce stainless
steel. It is also used as an alloying material for various
steels. In fact, chrome makes the steel stainless by
giving it a passive layer formation and 100% of stainless
steels contain chrome. In addition, the unique features
of chrome increase scale resistance, toughness and
hardness penetrability of alloys. 60% of all alloy steels in
fact contain chrome. The following chart highlights the
applications of global ferrochrome applications.
LC FeCr
HC FeCR & Ch Cr
94%
HC FeCR & Ch Cr
MC FeCr
LC FeCr
MC FeCr
HC FeCR & Ch Cr
94%
LC FeCr
MC FeCr
GLOBAL FERROCHROME APPLICATIONS
Global ferrochrome applications
HC FeCR & Ch Cr
LC FeCr
MC FeCr
4%
19%
The main type of chrome which is used in metallurgical
applications is ferrochrome (FeCr) which in turn is an alloy
of chromium and iron containing between 50% and 70%
chromium. Below 55% Cr content, the industry usually
employs the terminology “Charge Chrome”. Above that
limit of Cr contents, we generally use the term
“ferrochrome”. For the production of both, the
chromite ore is reduced, usually by coal and/or coke in
a high temperature reaction in an electric arc furnace.
Ferrochrome is often classified by the ratio of chrome to
carbon it contains and the global production of the various
types of ferrochrome is shown in chart above. Afarak
produces ferrochrome across all main types.
77%
Stainless steel
Engineering & alloy steel
Other steels
Therefore, chrome ore and ferrochrome are very much
correlated to the developments of the stainless steel
industry.
17
STRATEGIC REVIEW
2017 in Review
Global economic activity continued to firm up in 2017, with a faster than expected growth rate bolstered by the increase in
activity in both advanced and emerging economies. The economic growth was supported further by strong investments in
infrastructure, stronger demand for commodities, including stainless steel and alloys.
Appliances have been widely consumed
around the world and producers are
constantly innovating. Afarak supplies
ferrochrome which is used as raw material
for components in these industries.
Stainless steel solutions are
becoming more specific and
complex. Afarak’s products
are used in wind energy
turbines, oil & gas industries
and nuclear plants.
CHEMICAL,
PETROCHEMICAL
& ENERGY
6.4
million tonnes
CONSUMER
APPLIANCES
& MEDICAL
20.1
million tonnes
INDUSTRIAL
& HEAV Y INDUSTRY
3.1
million tonnes
Industrialisation is requiring
further highly-engineering
machines and tools. Afarak
material is used in the
production of components used
in robotics as well as machinery
utilised by heavy industry.
STAINLESS STEEL
Global stainless steel demand
continued to increase throughout
2017, making it a positive year
for steel. Strong growth came
from China, India and Europe
due to higher demand from
infrastructure, consumer goods
and energy-related segments.
OTHERS
1
million tonnes
ARCHITECTURE,
CONSTRUCTION
& INFR ASTRUCTURE
6.4
million tonnes
As buildings and
infrastructure become
more demanding, there
is need for materials
that are safe and last
a lifetime. Afarak’s
materials are used by the
world’s leading stainless-
steel mills to supply the
construction industry with
suitable components.
TR ANSPORTATION
4.2
million tonnes
The transportation industry is in search of materials
that lead to cost-efficiencies and meet the
requirements of new technologies. Afarak can
provide key industry players with raw materials for
components in the transportation industry, primarily
aerospace and automotive.
Due to the increased demand, prices too were higher than those registered in 2016. Although higher, prices started to
decline during the year after a very strong first quarter. The strong demand for stainless steel has continued into the first
quarter of 2018.
The long-term outlook for stainless steel demand remains positive. Key global megatrends such as urbanisations,
modernisations, and increased mobility combined with growing global demand for energy, food, and water are expected
to support the future growth of stainless steel demand.
CHROME ORE
The positive market developments for stainless steel were also reflected in the chrome ore markets. Prices during 2017 were
on average higher than those a year earlier. Moving into the first quarter of 2018, ore prices have remained resilient.
18
STRATEGIC REVIEW FERROCHROME
FeCr Benchmark (USD cents/ lb)
FeCr Benchmark (USD cents/lb)
180
160
140
120
100
80
60
40
20
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
Q1
2018
2017 was a fairly strong year in the ferrochrome market although the high benchmark price in quarter one was not
repeated throughout the year. However, prices were higher than those registered a year earlier. Going forward, the market
is expected to strengthen again after quarter one. However, the benchmark remains highly unstable, as cycles have
become more frequent and more volatile as shown in following Chart.
FeCr Benchmark (USD cents/lb)
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
In view of this volatility, building resilience is a key goal for Afarak. Apart from enhancing its vertical-integration, Afarak
continues to take measures and undertake investments that will allow it to produce higher value-adding products and
offer a broader product portfolio.
19
STRATEGIC REVIEW Group Operational
Review
2017 was a strong operational year for the Company with gains being made primarily in processing activities and in
mining in South Africa. The Company managed to meet the increased demand for its products.
Group Sales of
Processed Material
101,598mt
(97,095mt)
Group Mining
503,914mt
(292,266mt)
Group Processing
107,630mt
(95,739mt)
Human Resources
1,017
(813)
Group sales (tonnes)
Group sales (tonnes)
SALES
2017 was characterised by buoyant
demand for the Group’s products. The
Group’s sales from processing stood
at 101,598 (FY/2016: 97,095) tonnes,
representing an increase of 4.6% when
compared to a year earlier. The increase
was driven by higher sales volumes in the
speciality alloys segment on the back of
stronger market fundamentals and on
the growth in business of the standard
grade ferrochrome, which started being
processed at EWW in 2017 opening a new
revenue stream.
120000
120000
100000
100000
80000
80000
60000
60000
40000
40000
20000
20000
0
0
2016
2016
2017
2017
Speciality Alloys
Speciality Alloys
FerroAlloys
FerroAlloys
20
STRATEGIC REVIEW GROUP MINING
Group mining almost doubled
in 2017 driven entirely by higher
mining levels in the ferroalloys
sector.
Annual mining levels in the
ferroalloys segment more than
doubled to 450,794 (202,514)
tonnes and was bolstered by the
resumption of opencast mining
at Mecklenburg in January 2017.
In addition, mining activity at
Stellite also increased to meet the
higher demand. During the year,
management took the decision
to increase the high-wall, thus
extending the opencast mining at
Stellite with the effect of increasing
production. Planned maintenance
stoppages at Kavak mines led
mining levels to partly decrease in
Turkey.
550000
550000
500000
500000
450000
450000
400000
400000
350000
350000
300000
300000
250000
250000
200000
200000
150000
150000
100000
100000
50000
50000
0
0
Group mining (tonnes)
Group mining (tonnes)
Group sales (tonnes)
Group sales (tonnes)
Group sales (tonnes)
120000
120000
120000
100000
100000
100000
80000
80000
80000
60000
60000
60000
40000
40000
40000
20000
20000
20000
0
0
0
2016
2016
2016
2016
2016
Speciality Alloys
Speciality Alloys
Speciality Alloys
2017
2017
2017
2017
FerroAlloys
FerroAlloys
FerroAlloys
2017
GROUP PROCESSING
With higher demand for its products,
Afarak increased its processing levels by
12.4% to 107,630 (95,739) tonnes.
Group processing increased mainly
due to higher processing levels in the
speciality segment which increased by
50.2%. Due to the increased demand for
its products, management reduced the
summer shutdown compared to 2016 and
did not shutdown production in the last
quarter as it did in 2016.
Further productivity improvements and
capital investments at Mogale led to an
increase in processing levels too. During
the year, Afarak invested extensively in
the relining of P1-P2-P3 furnaces and
re-started the P4 furnace. These all had
a positive impact on the operational
performance of Mogale.
HUMAN RESOURCES
Group sales (tonnes)
Group sales (tonnes)
Group processing (tonnes)
120000
120000
120000
100000
100000
100000
80000
80000
80000
60000
60000
60000
40000
40000
40000
20000
20000
20000
0
0
0
2015
2016
2016
2017
Speciality Alloys
2016
Speciality Alloys
FerroAlloys
2017
FerroAlloys
Speciality Alloys
FerroAlloys
At the end of 2017, Afarak had 1017 (813) employees. Throughout 2017, employment increased in the Turkish
operation due to increased mining activity and at Mogale in South Africa, reflecting the resumption of recruitment
following the successful Section 189 process in quarter one 2016 and ahead of the restarting of P4 furnace. During
the year, the Group was employing 86 employees on a temporary basis who are running the operation of a sintered
magnesite plant on a test project in Serbia.
21
STRATEGIC REVIEW Group Financial
Performance
2017 was a record year for Afarak. EBITDA more than tripled to EUR 18.0 million, from EUR 5.5 million in 2016.
Management’s focus on productivity and efficiency improvements throughout the Group, especially in South Africa,
supported by stronger market conditions, resulted in significant operational and financial gains for the year.
REVENUE
PROFIT
€198.8 mln
[€153.6 mln]
€6.7 mln
[€-0.9 mln]
EBIT
EBITDA
€11.4 mln
[€-1.0 mln]
€18.0 mln
[€5.5 mln]
The results registered have been historically best for Afarak.
20
15
14
EBITDA (€ mln)
17.2
18.0
18
10
9.2
8.4
5.5
5
0
2012
2013
2014
2015
2016
2017
15
10
5
0
-5
-10
-15
-20
EBIT (€ mln)
1.7
1.7
9.9
9.9
11.4
11.1
2012
2012
2013
2013
2014
2015
2016
-1.0
-1
2017
8.0
-8
-16.8
-16.8
EBITDA (€mln)
EBITDA (€ MLN)
Despite the record full year
result, the Company continues
to face challenges pertaining
to the seasonalities typical
for the industry, which require
careful planning and timely
adjustments. In quarter three,
the seasonal shutdowns of
furnaces for maintenance in
both Europe and South Africa
result in unabsorbed overhead
costs. In addition, the high winter
electricity tariffs in South Africa
increase the cost of operations,
which, depending on the market,
directly influences the planned
levels of production during
those months.
14
12
10
8
6
4
2
0
-2
-4
22
2013
2014
2015
2016
2017
Q1 Q2 Q3 Q4
STRATEGIC REVIEW 2017 PERFORMANCE
Afarak Group performed strongly throughout 2017, with
revenue increasing by 29.5% to EUR 198.8 (153.6) million.
Revenues increased in both segments, due to higher levels
of production, sales, improved efficiency and stronger
market conditions. Revenues in the ferroalloys segment
grew by 25.6% reflecting the change in the sales mix away
from silicomanganese and focusing exclusively on charge
chrome and medium carbon ferrochrome, as well as
significantly higher outputs in mining production. Revenue
in the speciality alloys segment also expanded at a fast
pace of 30.2%, over the previous year and stood at EUR
89.4 (68.7) million. The improved performance reflected the
stronger market fundamentals seen throughout 2017, with
both stronger demand and higher prices, when compared
to the previous year. Quarter one registered the highest
revenue because of the record high benchmark, while, in
in line with seasonal pattern, quarter three remained the
weakest period.
60
60
50
50
40
40
30
30
20
20
10
10
0
0
56.7
56.7
Revenue (EUR million)
47.4
47.4
44.2
44.2
50.6
50.6
Q1
Q1
Q2
Q2
Q3
Q3
Q4
Q4
200
180
160
140
120
100
80
60
40
20
0
Revenue (EUR million)
198.8
187.7
153.6
2015
2016
2017
EBITDA more than tripled to EUR 18.0 million, from EUR 5.5
million in 2016, supported by the strong market conditions and
the robust performance of the joint venture, when compared
to the previous period. The Group’s performance was
bolstered primarily by the very strong quarter one and quarter
two result, which reflected the high benchmark price.
Seasonal and largely specific non-operational effects,
affected the result in the second half of the year which,
nevertheless, still made a further positive contribution
toward the 2017 result.
20
15
10
5
0
EBITDA (EUR million)
17.2
18.0
18
5.5
2015
2016
2017
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
12.7
12.7
EBITDA (EUR million)
4.8
4.8
Q1
Q1
Q2
Q2
2.6
2.6
Q4
Q4
Q3
Q3
-2.2
-2.2
23
STRATEGIC REVIEW 24
STRATEGIC REVIEW The joint venture increased its share of profit during 2017 to EUR 3.1 (0.1) million. Profit from discontinued
operations during 2017 amounted to EUR 1.5 (1.9) million which includes a release of EUR 0.6 (0.8) million in
provisions related to the final sale of the saw mill equipment that was acquired in 2008.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
56.7
12.7
Q2
47.4
4.8
Q3
44.2
-2.2
Q4
50.6
2.6
22.4%
10.2%
-4.9%
5.2%
11.1
3.3
-4.2
1.2
FY17
198.8
18.0
9.0%
11.4
FY16
153.6
5.5
3.6%
-1.0
19.6%
7.0%
-9.4%
2.3%
5.7%
-0.7%
Profit for the period
4.2
2.9
-3.9
3.5
6.7
-0.9
BALANCE SHEET, CASH FLOW AND FINANCING
ROE
3.0%
(-1.6%)
ROCE
8.2%
(0.9%)
Equity ratio
66.3%
(67.7%)
Gearing ratio
0.7%
(-3.3%)
Inventories
Turnover-on-inventory
Trade receivables
Cash balance
€49.9 mln
(€48.4 mln)
4.0
(3.2)
€24.0 mln
€10.7 mln
(€23.6 mln)
(€9.7 mln)
The Group’s total assets, on 31 December 2017, stood at
EUR 259.9 (260.2) million and net assets totalled EUR 172.4
(176.2) million. The weakening of the US dollar had an effect
on Afarak’s balance sheet, with the translation reserve
moving by EUR -2.5 (11.9) million.
The Group’s cash and cash equivalents, as at 31 December
2017, totalled EUR 10.7 (9.7) million. Operating cash flow
was EUR 1.6 (9.0) million, with the cash generated by
the operation during the year mainly used to support
working capital. In addition, a capital redemption was paid
during 2017 which amounted to EUR 5.2 million. On the
other hand, the Group increased its debt with financial
intermediaries by EUR 5.6, to EUR 11.7 million.
INVESTMENTS, ACQUISITIONS AND DIVESTMENTS
As planned, the Company expanded its capital
expenditure in 2017 to EUR 6.9 (2.8) million. Capital
expenditure in the Speciality Alloys segment was incurred
to sustain Group operations and in the Ferroalloys
segment, financing was provided for large-scale
investment in plant and machinery, including restarting
of the P4, as well as a full furnace refractories relining at
Mogale during the shutdown period.
During the first quarter of 2017, Afarak Mogale
concluded an agreement to acquire 10% of its own
shares from the Mogale Alloys workers trust for an
agreed consideration of ZAR 64.9 million to be paid
over a period of 8 years. This acquisition of
non-controlling interest had led to a reduction in
equity of EUR 3.4 million.
Throughout 2017, Afarak also took initiatives to extend
the opencast mining at Stellite by increasing the high
wall. Work has also started on introducing additional
cycles of beneficiation and the expansion of the
product mix through the introduction of the higher
value-add products and further recovery plants. These
projects are still in the initial stages of development
and the first production results could be expected
during 2018. The acquisition of the Zeerust Chrome
Mine will further bolster Afarak’s production capacity
and will make it the only South African producer of
high carbon ferrochrome.
25
STRATEGIC REVIEW Segments
Reviews
26
STRATEGIC REVIEW Ferroalloys
Segment
Asset Description
FERROCHROME
PRODUCTION
PROCESS
Cr Ore
Charge Cr/
HC FeCr/ MC
FeCr
Mecklenburg
Ilitha
Vlakpoort
Mogale
Stainless steel
Construction steel
Extraction
Processing plant
End-user
Raw material
Processed material
28
STRATEGIC REVIEW VLAKPOORT MINE – SOUTH AFRICA
MECKLENBURG MINE – SOUTH AFRICA
The Vlakpoort Mine is situated on the western limb of the
Bushveld complex in South Africa. The prospecting right
along with the mine were acquired in 2011. Ever since,
extensive exploration work was conducted which included
geological drilling and trenching. A bulk sample of LG 5 and
LG 6 seams were taken to test the market.
The site has proven resources of min. 6,6 Mt of Chromite as
well as 330,000 ounces of PGMs. These resources consist of
LG1-6, MG1-4, UG1- 2 material. We also have Merensky reefs
outcropping on our property.
STELLITE MINE – SOUTH AFRICA
The Mecklenburg Mine is located on the eastern limb
of the Bushveld Complex. It is well-known as one of the
world’s major deposits of chromite and platinum. The
Mecklenburg mine started full production in 2013. The
Company is currently preparing underground mining
at Mecklenburg. Following the depletion of the open
cast mine at 35 meters highwall in 2015, Afarak started
preparatory works in 2016 to restart opencast mining, and
resumed mining with a 65 meter high wall since April 2017.
AFARAK MOGALE PLANT – SOUTH AFRICA
Afarak purchased the Mogale site in 2009, which gave us
access to the bulk minerals processing sector in South Africa.
The Stellite mine was acquired in 2010. It used to be the primary
raw material supply to Mogale Alloys. Today most concentrates
and lumpy chrome ore is exported directly to China.
The acquisition marked a strategic step towards direct
current (DC) furnace technology, which has been in
operation at Mogale since 1983. Mogale is considered a
centre of excellence for DC furnace operations.
Stellite is also located on the western limb of the Bushveld
complex in South Africa. The reserves amount to 29.6Mt
of LG6, MG1, MG2 and MG4. These four seams outcrop the
property.
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: high carbon FeCr, plasma
ferrochrome, charge ferrochrome and stainless steel
alloy (chromium-iron-nickel alloy). In December 2014, the
company finalized an investment of €13 million in a ferroalloy
refining plant which started operating in 2016 and produces
granulated MC Ferrochrome.
29
STRATEGIC REVIEW 2017 in Review
The Ferroalloys Segment registered a very strong performance in 2017, compared to 2016,
primarily reflecting to strong market conditions. The Company also took several measures that
allowed it to benefit fully from the market upswing.
REVENUE
€106.1mln
(€84.5mln)
EBITDA
€11.4mln
(€5.0mln)
EBIT
€6.4mln
(€0.9mln)
MINING PRODUCTION
PROCESSING PRODUCTION
450,794mt
(202,514mt)
78,479mt
(76,319mt)
SALES OF
PROCESSED MATERIALS
76,258mt
(77,092mt)
PERSONNEL
434
(369)
30
STRATEGIC REVIEW PRODUCTION
The production unit registered a very strong performance too with a total increase in production of 89.8% in 2017.
550000
450000
350000
250000
150000
50000
-50000
Total Ferroalloys Mining
Total Ferroalloys Mining
Mining Production (mt)
160000
140000
120000
100000
80000
60000
40000
20000
0
2016
2017
2016
2017
Q1
Q2
Q3
Q4
Mining
Mining was the driving force of this increase and was bolstered by the resumption of opencast mining at Mecklenburg
in January 2017. The high-wall was raised to 65 metres from 40 metres allowing the possibility of mining further 200,000
tons. This will also allow better access to the underground mining area.
In addition, mining activity in Stellite also developed to meet the higher demand. During the year, Management took the
decision to enlarge the high-wall, thus extending the opencast mining with the effect of increasing production.
Total Ferroalloys Processing
Total Ferroalloys Processing
Processing production (mt)
30000
25000
20000
15000
10000
5000
0
2016
2017
Q1
Q2
Q3
Q4
2016
2017
150000
50000
-50000
Processing levels at Mogale were also raised following a series of productivity improvements and capital investments.
During the year, Afarak invested a substantial amount in the relining of P1-P2-P3 furnaces and restarted the P4 furnace.
This had a positive impact on the operational performance of Mogale.
31
STRATEGIC REVIEW SALES
The sales of processed material from the Ferroalloys Segment declined marginally throughout the year because of a
particularly difficult second quarter.
Sales of Processed Material (mt)
25000
20000
15000
10000
5000
0
Q1
Q2
Q3
Q4
2016
2017
FINANCIAL PERFORMANCE
Apart from quarter two, sales for
processed material increased due
to stronger market conditions. Sales
volumes in the Ferroalloys Segment
decreased sharply by 38.0% in quarter
two, mainly due to the transition of
the P2 furnace at Mogale Alloys. In
response to market conditions, it was
changed to produce ferrochrome
instead of silicomanganese. In
addition, some customers whose
agreements were linked to the
benchmark, delayed orders to the
third quarter.
The Ferroalloys Segment registered a very strong performance in 2017. Compared to 2016, revenues increased by 25.6%
supported by stronger market conditions, especially in the first quarter of the year. In addition, initiatives undertaken by
management, made the segment more adaptable and responsive to market trends, thus allowing the Group to benefit
from the market upswing. The strong ferrochrome and chrome ore market allowed profitability to improve significantly
and led to a record EBITDA of EUR 11.4 (5.0) million, and EBIT of EUR 6.4 (0.9) million.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
34.1
9.2
Q2
24.1
2.0
Q3
22.2
-1.8
Q4
25.6
2.0
FY17
106.1
11.4
26.9%
8.3%
-8.0%
8.0%
10.8%
8.0
0.8
-3.4
23.4%
3.4%
-15.4%
1.0
3.9%
6.4
6.0%
FY16
84.5
5.0
5.9%
0.9
1.0%
120
100
80
60
40
20
0
12
10
8
6
4
2
0
Revenue
106.1
91.8
84.5
2015
2016
2017
EBITDA
11.4
7.5
5.0
5
2015
2016
2017
32
Revenue
34.1
24.1
22.2
25.6
Q1
Q2
Q3
Q4
9.2
Q1
EBITDA
2
2.0
Q2
2
2.0
Q4
Q3
Q3
-1.8
40
35
30
25
20
15
10
5
0
10
8
6
4
2
0
-2
-4
STRATEGIC REVIEW EBIT
10
8
8.0
8
2
4
0
6
-2
7
0.8
Q2
Q2
Q3
Q3
Q1
Q1
EBIT
Apart from the seasonal challenges
associated with the third quarter, the
ferroalloys segment faced a very particular
and difficult business environment in South
Africa, negatively impacting its profitability.
In South Africa, higher winter electricity
tariffs led to maintenance shutdowns
during the third quarter, thus increasing
the cost of production. During the third
quarter, management extended the closure
of the Mogale plant to four weeks, further
increasing shutdown costs, to perform
major maintenance and investment works.
Afarak invested in the relining of P1-P2-P3
furnaces and commenced preparatory
works to re-start the P4 furnace. An
impairment of EUR 0.6 (0.0) million was
registered on furnace refractories, which had to be replaced earlier than expected. In addition, third-party ores
saw a steep price increase, further increasing the cost of production. During quarter three, unusually bad weather
conditions in South Africa caused several delays in shipments. Together, all these factors negatively affected the
segment’s profitability which, however, was partly compensated by the joint venture share of profit.
2016
2015
2017
0.9
2.8
6.4
-3.4
Q3
5
2
1
0
4
6
3
-4
1
1.0
Q4
Q4
JOINT-VENTURE
The joint venture was an important driving power to the
positive performance of Afarak during 2017. Revenue
increased three-fold to EUR 16.8 (5.3) million by the
increase in sales volumes from the Mecklenburg mine,
as well as stronger sales of both concentrate and lumpy
chrome ore from the Stellite mine.
Profitability also grew at a fast pace. The joint venture’s
total profit for the full year amounted to EUR 6.0 (0.2)
million, with Afarak’s share amounting to EUR 3.1 (0.1)
million. The share of joint venture EBITDA for the full year
amounted to a record EUR 4.0 (1.3) million.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
5.3
3.3
Q2
3.2
0.5
Q3
3.6
0.3
Q4
4.7
-0.2
FY17
16.8
4.0
FY16
5.3
1.3
62.5%
16.3%
9.3%
-4.3%
23.6%
24.4%
3.1
0.3
0.0
-0.5
3.0
0.8
59.1%
9.7%
-0.6%
-9.9%
17.6%
15.7%
Afarak expects the joint venture to continue being an important contributor to its performance over the medium-term,
as a result of increased activity at the Mecklenburg mine and substantial improvements in the Stellite mine.
LOOKING AHEAD
Work on introducing additional cycles has been made. The beneficiation and expansion of the product mix are better
due to the introduction of higher value-add products. These developments are still in early stages of development and
the first production results could be expected during 2018. The acquisition of the Zeerust Chrome Mine will further
extend Afarak’s production capacity towards the second half of the year and will make it the only South African
producer of high carbon ferrochrome.
33
STRATEGIC REVIEW Speciality Alloys
Segment
Asset Description
LOW LOW LOW
FERROCHROME
PRODUCTION PROCESS
EXTRA LOW CARBON
FERROCHROME
PRODUCTION PROCESS
TMS
TMS /
3rd parties
CrOre
SiCr
EWW
EWW
LLL FeCr
ELC FeCr
Aerospace
Turbines
Medical Steel
Automotive
steel
Extraction
Processing plant
End-user
Raw material
Processed material
34
STRATEGIC REVIEW TMS – TURKEY
TMS operations consist of underground mining, as well as
ore enrichment facilities equipped with crushing, milling and
shaking tables units. The production facilities are located in
Kavak, in the Eskisehir Province, and in Tavas, in the Denizli
province and Fethiye -Mugla and Adana Area. With a heritage
in chrome mining spanning almost 100 years, it holds 21
licences, of which 16 are exploitation licences.
The annual ROM production capacity is between 130,000 –
140,000 tonnes which is converted to 65,000 - 88,000 tons of
saleable product incl. former tailings recovery process.
TMS produces two chrome ore types: special high grade
chromite concentrates and lumpy chrome ores.
HIGH CHROME
FERROCHROME
PRODUCTION PROCESS
Si-Cr
HCr LC FeCr
3rd parties
EWW
Oil & gas
Nuclear applicances
EWW – GERMANY
EWW is a world-renowned processing facility with state-
of-the-art facilities and laboratories. With a heritage in
processing spanning over 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.
35
STRATEGIC REVIEW 2017 in Review
The Speciality Alloys Segment registered a very strong performance in 2017 compared to 2016,
primarily reflecting to strong market conditions. The Company also took several measures that
allowed it to benefit fully from the market upswing.
REVENUE
€89.4mln
(€68.7mln)
EBITDA
€12.6mln
(€5.4mln)
EBIT
€11.1mln
(€3.1mln)
MINING PRODUCTION
PROCESSING PRODUCTION
53,120mt
(59,752mt)
29,151mt
(19,420mt)
SALES OF
PROCESSED MATERIALS
25,340mt
(20,003mt)
PERSONNEL
483
(438)
36
STRATEGIC REVIEW PRODUCTION
Total production levels during 2017 increased by 3.9% to 82,271 (79,172) tons
through a significant improvement in processing levels.
Total Speciality Alloys Mining
90000
60000
30000
0
20000
15000
10000
5000
0
Mining Production (mt)
Q1
Q2
Q3
Q4
2016
2017
2016
2017
Mining levels decreased during quarter one and quarter four of 2017 because of stoppages for maintenance works at the
mines in Turkey.
Total Speciality Alloys Processing
Processing Production (mt)
10000
8000
6000
4000
2000
0
Q1
Q2
Q3
Q4
2016
2017
60000
30000
0
2016
2017
The increase in the production of processed material was particularly strong during 2017, due to a significant increase in
the fourth quarter. During the corresponding period a year earlier, Management had decided to shut down EWW plant to
reduce the piling-up of inventory.
37
STRATEGIC REVIEW SALES
2017 was characterised by reinforced demand for the Group’s speciality alloy products. Stronger market fundamentals,
primarily in the third quarter reduced the shutdown period of EWW plant.
8000
7000
6000
5000
4000
3000
2000
1000
0
Sales of Processed Material (mt)
Q1
Q2
Q3
Q4
2016
2017
FINANCIAL PERFORMANCE
The speciality alloys unit registered a very strong performance during the year. Revenue expanded at a fast pace of
30.2% over the previous year to EUR 89.4 (68.7) million. The improved performance was due to a stronger market
throughout 2017, with both stronger demand and higher prices compared to the previous year. Profitability also
increased significantly due to higher selling prices and decreased production costs. As a result, EBITDA more than
doubled to EUR 12.6 (5.4) million, whilst EBIT stood at EUR 11.1 (3.1) million.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
21.7
4.7
Q2
22.2
3.7
21.5%
16.7%
4.2
3.4
19.4%
15.1%
Q3
21.2
1.0
4.7%
0.7
3.1%
Q4
24.3
3.2
FY17
89.4
12.6
13.2%
14.1%
2.8
11.1
FY16
68.7
5.4
7.8%
3.1
11.6%
12.4%
4.4%
120
100
80
60
40
20
0
Revenue
95.6
89.4
68.7
2015
2016
2017
30
25
20
15
10
5
0
Revenue
21.7
22.2
21.2
24.3
Q1
Q2
Q3
Q4
38
STRATEGIC REVIEW EBITDA
12.7
12.6
5.4
EBITDA
4.7
3.7
5
4
3
2
1
0
2015
2016
2017
Q1
Q2
3.2
Q4
1.0
1
Q3
14
12
10
8
6
4
2
0
LOOKING AHEAD
Management is focused on optimising production and on exploring new product mixes. Through various initiatives and
with the cooperation of its staff, Afarak is becoming more responsive to market needs and trends.
39
STRATEGIC REVIEW Risk
Management
40
STRATEGIC REVIEW 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, managing
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.
able to take production decisions that allowed the
Company to benefit from the upswing.
In the case of exchange rate developments and
risks associated to that, the Audit Committee
embarked on a detailed assessment of exchange
rate movements and formulated a hedging
policy and procedures to allow it to better
manage its exposures.
Internally, the role of a Group Controller was
established to provide continuous monitoring
and oversight in accordance with the Company’s
risk management policy.
The Board continued monitoring its progress
on health and safety. Various investments and
policy & procedure updates were undertaken,
especially in South Africa.
PRINCIPAL RISKS
2017 DEVELOPMENTS
During 2017, the Audit Committee continued to
monitor price and exchange rate developments.
With respect to the former, the Management was
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 flows
and currency positions
• Indirect risk – loss of competitiveness
within the industry
The Group constantly evaluates the need
to enter into forward contract arrange-
ments
Interest rate risks
Changes in interest rates can
• Influence the repayment of loans
• Impact the profitability of
The Group constantly evaluates the need
to enter into forward contract arrange-
ments
Volatility of energy costs
Political and social risks
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
financial results. It may also impact
the plans to expand its operations and
implement its growth strategy
• Changes in the mining, employment
and fiscal regulatory environment
may materially adversely affect the
business and its financial results
• Operations may be affected to
varying degrees by government
regulations
The Group constantly evaluates the need
to enter into financial arrangements to
mitigate such risk
Afarak seeks to maintain good relation-
ships with stakeholders
41
STRATEGIC REVIEW Price risks
The Group’s processing operations are
exposed to the availability, quality and
price fluctuations in raw materials
• The price risks on input materials and
commodities are managed by pricing
contracts so that, where possible,
any changes in input materials and
commodities may be absorbed in the
sales prices
• The Group’s business units seek long-
term contract agreements with known
counterparties where possible
Price and demand volatility in
the commodities markets
The global market for Group’s products
may not progress or develop at the levels
forecast and a drop in demand for the
Group’s products could have an adverse
effect on the Group’s revenues and
profits
• 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 sufficient liquidity to service
and finance 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 profitability 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 flows and
profitable results from the investment
•There is a risk that the Group might
not be able to find the appropriate
site or to obtain the necessary licences
to develop and operate or to secure
the required financing
• The Group continuously assesses its
working capital to ensure that it has
sufficient 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 Analysis 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 carries out continuous financial
health checks of key suppliers
• Evaluations of key supplier controls in
order to minimise the impact associate
with disruption
• Assess safety and security stock levels
• Understand alternate supply options
and how long it will take to employ
alternatives
42
STRATEGIC REVIEW Competition & Rivalry
May negatively impact Afarak’s current
operations which could have a consequent
effect on the Group’s operating and
financial results. It may also impact
the plans to expand its operations and
implement its growth strategy
Afarak continuously monitors industry
trends and adjusts its growth strategy
accordingly. Afarak builds its resilience
through the development of niche
growth areas.
Distribution network risk
This may have adverse effect on
operations which could impact the
Group’s operating and financial results
To mitigate this risk Afarak has standard
operating procedures in place for most
foreseeable circumstances
Technology risk
Loss of key personnel or the
engagement of inappropriate
personnel
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 financial results
Adverse effect on operations,
particularly its processing plants, which
could impact the Group’s operating and
financial results
Afarak regularly assesses the lastest
technological equipment and software
available on the market
• Regularly re-assesses its remuneration
policies and packages to attract and
retain suitably skilled and qualified
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
The Group has legal teams wherever it
operates and constantly reviews its contracts
to ensure that it is duly safeguarded.
Employment legislation
If not observed may negatively impact
Afarak’s financial results
Afarak regularly re-assesses its policies in terms
of employment legislations
Tax risks
Data protection risk
SUSTAINABILITY RISKS
Changes in tax laws and regulation, or
a change in interpretation of the tax
authorities in the different jurisdiction we
operate in could have an adverse impact
on Afarak’s financial results
Afarak keeps abreast with changes in
tax regulation and external experts are
appointed to assist in identifying potential
tax liabilities and ensuring compliance with
the tax legislation
If data protection legislation is not
observed the business may be adversely
affected and have an impact on the
financial results
Data protection law is closely and regularly
assessed in terms of the Group operations
RISK
CONSEQUENCES
CONTROLS TO MITIGATE RISK
Risk of mining and smelting
accidents (fire, flooding, 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 financial results by
temporarily closing down operations
Afarak seeks to resolve the matters with all
stakeholders to reduce the impact on its
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
43
STRATEGIC REVIEW Sustainability
Review
Afarak understands that sustainability
is critical to any business and industry.
We want to proceed in the right way at
all levels of our business. Our sustainability
initiatives are built around four main pillars that
are integrated in our decision-making.
SAFETY FIRST
SUSTAINABILITY
COMMUNITIES AND
HUMAN RIGHTS
HEALTH
ENVIRONMENT
Our employee’s safety is our top priority. It comes
before anything else and we do not take any
shortcuts. In this regard, we are constantly focusing
on improving the health and well-being of our
co-workers and care for the communities around our
operation facilities. As a primary sector company, we
are committed to minimising our ecological footprint.
The communities that host our operations are
important stakeholders and we are proud of the
reputation that we have built in the years of our co-
operation.
OUR COMMITMENT
Afarak delivers its contribution to environmental and
social sustainability through its production processes.
We believe that our efforts will support several
United Nations’ resolutions on sustainability, such as
decreasing poverty and hunger, but also increasing
gender equality, education and access to clean water.
Our most significant impact on local host
communities lies in providing direct and indirect
employment. We support local communities in their
needs related to education and infrastructure.
Afarak backs a number of orphanages in South Africa,
as well as shelters for women and children.
We provide financial support to 5 day-care centres as
well, distributing daily meals to 155 children.
The estimated impact of our help amounts to over
600,000 meals and care packs distributed to over
2,000 children on an annual basis.
Moreover we are proud to call ourselves a long-time
partner of the Patrick Masego Primary school, and the
CK Trust, financially supporting teachers and pupils
throughout our operation areas.
With our mantra being “take care of yourself and
the others”, in 2017 we invested in local community
healthcare programmes. Our employee health
promotion includes HIV/AIDS testing, and general
examination of our co-workers as well as medicinal
support to the communities around our facilities.
Gender-equality is still a global issue and there is a lot
more work to be done. In this regard Afarak proudly
adopted gender-equal policies at our mining grounds,
as well as on all levels of our business.
We offer safe and decent work conditions to our
employees and maintain excellent relations with the
local unions. We also work with Black Empowerment
Partners and contribute to entrepreneurship in order to
45
STRATEGIC REVIEW reinforce the local economy. We also support community
contractors to grant people access to more jobs.
SAFETY
We contributed to a road-building project in Mecklenburg,
further developing the infrastructure. In addition, we take
pride in preserving the environment. We are supporting a
local tree nursery and shrubbery initiative in Mecklenburg.
This is the first step to prepare for rehabilitating our mine
and return it in its pristine natural state. We continue
to invest in water treatment as it is a key resource in
mining. Since we have obtained the Water Use Licence in
Mecklenburg area, we increased our use of recycled and
processed water and co-financed a water tank- building
project for the people living around our sites.
In Turkey we installed press water filters, which drastically
reduced our water consumption. In Stellite, our shaking
table technology and further beneficiation processes allow
us to decrease the amount of tailings. Apart from these
investments which will reduce waste production, energy
plays an important role in our business.
In Mogale a 2.8 MW heat recovery system has been
installed. These savings in energy will contribute towards a
proportional reduction of CO2 emissions and an increase
in productivity.
Afarak also indirectly supports sustainability by our
great range of specialty alloys, used in the production
of components for wind turbines, generators and other
innovative technology.
Afarak strives to achieve what we call “Zero Harm Policy” at
all levels of our operations and provides its employees and
contractors a safe and healthy work environment.
Afarak holds regular Board committees 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. The programme focusing on pro-active safety
and environmental measurements continued in 2017 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.
Afarak believes that with strong leadership on safety
at its production sites, it can create and maintain safe
workplaces for everyone. To this end, we have completed
a performance improvement project at Mogale with a
leading international consulting company.
During 2017, the Group achieved approximately 2,238,605
working hours during which the company suffered 16
accidents that caused loss of time. Lost Time Injury (LTI) is
defined as any work-related injury or illness which prevents a
person from doing any work the day after the accident. The
lost days due to injury were significantly reduced during 2017
and stood at 583 compared to 875 days a year earlier. This
also led to a decline in the duration rate from 67.3 to 36.4
and in the severity rate from 480.4 to 260.4. We are proud
that unlike 2016, no fatalities happened on our sites.
46
STRATEGIC REVIEW Fatal injury
Lost Time Injury
Lost days due to injury
0
(1)
16
(13)
583
(875)
Lost Time Injury Frequency Rate
Duration rate
7.1
(7.1)
36.4
(67.3)
Severity rate
260.4
(480.4)
Going forward, management remains focused on further improving the safety performance at Afarak through various
initiatives and investments.
47
STRATEGIC REVIEW PROJECTS
South Africa
Afarak, in collaboration with an international
consulting company introduced a performance
improvement programme in Mogale. The LETSEMA
programme focuses on improving safety performance
in the plant. A SHEQ Toolbox has been implemented.
Our staff is now being trained further and new
procedures have been implemented to ensure that the
safety of the workers is kept at centre of all operations and
decision-making.
Turkey
During the year, TMS invested in a new
underground miner tracking system. The wireless
system allows workers to wear flexible hardware
whilst the robust software platform offers real
time information. The safety of personnel working
underground is constantly being monitored and
addressed by HS&E directives. A primary feature of the
solution is that it significantly improves personnel safety. It
ensures the highly efficient handling of evacuation situations
and improves safety in day-to-day operations.
HEALTH
We are improving the conditions for our employees by providing a safe working environment as well as tackling
important health issues such as HIV/AIDS (especially in South African operations). Along with safety, health is a
top priority for Afarak. By granting healthcare to our co-workers, we can actively contribute to their long-term
well-being.
In our plants we assess, monitor and control the risks of our workers. In Germany, we have installed a sound
abatement system to reduce the noise. We have also invested in de-dusting filter systems to minimise dust
pollution on site and decrease pollution-related health issues.
We also want our employees’ physical capability to be compatible with the requirements of their respective job.
To help achieve this goal, we conduct routine health checks on all sites. These checks include drug and alcohol
testing. We are also reviewing the role of organising shifts in the mines to minimise any fatigue-related injuries.
To conclude, Afarak remains committed to investing in the health of its workforce and local community.
48
STRATEGIC REVIEW ENVIRONMENT
We aim to demonstrate our environmental responsibility by minimising our environmental impact. Our environmental
intervention rests on four main pillars.
WATER MANAGEMENT
CO2
AIR EMISSIONS
ENVIRONMENT
WASTE
MANAGEMENT
LAND MANAGEMENT
WATER MANAGEMENT
Water is a shared and limited resource. We aim to
preserve water sources, manage and recycle our use of
water whilst providing access to clean water.
In South Africa, our policy is to reduce, and recycle
the use of water. In Mogale, we have improved our
efficiency and cut municipal water usage by 20%. We
have started to recycle processed water and have
finalised works on rain water collection projects.
In Turkey, water filters have been installed to start
recycling water used in the processing of tailings.
WASTE MANAGEMENT
too. We are also planning on adding further stages of
beneficiation and treatment later in 2018 to further
generate value from our waste products.
LAND REHABILITATION
We aim to manage our land responsibly throughout the
lifecycle of our assets.
To this end, we are working on projects to rehabilitate
mines we currently work in. We recognise that our
activities impact the grounds on which we work. By
reestablishing land, managing its biodiversity and
considering the needs of locals, we can reduce the level of
our environmental impact.
We intend to minimise the waste our activity produces.
Most of the waste our activity generates is tailings from
mining. Tailings are usually a big concern for mining
companies. However, through our beneficiation stages,
Afarak is able to recycle and yield more chrome content
from mined goods, thus reducing the amount of tailings
We are working with the local community in Mecklenburg
to establish a tree and shrubbery nursery. This commercial
community project will sell its trees and plants to Afarak
once work on the rehabilitation will start. This project not
only backs up the community entrepreneurship but will also
support local flora and fauna.
49
STRATEGIC REVIEW AIR EMISSIONS
Our activity carries an influence on air quality and CO2 emissions. Our dependence on electricity is also a
source for CO2 emissions which we would like to decrease by shifting toward alternative sources of energy.
In Turkey and Germany, we have installed dust abatement solutions that seek to minimise dust emissions
during the processing activity.
In South Africa, we have installed a 2.8 MW heat recovery unit in Mogale. This energy saving investment will
contribute towards a proportional reduction of our CO2 emissions and a respective increase of our productivity.
COMMUNITIES & HUMAN RIGHTS
We bring economic benefits to the countries we work in by employing people, buying goods and services,
paying taxes and royalties, and investing in infrastructure and healthcare. Our operations can bring socio-
economic benefits to our host communities. We work in partnership with stakeholders to deliver initiatives that
support long-term partnerships.
We are committed to building and maintaining constructive, long-lasting relationships with our stakeholders,
including our host communities. Speaking openly and transparently with all our stakeholders is vital for our
future and for maintaining good relationships with the host community.
In South Africa, at Mecklenburg, we have appointed new Community Liaison Officers and are establishing
durable relationships with the surrounding communities. We have also invested in a mobile office to ensure that
meetings can be held properly within the different areas.
We uphold values of mutual respect, social cohesion and human rights within our staff, communities and
contractors.
Finally, we take pride in creating social value through five main pillars:
PROCUREMENT
EMPLOYMENT
ENTERPRISES
INFRASTRUCTURE
COMMUNITY
INITIATIVES
50
STRATEGIC REVIEW EMPLOYMENT
By providing direct and indirect employment, we
believe that we are making a tangible contribution to
our host communities.
INFRASTRUCTURE
Throughout the years, we have helped our local
communities with their infrastructural requirements.
This year, we invested in a local road which
connects the school to the main road. In addition,
for the Magakala Community, Afarak invested in
the purchase and installation of 10 water tanks
with a capacity of 10,000 litres each. This project
also supported local entrepreneurship and local
companies were entrusted with the installation and
commissioning of the tanks.
COMMUNITY INITIATIVES
We continue to support local communities with
various assistance programs that are of a social and
educational nature. Afarak is supporting 7 orphans
who are currently residing at Jade House. The House
who built as a place of safety for orphans and offers
foster care to these children. 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 primary school
provides a daily meal to close to 2,000 children
including weekends and holiday periods. 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. Afarak
supports this Centre in Krugersdorp that provides
shelter for abused women and children. The Centre
can hold up to 40 families.
ENTERPRISES
We work closely with local enterprises and support
their development. For example, in mining we are
coaching local contractors from our host community
to develop their business. Also, we have supported a
local tree nursery company and we have decided to
procure all trees for the land rehabilitation project.
PROCUREMENT
In our procurement, we work closely with local
enterprises to support the local economy.
LOOKING AHEAD
Afarak will remain committed to upholding and
raising the value of sustainability in its operations.
Health and safety remain a key priority for the
Board and a review of safety policies & procedures is
underway. With the goal of improving safety at all
plants. Environmental investments are important to
Afarak and initiatives will continue throughout 2018
to further minimise the impact of our operations
on nature. Also, community investments will be
maintained.
51
STRATEGIC REVIEW Resource
Statement
RESOURCE STATEMENT Resource
Statement
53
RESOURCE STATEMENT Executive
Summary
The aim of this document is to provide a Mineral Resource and Mineral Reserve¹
Statement for Chromitite for Mecklenburg, Stellite and Vlakpoort Mine as at 31
December 2017.
The Mineral Reserve for Mecklenburg, Stellite and Vlakpoort declared on 31
December 2017 increased by 6,086 million tonnes from a year earlier due to
the inclusion of MG1-4 in Proved Mineral Reserve at Stellite Mine.
The Mineral Resources for Mecklenburg, Stellite and Vlakpoort from
31 December 2017, increased from that declared in December
2016 from 43,630 to 44,861 million tonnes mainly due to an
increase in measured resource for
MG1-4 at Stellite Mine.
The exploration results reported at Vlakpoort Mine
remained the same at 1,947 million tonnes. Mineral
reserve and resource also remained the same
since there was no mining from 2016 to 2017
at Vlakpoort Mine. Mining at Vlakpoort is
expected to commence in the second
quarter of 2018 after Department of
Mineral Resources has granted a
new-order mining right for
Vlakpoort Mine.
54
RESOURCE STATEMENT STELLITE MINE
Mineral Reserves (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
700
24.10
1.14 LG6-MG4
700
24.10
Stellite: Underground
MG4
LG6
2,702
34.98
1.36 LG6
Stellite: Underground
MG4
Stellite: Open Pit
Stellite: Open Pit
1,450
674
346
598
103
30.39
30.64
35.98
37.72
33.68
1.20 MG4
1.18 MG3
1.32 MG2
1.40 MG1
1.37
LG6+6A
6,573
32.65
1.28
Total
Indicated
INDICATED:
Stellite: Underground
9,842
34.82
MG4
MG3
MG2
MG1
LG6+6A
Total Proved
PROBABLE:
Stellite: Underground
MG4
LG6
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
262
3,628
3,015
1,276
948
1,914
239
32.69
34.26
30.75
30.82
36.08
37.53
33.88
1.22 MG4
1.38 LG6
Stellite: Open Pit
1.20 MG4
1.16 MG3
1.28 MG2
1.38 MG1
1.43 LG6+6A
Total Probable
11,020
33.62
1.30
Proved &
Probable
Reserves
17,593
33.25
1.29
Total Reserves
17,593
33.25
1.29
Total
Indicated
Measured
& Indicated
Resources
MEASURED:
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
Inferred
Resources
Total
Resources
1,211
4,222
1696
788
405
700
120
33.59
37.70
31.86
31.68
37.20
39.00
38.11
306
4,243
3526
1492
1109
2239
280
13,195
33.80
37.50
32.35
31.68
37.30
38.80
38.54
35.61
23,037
35.27
1,440
2,110
1,920
1,070
40
6,580
33.18
32.64
37.10
38.90
37.82
35.11
29,617
35.23
1.14
1.24
1.41
1.22
1.19
1.32
1.40
1.46
1.32
1.25
1.41
1.23
1.19
1.31
1.41
1.46
1.33
1.32
1.24
1.26
1.32
1.41
1.44
1.30
1.32
The Mineral Reserve for Stellite declared in 31 December 2017 increased from 28,319 to 29,617 million tonnes
as those declared in December 2016 mainly due to increase and inclusion of MG1-4 proved probable Mineral Reserve.
Stellite tailings LG6-MG4 tailings mineral reserve and resource decreased from 0,732 to 0,700 tons whereas the chrome
grade and Cr to Fe ratio remained the same at 24,10 % and 1,14 respectively
The Mineral Resources for Stellite declared for open-Pit (170 m high-wall) as 31 December 2017, increase from that
declared in December 2016 from 28 318 to 29 617 million tonnes mainly due to increase in inferred Mineral Resource.
55
RESOURCE STATEMENT MECKLENBURG MINE
The Mineral Reserve for Mecklenburg underground declared in 31 December 2017 remained the same at 7.2
million tonnes as those declared in December 2016. No underground mining was conducted during 2017.
The Mineral Resources for Mecklenburg declared for open-Pit (65m high-wall) as 31 December 2017, decreased from that
declared in December 2016 from 0, 32 to 0, 25 million tonnes mainly due to depletion.
Mineral Reserves (ROM Feed numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
PROVED:
MEASURED:
Mecklenburg; Underground
Mecklenburg: Underground
LG6+6A
2,682
41.85
1.57
LG6+6A
4,190
43.36
1.59
Mecklenburg; Open Pit
Mecklenburg: Open Pit
LG6+6A
Total Proved
PROBABLE:
214
2,895
40.76
41.77
1.58 LG6+6A
1.57
Total
Indicated
INDICATED:
250
13,195
44.10
35.61
1.64
1.33
Mecklenburg; Underground
Mecklenburg; Underground
LG6+6A
1,924
41.83
1.57
LG6+6A
3,006
43.37
1.59
Mecklenburg; Open Pit
LG6+6A
-
Mecklenburg; Open Pit
LG6+6A
0
Total Probable
1,924
41.83
Proved &
Probable
Reserves
4,819
41.79
1.57
1.57
Total
Indicated
Measured
& Indicated
Resources
3,006
43.37
13,195
35.61
Mecklenburg: Underground
LG6+6A
1,142
43.41
Mecklenburg: Open Pit
LG6+6A
0
1.59
1.33
1.59
Total Reserves
4,819
41.79
1.57
Inferred
Resources
Total
Resources
(Excl
Exploration
Results)
1,142
43.41
1.59
8,588
43.39
1.59
56
RESOURCE STATEMENT VLAKPOORT MINE
The Mineral Reserve and Mineral Resource for Vlakpoort declared in 31 December 2017 remained the same at
20,390 and 33,595 million tonnes respectively as those declared in December 2016. No underground or open-cast mining
was conducted during 2017.
Open-cast mining has been scheduled in the second quarter of 2018.
Mineral Reserves (ROM Feed numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
PROVED:
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
MEASURED:
Vlakpoort; Open Pit
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
Total Proved
PROBABLE:
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
LG6
UG2
Total
INDICATED:
Vlakpoort; Open Pit
40
3
37
16
9
37.93
35.01
31.25
30.52
27.09
1.78 LG1-3
1.45 LG5
1.63 LG6
1.36 MG1-4
1.22 UG1-UG2
Vlakpoort; Underground
Vlakpoort; Underground
LG6
UG2
Total Probable
105
33.43
Proved &
Probable
Reserves
364
30.95
LG6
UG2
1.61
1.41
Total
Indicated
Measured
& Indicated
Resources
32
42
151
131
164
398
754
41.57
38.77
36.85
30.01
21.46
33.32
19.65
53
10
64
75
24
793
421
1,440
41.57
39.92
33.95
29.92
27.61
33.92
19.83
29.81
259
29.95
1.33
Measured
1,672
26.35
1.82
1.55
1.53
1.29
1.12
1.59
1.06
1.28
1.86
1.55
1.58
1.35
1.25
1.58
1.06
1.42
3,112
27.95
1.34
57
RESOURCE STATEMENT Total Reserves
364
30.95
1.41
INFERRED
Vlakpoort; Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-UG2
Vlakpoort; Underground
LG6
UG2
Inferred
Resources
Total
Resources
(Excl
Exploration
Results²)
Exploration
Results
Vlakpoort; Underground
LG6
UG2
Vlakpoort; Open Pit
LG1
LG2
LG3
LG5
LG6
MG1
MG2
MG3
MG4+4A
UG1
UG2
Exploration
Results
Total (Incl
Exploration
Results)
41
1
119
1,321
115
41.55
33.49
28.61
33.67
20.27
1,597
32.53
1.79
1.59
1.30
1.59
1.08
1.54
4,709
29.50
1.41
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
6,656
30.70
1.70
1.75
2.01
1.60
2.09
1.21
1.23
1.56
1.45
58
RESOURCE STATEMENT COMBINED MINERAL RESOURCE AND RESERVE STATEMENT VLAKPOORT MINE
Mineral Reserves (ROM Feed numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
2E+AU (g/t)
Ozs
Tonnage (kt)
2E+AU (g/t)
Ozs
PROVED:
Stellite: Tailings
MEASURED:
Stellite: Tailings
LG6-MG4
700
24.10
1.14 LG6-MG4
700
24.10
1.14
Stellite: Underground
MG4
LG6
2,702
34.98
1.36 LG6
Stellite: Underground
MG4
Stellite: Open Pit
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
1,450
674
346
598
103
30.39
30.64
1.20 MG4
1.18 MG3
MG2
MG1
33.68
1.37
LG6+6A
1211
4222
1696
788
405
700
120
33.59
37.70
31.86
31.68
37.20
39.00
38.11
Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
2682
41.85
1.57
LG6+6A
4,190
43.36
Mecklenburg: Open Pit
Mecklenburg: Open Pit
LG6+6A
214
40.76
1.58 LG6+6A
250
44.10
Vlakpoort: Open Pit
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-MR
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-MR
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
1.24
1.41
1.22
1.19
1.32
1.40
1.46
1.59
1.64
1.82
1.55
1.53
1.29
1.12
1.59
1.06
Total Proved
9,728
31.69
1.24
Measured
15,954
36.32
1.39
PROBABLE:
Stellite: Underground
MG4
LG6
INDICATED:
Stellite: Underground
MG4
1,241
34.26
1.35 LG6
Stellite: Open Pit
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
3,015
1,276
948
1,914
239
30.75
30.82
36.08
37.53
33.88
1.20 MG4
1.16 MG3
1.28 MG2
1.38 MG1
1.43 LG6+6A
306
4,243
3,526
1,492
1,109
2,239
280
33.80
37.50
32.35
31.68
37.30
38.80
38.54
1.25
1.41
1.23
1.19
1.31
1.41
1.46
59
RESOURCE STATEMENT Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
1,924
41.83
1.57
LG6+6A
3,006
43.37
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 UG1-2
Vlakpoort: Underground
Vlakpoort: Underground
LG6
UG2
LG6
UG2
Total
0
53
10
64
75
24
793
421
0.00
41.57
39.92
33.95
29.92
27.61
33.92
19.83
1.59
0.00
1.86
1.55
1.58
1.35
1.25
1.58
1.06
Total Proved
10,662
34.95
1.33
Indicated
17,641
36.46
1.38
Measured
& Indicated
Resources
INFERRED
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
33,595
36.39
1.38
1,440
2,110
1,920
1,070
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-MR
Vlakpoort: Underground
LG6
UG2
Inferred
Resources
Total
Resources
(Excl
Exploration
Results)
41
1
119
1,321
115
41.55
33.49
28.61
33.67
20.27
1.79
1.59
1.30
1.59
1.08
9,319
35.68
1.38
42,914
36.24
1.38
Proved &
Probable
Reserves
20,390
33.40
1.28
Total Reserves
20,390
33.40
1.28
60
RESOURCE STATEMENT Exploration Results
Vlakpoort: Underground
LG6
UG2
Vlakpoort: Open Pit
1,243
34.16
1.60
LG1
LG2
LG3
LG5
LG6
MG1
MG2
MG3
MG4+4A
UG1
UG2
Exploration
Results
Total (Incl
Exploration
Results)
38.35
33.51
38.73
33.55
39.73
27.47
29.70
10
7
33
365
20
5
264
-
-
1,947
33.58
44,861
36.12
1.70
1.75
2.01
1.60
2.09
1.21
1.23
1.56
1.39
HISTORICAL INFORMATION
The information in this statement that relates to Exploration Results and Mineral Resources is based on the
Mineral reserve and resource report and information compiled by Hermanus Berhardus Swart, a Competent
Person who is a Professional Natural Scientist registered with South African Council for Natural Scientific
Professions accredited (No. 400101/00) and a Member of the Geological Society of South Africa, each of which is
a “Recognised Professional Organisation” (RPO) that is included in a list that is posted on the ASX website from
time to time. Hermanus Berhardus Swart, the Competent Person is employed by Dunrose Trading 186
(PTY) Ltd trading as Shango Solutions, which provides services as geological consultants. The Competent
Person has sufficient experience which is relevant to the style of mineralisation and types of deposits under
consideration, and to the activity which has been undertaken, to qualify as a Competent Person as defined by
the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore
Reserves (JORC), the 2001 Code for reporting of Mineral Exploration Results, Mineral Resources and Mineral
Reserves in the United Kingdom, Ireland and Europe (IMMM) as well as the 2007 edition of the South African Code for
Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC). The Competent Person consents
to the inclusion of the matters based on his information in the form and context in which it appears.
COMPETENT PERSONS
The information in this statement that relates to Exploration Results and Mineral Resources is based on the
Mineral reserve and resource report and information compiled by:
1. Daniel Thenga:
Senior Geologist, Afarak SA Mining, Pr.Sci.Nat (reg nr: 114738), BSc Hons (Mining & Geology, Blasting
Cert, MGSSA
2. Cuan Berner Kloppers:
Executive Consulting Geologist, , Pr.Sci.Nat (reg no:400092/04), EDP/MBA (UNISA SBL), NDip (Geology), NHDip,
Geotechnology, MTech Research (Industrial Minerals), MGSSA, MSAAG, MSAQS
61
RESOURCE STATEMENT Both the people named above are Competent Persons who are both Professional Natural Scientists
registered with South African Council for Natural Scientific Professions accredited and Members of the Geological
Society of South Africa, each of which is a “Recognized Professional Organisation” (RPO) that is included in a list
that is posted on the ASX website from time to time. Both the Competent Persons, listed above, has sufficient
experience which is relevant to the style of mineralisation and types of deposits under consideration, and to
the activity which has been undertaken, to qualify as a Competent Person as defined by the 2012 edition of the
Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC), the 2001
Code for reporting of Mineral Exploration Results, Mineral Resources and Mineral Reserves in the
United Kingdom, Ireland and Europe (IMMM) as well as the 2007 edition of the South African Code for Reporting of
Exploration Results, Mineral Resources and Mineral Reserves (SAMREC). The Competent Persons consents to the
inclusion of the matters based on his information in the form and context in which it appears.
Daniel Thenga
Cuan Kloppers
62
RESOURCE STATEMENT
Governance
Review
Governance
Review
Chairman’s
Introduction
66
GOVERNANCE REVIEW Dear Shareholders,
This year will be remembered not only for the record
results but for the turnaround and renewal of the
organisation.
Although the positive results were largely supported
by the favourable market conditions, the internal
restructuring and implementation of a new growth
vision and strategy by the Board and Management
played a key role.
Throughout 2017, your Board empowered the
different units around the world to start a renewal
process aimed at securing new markets, improve
productivity and efficiencies and also to launch
an acquisition strategy. It is with pleasure to note
the positive results across segments, particularly
the mining unit in South Africa. The resumption of
open-cast mining at Mecklenburg has been pivotal
in our success. We also invested heavily across
the Group and our smelter plant in Mogale has
achieved further improvements in productivity.
Looking ahead, we are confident that the
investments we approved throughout 2017, such
as the acquisition of the Zeerust Chrome Mine,
further beneficiation plants, the commencement
of underground mining at Mecklenburg and the
processing of foundry and chemical grade will
continue making Afarak an important player in the
ferrochrome industry.
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. Our ability to be specialist producers as well
as volume miners, will further support our resilience
and adaptability.
Although financial results are important, we are
also mindful of our commitment to sustainability.
Our focus remains on ensuring a “Zero Harm” policy
and we are proud and thankful that no fatalities
were registered in 2017. Throughout the year, we
have invested heavily in ensuring the safety of our
employees is prioritised across all our units. We have
also supported health promotion.
We face many challenging situations at our
operations, as we work to extract resources
safely, profitably and responsibly, to mitigate
our environmental impact and support our host
communities. We recognize the value of multi-
stakeholder engagement and we continue to tackle
these challenges with Management, our employees,
unions and also the host communities.
This year we have participated in a number of such
initiatives across a number of areas including our
host communities in South Africa and Turkey. Our
support has extended beyond charitable donations
towards assisting NGOs and educational services.
I am proud with our efforts to invest in much needed
infrastructure including a system of water tanks and
the building of roads in South Africa.
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 with
respect to the budgeting and investment appraisal
work done during the year;
• the work with executive management and
subsidiaries concerning the Group’s ongoing
strategy and performance improvement;
• the focus on sustainability issues, particularly
health & safety by the Board across the Units.
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. Following
the exception result in quarter one 2017, the Board
decuded to give a capital redemption to our
shareholders, totaling EUR5.2 million. The Board will
propose to the Annual General Meeting that the
Annual General Meeting would authorise the Board
to resolve on its discretion on the payment of capital
redemption up to a maximum of two cents per share
in quarter four 2018.
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.
The Board and the Management team have been
entrusted by the shareholders to plan for a delisting
from the NASDAQ Helsinki Stock Exchange and to
establish the London Stock Exchange as Afarak’s
primary listing. I am confident that the London Stock
Exchange will provide the ideal platform for Afarak to
expand its business and continue becoming a more
vertically-integrated producer of ferrochrome.
There are many opportunities and challenges ahead
for resource businesses. The market remains volatile
but I believe that Afarak is well-placed to continue
playing a key role in sustainable value creation for all
our stakeholders. As a Board, we remain focused on
and committed to 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 support.
DR JELENA MANOJLOVIC
Chairman
67
GOVERNANCE REVIEW 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
TOPIC
LOCATION
1
2
4
5
6
7
8
9
10
11
12
13
14
Interest capitalised
Publication of unaudited financial
information
Details of long-term incentive schemes
1.7. Notes to the consolidated statement of
financial position, 10. Property, plant and
equipment
Not applicable
1.7. Notes to the consolidated statement of
financial position, 19. Share-based payments
Waiver of emoluments by a director
Not applicable
Waiver of future emoluments by a director Not applicable
Non pre-emptive issues of equity for cash
Not applicable
Item (7) in relation to major subsidiary
undertakings
Not applicable
Parent participation in a placing by a listed
subsidiary
Not applicable
Contracts of significance
Provision of services by a controlling
shareholder
Shareholder waivers of dividends
1.7. Notes to the consolidated statement of
financial position, 1.8.2 Related party transactions
Not applicable
Not applicable
Shareholder waivers of future dividends
Not applicable
Agreements with controlling shareholders
Not applicable
All the information cross-referenced above is hereby incorporated by reference into this Board of Directors report.
68
GOVERNANCE REVIEW 69
GOVERNANCE REVIEW Our People
The Board of Directors
CHAIRMAN AND DEPENDENT NON-EXECUTIVE DIRECTOR
A
F
A
R
A
K
G
R
O
U
P
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 Chairman 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
field and 20 years’ in management positions in a diverse range of organisations,
including the UK’s National Health Service, universities and other companies.
INDEPENDENT NON-EXECUTIVE DIRECTORS
Barry Rourke
FCA
Born 1950
Barry Rourke was a member of the Ruukki Board, the Chairman of the Audit Committee
and a member of the Remuneration Committee from April 2010 to February 2013. He
rejoined the Afarak Board on May 8, 2015. Previously, he was an Audit Partner at PWC
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 companies.
Ivan Jakovčić
BA (Foreign Trade Faculty)
Born 1956
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.
70
GOVERNANCE REVIEW Thorstein Abrahamsen
M. Sc. (Electrochemical Engineering)
Born 1948
Thorstein Abrahamsen is an internationally respected stainless steel and ferroalloy
industry professional. He has served as Chief Executive Officer of various manufacturing
companies within stainless steel, ferroalloy, construction equipment and mining industries.
He also served as Vice-President Sales & Distribution of a global stainless steel production
company. Throughout his career he has served on over 30 boards including chairmanships
of ferroalloy and steel trading & marketing companies around the world. He is currently
Chairman of a construction industry company, a board member and partner of a
management consultancy company and two investment companies.
Thomas Hoyer
Born 1974
Thomas Hoyer is a graduate in economics and a seasoned executive management
professional. Starting his career as an investment manager with Allianz he took over the
role of CFO of a leading French company before moving to Ruukki Group, Afarak Group’s
predecessor. During the time, he fulfilled the roles of CFO before becoming CEO. He also
served as an Executive Director on the Board of Directors. He then occupied the role of CEO
with Tantalus Rare Earths, a German company specialised in mine development. Today,
Thomas Hoyer is a Director at Helsinki Capital Partners, a Finnish licensed fund management
company. He also serves as a non-Executive Director at Gaia, an international sustainability
and environmental consulting company. Mr Hoyer did not recontest the election of the Board
during the Extraordinary General Meeting held on 5th February 2018.
71
GOVERNANCE REVIEW 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.
Guy Konsbruck
CEO
BA (Hons); MBA (SHU Fairfield); MA
Born 1965
Guy Konsbruck was appointed Chief Executive Officer 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.
Mr Konsbruck was appointed to the Board during the Extraordinary General Meeting held on
5th February 2018.
Predrag Kovacevic
CFO
BA (Hons), MA (Business Administration & Economics)
Born 1974
Predrag Kovacevic is a corporate finance, capital markets and financial industry
professional with 18 years of broad international experience. Having held senior advisory
and leadership positions in both government and private sector he joined Afarak at the
beginning of 2016 working on finance and business development.
Dr Danko Koncar
COO
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 fourteen years of experience in application of direct current
technology to ferrochrome processing.
72
GOVERNANCE REVIEW 73
GOVERNANCE REVIEW 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:
Michael Lillja
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.
Melvin Grima
Finance Director
FCCA, MIA, CPA; Born 1982
Melvin Grima joined Afarak in 2013 as Group Finance Manager. He was responsible of the relocation of the
Group’s corporate finance function to Malta and its setup. He was promoted to Finance Director in 2015.
Prior to joining Afarak, he held a number of management positions including Group Accountant of a hotel
Group and Finance Manager of a Group trading in the petroleum industry.
Bertus van der Merwe
CEO Afarak South Africa
B Eng (Metallurgy), MBA (Heriot Watt Scotland); Born 1972
Bertus van der Merwe is a metallurgical engineer with extensive industry experience. He was a Gold
Fields bursar and worked at Billiton’s Samancor Manganese from 96-2001 and then joined Samancor
Cr in 2001 as Manager low carbon and eventually became the COO of Samancor Cr. In 2012 he left
to do consulting in the Ferroalloy and steel industry. He also has extensive reductant experience with
Portnex. In June 2017 he joined Afarak SA.
Milan Djakov
Deputy COO Afarak South Africa
M.SC (GLOBAL FINANCE); BA (Hons) International Banking Born 1982
Milan Djakov is a graduate in banking and finance. 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 and also served as a Non-Executive Director between 2016 and 2017.
Willem Smith
Managing Director, Afarak Mogale
B Eng (Metallurgy), MBA (Heriot Watt Scotland); 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.
74
GOVERNANCE REVIEW 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 Managing Director 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.
75
GOVERNANCE REVIEW 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.
Shareholders
(AGM)
Board of
Directors &
Board of
Committees
Health, Safety &
Sustainable
Development
Committee
Nomination &
Remuneration
Committee
76
GOVERNANCE REVIEW Executive
Management Team
Audit & Risk
Management
Committee
Corporate
Management Team
Chief Executive
Officer
(CEO)
77
GOVERNANCE REVIEW ANNUAL GENERAL MEETING
Afarak’s ultimate decision-making body is the shareholders’
Annual General Meeting which convenes once a year and
is held within six months of the end of the financial 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 financial statements, the annual report and the
auditor’s report, will be available on the Group’s website and
at the Group’s office in Helsinki at least three weeks before
the meeting. The resolutions passed by the General Meeting
are 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 specific matter, or if it is required by law or
other regulations.
The most significant items on the Annual General Meeting’s
agenda include:
• Approving the year’s financial statements;
• Confirming the financial year’s profit or loss, the dividend
distribution or other distribution, such as capital
redemption;
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 qualified 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 first time, he or she will also attend the General Meeting.
ANNUAL GENERAL MEETINGS IN 2017
The Annual General Meeting was held on May 23, 2017 at
Klaus K Hotel in Helsinki, Finland.
All the resolutions of the above-mentioned General Meeting
can be found at:
http://www.afarak.com/en/investors/shareholder-
meetings/2017/
EXTRAORDINARY GENERAL MEETINGS
An Extraordinary General Meeting was held on February 5,
2018 at Union Square Auditorium, Helsinki, Finland.
• 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.
All the resolutions of the above-mentioned General Meeting
can be found at:
http://www.afarak.com/en/investors/shareholder-
meetings/2018/
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 specified 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,
finances and accounts on behalf of shareholders. Its specific
responsibilities include:
• Formulating the Group’s business strategy and overseeing
its implementation;
• Deciding on the Group’s capital structure;
• Making decisions on significant investments, divestments,
credits and collaterals, guarantees and other commitments;
• Approving the quarterly interim reports, the Board of
Directors Report, the annual financial 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
financial supervision authorities and conducts regular self-
assessments to ensure these requirements continue to be
fulfilled. The Group has established specific 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 efficiency 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 2017 Annual General Meeting elected five members to
the board: Dr Jelena Manojlovic, Mr Barry Rourke and Mr
Ivan Jakovcic were re-elected and Mr Thomas Hoyer and
Mr Thorstein Abrahamsen were newly elected. Mr Markku
Kankaala resigned from the Board in March 2017. Mr Thomas
Hoyer did not seek re-election at the Extraordinary General
Meeting in February 2018.
DIVERSITY OF THE BOARD OF DIRECTORS - 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 sufficiently 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.
79
GOVERNANCE REVIEW
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 financial performance; and a
• 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 profile 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 significant
shareholders of the Company. The Company believes that
Mr Barry Rourke, Mr Ivan Jakovcic, Mr Thomas Hoyer and
Mr Thorstein Abrahamsen are independent of the Company
and significant 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
Jelena Manojlovic
Chairman
11 July 2008
Dependent
-
Member
Barry Rourke
Ivan Jakovcic
Thomas Hoyer
Thorstein Abrahamsen
NED
NED
NED
NED
08 May 2015
Independent
Chair
Member
11 February 2013
Independent
Chair
23 May 2017
Independent
Member
23 May 2017
Independent
Member
Chair
80
GOVERNANCE REVIEW
The Board
in 2017
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.
STRATEGIC VISION
The new leadership of the Company presented a revised
Strategic Vision for Afarak focusing on integrating
sustainability across all our business unit; growing the
organisation organically as well as through M&A and
on achieving strong profitability through operational
efficiencies and cost controls. Throughout the year, the
Board implemented various initiatives of this Vision.
RISK MANAGEMENT
The Board continued enhancing the Group’s risk
management function and appointed a Group Controller to
handle the risk reporting and management function. A new
reporting framework was implemented across the main units
and various measures mitigating the identified risks were
implemented.
SUSTAINABILITY
The Board highlighted health & safety as a key priority.
The Board is working closely with the respective units
to strengthen the health & safety culture within the
Company. The Board remains committed to continue
investing in training, equipment and reporting to ensure
that its policy of ‘Zero Harm’ is practiced throughout
the Company. In addition, the Board supported further
environmental initiatives and investments within the
Group. The Board continued the Company’s support
towards host communities in South Africa.
COMPANY PERFORMANCE
The Board supported various initiatives to make the
Company more resilient and responsive to the market.
Throughout the year, the Board agreed on various
projects, especially in South Africa and Germany, which
made the units able to respond to changing market
conditions and trends. Today the Company is leaner and
focused on enhancing its vertical-integration. The Board
also supported various capital investments including the
addition of further beneficiation stages, increasing
high-walls at the mines and the acquisition of new
mining assets.
A total of 10 meetings of the Board were held during the
reporting period and the attendance of the directors is
tabled below.
Meetings attended
Jelena Manojlovic
Barry Rourke
Ivan Jakovcic
Thomas Hoyer
Thorstein Abrahamsen
Milan Djakov
Markku Kankaala
10/10
10/10
09/10
07/07
07/07
03/03
01/01
A total of 10 meetings were held during the reporting period.
The differences in the meetings attended, related to the
changes in Board composition.
REMUNERATION
The Annual General Meeting resolved 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.
During the financial year 2017, the Board members
received a total of EUR328,000
81
GOVERNANCE REVIEW Board
Committees
AUDIT AND RISK MANAGEMENT COMMITTEE
Until 5 February 2018, the Audit and Risk Management
Committee was composed of three members: Barry
Rourke (Chairman), Thomas Hoyer and Thorstein
Abrahamsen. Thomas Hoyer did not contest re-election
during the Extraordinary General Meeting on February 5, 2018.
The Board has defined 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 financial position and the
appropriateness of its financial 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 2017, the Committee continued to oversee the Group’s
financial performance and reporting. The Committee
also worked with management to continuously improve
the reporting function of the Group, both internally and
externally. Regular scrutiny of the Group’s compliance with
laws, regulations and best practice continued being an
area of focus during the year.
The Committee assessed various growth options, strategies
and investments. It worked with Management on the
acquisition of the Zeerust Chrome Mine. The Committee also
assessed various external financing facilities. Throughout
the year, the Committee worked on improving the internal
budgeting and forecasting models and processes.
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 currently has three members: Ivan
Jakovcic (Committee Chairman), Dr Jelena Manojlovic
and Barry Rourke.
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.
The Committee worked on and approved the incentive
scheme to corporate and operational management, not
including the CEO.
THE COMMITTEE FOR HEALTH, SAFETY AND
SUSTAINABLE DEVELOPMENT
The Committee is currently led by Thorstein Abrahamsen and
includes management members from the respective Units.
The Committee’s stated mission is to ensure that
Afarak conducts its business in a responsible and
ethical manner for the benefit of all its stakeholders.
Throughout 2017, the Committee implemented new
reporting frameworks across the Units and various
initiatives were implemented. It also supported a safety
and performance improvement programme at Mogale.
Afarak is continuously investing in environmental
initiatives and projects. It supported investments
that will allow the Group to rehabilitate its mines and
to invest in alternative energy sources. It continued
supporting the business units in their efforts to improve
water management and dust reduction. The Committee
also continued to monitor Afarak’s work and social
investment programmes with local communities,
particularly in South Africa.
82
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 financial period 1 January to 31 December 2017 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 2015 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.cgfinland.
fi. Afarak has made no exceptions in its Finnish Corporate
Governance Code compliance.
83
GOVERNANCE REVIEW Internal
Control
The principles of internal control are confirmed 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 defines the objectives, approaches
and areas of responsibility of risk management activities.
The Group’s key risks are reviewed and assessed by the
Board on a regular basis. The Group’s business segments,
and the business units within those segments, are primarily
responsible for managing their risks, their financial
performance and their compliance with the Group’s risk
management policies and internal control procedures.
The Board of Directors is responsible for organising and
maintaining adequate and effective internal control
performed by the senior and executive management as
well as other Afarak personnel, and assisted by third-party
experts when appropriate.
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 financial 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 defined by the
Board.
84
Internal control refers to elements of financial and
operational management which are designed to ensure:
• Achievement of defined performance targets;
•
•
• Accurate, timely and continuous delivery of financial
Efficient use of resources and protection of assets;
Effective management of risks;
•
•
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 defined by the Board;
Implementation of the policies and principles under the
supervision of Group management;
Supervision of the efficiency and functionality of the
business operations by Group management;
Supervision of the quality and compliance of the
financial reporting by the Group finance department;
•
•
•
• An effective control environment within all
organisational levels and business units, including
tailored controls for each business process; and
Internal audits conducted as and when needed.
•
THE INTERNAL CONTROL OF THE FINANCIAL
REPORTING PROCESS
The Group’s financial organisation is structured so that
each business unit has its own finance function, but overall
financial management including accounting, taxation and
financing is centralised within the Group’s parent company.
The Group finance department is responsible for ensuring
the compliance, quality and timeliness of the Group’s
external and internal financial 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 significant tools of internal control.
Each business unit has its own finance function which
reports to the Group Finance. The business unit’s finance
function is responsible for the unit’s accounting and daily
financial operations and internal reporting. The finance
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 financial statements, financing of the Group,
and tax planning.
Consolidated financial 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 predefined format to
the Group’s financial administration to be consolidated.
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.
for the following internal control related activities:
• Monitoring the reporting process of the financial
statements;
Supervising the financial reporting process;
•
• Monitoring the efficiency of the Group’s internal control,
internal audit and risk management systems; and
• Monitoring the statutory audit of the financial
statements and consolidated financial statements.
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
resources to the work and continuous review of the risk
management policies, as well as defining the principles of
operation and overall processes.
External Audit
According to the Articles of Association, the Annual General
Meeting of shareholders elects the Company’s auditor, which
must be a firm 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 finishes at the end of the first 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.
Audit and Risk Management Committee
The Audit and Risk Management Committee is responsible
In 2017, the Company paid EUR 348,000 for audit fees and
EUR 4,000 for non-audit services to EY.
85
GOVERNANCE REVIEW
Insider
Administration
The Company complies with the legal provisions applying
to the management of insiders as defined 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.
PUBLIC 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
influence, have been entered into the Company’s public
insider register which is published on the Group’s website.
Afarak imposes a restriction on trading for insiders which
forbids trading in the Company’s shares for 30 days before
the publication of financial reports. Prior to the preliminary
announcement of the Company’s annual results and the
publication of its annual financial report the closed period
is 60 days or, if shorter, the period from the end of the
relevant financial year up to and including the time of the
announcement.
Compliance with the insider regulations is monitored by
taking samples at certain intervals of trading by insiders in
the Company’s shares.
COMPANY-SPECIFIC INSIDER REGISTER
In addition to the public insider register, the Company
holds a company-specific 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.
When necessary, the Company sets up a separate project-
specific insider register. Project-specific 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 2017
Title
Shares
Related Party Shares
Options
Members of the Board
Jelena Manojlovic
Barry Rourke
Ivan Jakovcic
Thomas Hoyer
Chairman & Dependent
Non-Executive Director
150,000
Non-Executive Director
150,000
Non-Executive Director
0
Non-Executive Director
25,000
Thorstein Abrahamsen
Non-Executive Director
Auditors
Erkka Talvinko
Other Insiders
Guy Konsbruck
Auditor
Chief Executive Officer
Predrag Kovacevic
Chief Financial Officer
Danko Koncar
Chief Operating Officer
0
0
0
0
0
325,000
These insiders had no other interests in or options over shares in the Company.
0
0
0
0
0
0
0
0
70,945,967
70,945,967
0
0
0
0
0
0
0
0
0
0
86
GOVERNANCE REVIEW
Resolutions of the
Annual General Meeting
The AGM resolved that authorised public accountant firm
Ernst & Young Oy was re-elected as the Auditor of the
Group for the year 2017.
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.
2018 ANNUAL GENERAL MEETING
Afarak’s 2018 Annual General Meeting will be held on
29 May 2018.
DISTRIBUTION PROPOSAL
The Board of Directors will propose to the Annual
General Meeting that the Annual General Meeting would
authorise the Board to resolve on its discretion on the
payment of capital redemption up to a maximum of two
cents per share in quarter four 2018.
RESOLUTIONS OF 2017 ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (“AGM”) was held
on 23 May 2017. The AGM adopted the financial statements
and the consolidated financial statements and discharged
the members of the Board of Directors and the CEO from
liability for the financial period 2017.
The AGM resolved that no dividend would be paid for
2017. However, given the exceptional result attained
in quarter one 2017, the AGM resolved that a capital
redemption of EUR 0.02 per share would be paid for the
year ended on 31 December 2017. The payment was made
from the company’s fund for invested unrestricted equity
on 9 June 2017.
The AGM resolved 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 AGM resolved that the Board of Directors would
comprise of five members: Dr Jelena Manojlovic, Mr Barry
Rourke and Mr Ivan Jakovcic were re-elected. Mr Thomas
Hoyer and Mr Thorstein Abrahamsen were elected. The
Board appointed from among its members the following
members to the Committees:
Audit and Risk Management Committee
Barry Rourke, (Chair)
Thomas Hoyer
Thorstein Abrahamsen
Nomination and Remuneration Committee
Ivan Jakovcic (Chair)
Dr Jelena Manojlovic
Barry Rourke
Safety, Health and Environment Committee
Thorstein Abrahamsen (Chair)
Members of Management
87
GOVERNANCE REVIEW 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 2017, 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 2017, the Company had 3,354,161 (3,744,717)
own shares in treasury, which was equivalent to 1.27%
(1.42%) of the issued share capital. The total amount of
shares outstanding, excluding the treasury shares held by the
Company on 31 December 2017, was 259,686,534 (259,295,978).
At the beginning of the period under review, the
Company’s share price was EUR 0.78 on NASDAQ Helsinki
and GBP 0.38 on the London Stock Exchange. At the end
of the review period, the share price was EUR 0.85 and
GBP 0.73 respectively. During 2017 the Company’s share
price on NASDAQ Helsinki ranged from EUR 0.72 to 1.15 per
share and the market capitalisation, as at 31 December
2017, was EUR 222.3 (1 January 2017: 203.9) million. For the
same period on the London Stock Exchange the share price
range was GBP 0.55 to GBP 0.93 per share and the market
capitalisation, as at 31 December 2017 was GBP 190.7 (1
January 2017: 98.6) million.
FLAGGING NOTIFICATIONS
On 17 March 2017, Afarak received a flagging notification
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 flagging notification, 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 5%, becoming a 6.05% per
cent holder of the shares and voting rights in Afarak.
On 22 March 2017, Afarak received a flagging notification
in accordance with Chapter 9, Section 5 of the Finnish
Securities Markets Act from a group of shareholders (“the
shareholders”). In accordance with the flagging notification,
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.
88
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 2017.
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 2017 were Ivan
Jakovcic (Committee Chairman), Dr Jelena Manojlovic
and Barry Rourke.
CEO SERVICE AGREEMENT
The Board appoints the Chief Executive Officer (CEO) to
manage, develop, guide and supervise the Group’s
activities and lead the EMT. The Board decides upon the
CEO’s remuneration based on the recommendations made
by the Committee.
The CEO receive a service fee of EUR 360,000. He shall also
receive 500,000 Company shares as an incentive for each
completed year of service acting as CEO. In 2017, the CEO
received a signing bonus of EUR 70,000.
The Group makes no pension arrangements for the CEO
beyond the statutory pension coverage and there is no set
retirement age.
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 fixed fees.
The Annual General Meeting held on May 23, 2017
resolved 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. Those members of the
Board of Directors that are executives of the Company
are not entitled to receive any remuneration for Board
membership.
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.
89
RELATED PARTY TRANSACTION WITH PERSONS BELONGING TO GROUP BOARD AND MANAGEMENT
EUR ‘000
CEO
Ruiters Alistair
Konsbruck
Guy
BOARD
MEMBERS
Abrahamsen
Thorstein
Djakov Milan
Hoyer Thomas
Jakovcic Ivan
Kankaala
Markku
Lillja Michael
Jelena
Manojlovic
Parodi Alfredo
Rourke Barry
Scott Keith
Total
2017
2016
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
Board member 8.5.2015
- 23.5.2017, CEO
21.5.2015 - 15.1.2017
14
145
360
178
CEO 15.1.2017 onwards
415
583
Board member
23.5.2017 onwards
Board member 12.5.2016
- 23.5.2017
Board member
23.5.2017 onwards
Board member 8.5.2015
onwards, Chairman
12.5.2016 - 5.2.2018
Board member
30.6.2003 -17.3.2017
Board member 11.2.2013
- 12.5.2016
Board member 11.7.2008
onwards, Chairman
5.2.2018 onwards
Board member 11.2.2013
– 12.5.2016, Chairman
8.5.2015 – 12.5.2016
Board member 8.5.2015
onwards
Board member 12.5.2016
- 9.12.2016
36
24
36
65
15
67
85
54
35
68
60
60
26
80
35
14
743
728
414
363
178
OTHER EMT MEMBERS’ SERVICE CONTRACTS
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.
liability insurance, traveller’s insurance and telephony services.
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 benefits include
None of Afarak’s executive directors have received any
compensation for serving as a NED in other companies.
90
GOVERNANCE REVIEW Management remuneration
EUR ‘000
Fixed salaries and fees
Variable performance related compensation
Total
2017
482
195
677
2016
366
0
366
SHARE-BASED COMPENSATION
Share options
The Company had an incentive-related option scheme,
I/2011 which expired on 1 August 2017 and no options were
exercised. The scheme was granted to the key personnel of
the Company, as recommended by the Board. The scheme
entitled the option holders to subscribe for a maximum
of 6,900,000 shares in the Company. The vesting period
was from 1 July 2014 to 1 August 2017 for various option
series denoted with different letters and years. The share
subscription price was calculated by a formula based on the
Volume Weighted Average Price of the Company’s share
and varied between the option series. All options have been
treated according to the principles set forth in IFRS 2 Share-
based Payments standard. The main terms of the option
arrangements are detailed in the table below.
In May 2015 the Group 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 first
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 were given in December
2017 prorate over the second year which resulted to 335,000
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.
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 first 500,000 Company shares fell due
to be received 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 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 0.81 per share.
The value at year end was EUR 582,534.25.
In July 2017 the Group has granted Alistair Ruiters Incentive
shares in the company amounting to 400,000 shares,
which will be given pa on each completed year of service
commencing on the effective date. The value at year end
was EUR 173,413.70.
DIRECTORS’ AND EMT MEMBERS’ SHAREHOLDINGS AND OPTIONS AT 31 DECEMBER 2017
Title
Shares
Related Party Shares
Options
Members of the Board
Jelena Manojlovic
Barry Rourke
Ivan Jakovcic
Thomas Hoyer
Chairman & Dependent
Non-Executive Director
150,000
Non-Executive Director
150,000
Non-Executive Director
0
Non-Executive Director
25,000
Thorstein Abrahamsen
Non-Executive Director
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar
Auditor
Executive
0
0
0
325,000
0
0
0
0
0
0
70,945,967
70,945,967
0
0
0
0
0
0
0
0
91
GOVERNANCE REVIEW Financial
Statements
Key
Figures
FINANCIAL INDICATORS
CONTINUING OPERATIONS
2017
2016
Revenue
EBITDA
% of revenue
EUR’000
EUR’000
Operating profit / loss (EBIT)
EUR’000
% of revenue
Profit / 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
%
%
%
%
198,814
153,570
17,970
9.0 %
11,399
5.7 %
4,241
2.1 %
3.0 %
8.2 %
66.3 %
0.7 %
1,017
5,478
3.6 %
-1,010
-0.7 %
-3,137
-2.0 %
-1.6 %
0.9 %
67.7 %
-3.3 %
813
2015
187,711
17,190
9.2%
9,888
5.3%
6,520
3.5%
4.4%
9.3%
64.2%
-2.6%
773
94
FINANCIAL STATEMENTS Key
Figures
SHARE-RELATED KEY INDICATORS
2017
2016
2015
Group
Continuing
Operations
Group
Continuing
Operations
Group
Continuing
Operations
0.03
0.03
0.65
Earnings per share, basic
Earnings per share, diluted
Equity per share
Distribution*
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
EUR
EUR’000
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
%
0.02
0.02
0.66
5,186
0.02
35.2
259,329
260,718
263,040
0.91
0.72
1.15
222,269
58,773
24.7 %
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
%
0.84
0.74
0.63
0.55
1.06
0.93
214,944
190,705
56
49
0.0 %
0.02
0.02
0.66
0.00
0.00
0.66
5,176
0.02
neg.
258,945
259,796
263,040
0.51
0.39
0.90
203,857
18,315
13.7 %
0.37
0.30
0.34
0.28
0.46
0.38
115,210
98,640
902
739
0.9 %
-0.01
-0.01
0.66
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%
* In 2016 the Company distributed a capital redemption of EUR 0.02 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 company distributed a capital
redemption of EUR 0.02 per share out of the paid-up unrestricted equity fund. In 2018 the Board will propose to the Annual
General Meeting that the Annual General Meeting would authorise the Board to resolve on its discretion on the payment of
capital redemption up to a maximum of two cents per share in quarter four 2018.
95
FINANCIAL STATEMENTS Key
Figures
FORMULAS FOR CALCULATION OF INDICATORS
FINANCIAL INDICATORS
Return on equity
Return on capital employed
Equity ratio
Gearing
EBITDA
Operating profit / loss
Profit for the period / Total equity (average for the period) * 100
(Profit before taxes + financing expenses) / (Total assets – Interest-free
liabilities) average * 100
Total equity / (Total assets - prepayments received) * 100
(Interest-bearing debt - liquid funds) / Total equity * 100
Operating profit + depreciation + amortisation + impairment losses
Operating profit is the net of revenue plus other operating income, plus
gain/loss on finished goods inventory change, minus employee benefits
expense, minus depreciation, amortisation and impairment and minus
other operating expense. Foreign exchange gains or losses are included
in operating profit when generated from ordinary activities. Exchange
gains or losses related to financing activities are recognised as financial
income or expense.
SHARE-RELATED KEY INDICATORS
Earnings per share, basic
Profit attributable to owners of the parent company / Average number
of shares during the period
Earnings per share, diluted
Profit 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
96
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefits expense
Depreciation and amortisation
Impairment
Other operating expenses
Share of profit from joint ventures
Operating profit / (loss)
Finance Income
Finance Expense
Profit / (loss) before taxes
Income taxes
Profit / (loss) for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit / (loss) for the year
Profit / (loss) attributable to:
Owners of the parent
Non-controlling interests
Earnings per share (counted from profit / (loss)
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.- 31.12.2017
1.1.- 31.12.2016
1
2
3
4
4
5
13
6
6
7
8
9
198,814
153,570
4,343
-153,172
-23,908
-6,017
-554
-11,175
3,068
11,399
3,728
-10,886
4,241
951
5,192
1,519
6,711
6,261
450
6,711
0.02
0.02
0.02
0.02
1,705
-117,185
-19,976
-6,488
0
-12,752
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
97
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME (CONT.)
EUR ‘000
Profit / (loss) for the year
Other comprehensive income
1.1.- 31.12.2017
1.1.- 31.12.2016
6,711
-937
Items that will not be reclassified to profit and loss
Remeasurements of defined benefit pension plans
-196
-1,609
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations - Group
Exchange differences on translation of foreign operations –
Associate and Joint Ventures
Other comprehensive income, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
-2,028
-608
-2,832
3,879
3,518
361
3,879
5,736
6,797
10,924
9,987
9,681
306
9,987
98
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
EUR '000
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other financial assets
Receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Note
31.12.2017
31.12.2016
10
11
11
14
14
20
15
16
17
45,806
62,409
16,205
734
21,066
3,641
149,861
49,944
49,434
10,702
110,080
45,131
63,780
18,311
172
34,040
4,439
165,873
48,424
36,292
9,651
94,367
Total assets
259,941
260,240
99
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONT.)
EUR '000
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
Note
31.12.2017
31.12.2016
18
20
14
13
22
23
21
23
21
23
14
23,642
25,740
131
230,835
-19,334
-89,618
171,396
969
172,365
4,460
2,548
13,778
19,936
3,168
9,180
53,070
22,070
109
2,934
9,393
34,506
87,576
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
Total equity and liabilities
259,941
260,240
100
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
EUR ‘000
Operating activities
Profit / (loss) 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 financing items
Income taxes paid
Discontinued operations
Net cash from operating activities
Investing activities
Acquisition of non-controlling interest
Capital expenditure on non-current assets, net
Other investments, net
Repayments of loan receivables and loans given, net
Net cash used in investing activities
Financing activities
Capital redemption
Proceeds from borrowings
Repayments of borrowings
Repayments of finance leases
Movement in short term financing activities
Net cash from / (used in) financing activities
Change in cash and cash equivalents
1.1.-31.12.2017
1.1.-31.12.2016
6,711
-937
6,571
7,158
-3,068
-951
785
-114
-14,625
-4,035
3,805
-1,942
-1,728
5,448
-1,951
-1,321
809
1,552
-727
-7,601
-591
8,851
-68
-5,186
3,063
-3,818
-249
6,412
222
1,706
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
54
-2,128
-5,176
411
-7,396
-65
-4,724
-16,950
-10,075
101
FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
EUR ‘000
Cash at beginning of period
Exchange rate differences
Cash at end of period
Change in the consolidated statement of financial position
1.1.-31.12.2017
1.1.-31.12.2016
9,651
-655
10,702
1,706
19,644
82
9,651
-10,075
The cash flow from operating activities in 2017 includes discontinued operations relating to cash received during
2017 of EUR 900 thousand less the storage costs of the saw mill equipment of Eur 1 thousand and commissions of
Eur 90 thousand. The cash flow 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.
102
FINANCIAL STATEMENTS 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 31.12.2015
A
B
C
D
E
F
G
H
I
23,642
25,740
240,240
-28,692
-93,755
187
167,362
3,845
171,207
Profit 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
Profit for the period 1-12/2017
Other comprehensive income
Total comprehensive income
Share-based payments
Capital redemption
Acquisition of non-controlling interest
Other changes in equity
-2,547
-2,547
779
-5,186
6,261
-196
6,065
6
271
3
450
-89
361
-3,543
6,261
-2,743
3,518
785
-5,186
271
-26
6,711
-2,832
3,879
785
-5,186
-3,272
-26
-29
Equity at 31.12.2017
23,642
25,740
230,835
-19,334
-89,618
131
171,396
969
172,365
103
FINANCIAL STATEMENTS
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 Ferroalloys 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 financial statements are available at Afarak Group Plc’s head
office 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 financial statements of Afarak Group have been prepared in accordance with the International
Financial Reporting Standards (IFRS) and in conformity with the IAS and IFRS standards as well as the SIC and
IFRIC interpretations in force on 31 December 2017. In the Finnish Accounting Act and the regulations issued on
the basis thereof, International Financial Reporting Standards refer to the standards and their interpretations that
have been approved for application within the EU in accordance with the procedure prescribed in the EU regulation
(EC) 1606/2002. Notes to the consolidated financial statements also meet the requirements set forth in the Finnish
accounting and company legislation.
The consolidated financial statements have been prepared on the historical cost basis, unless otherwise explicitly
stated. All the figures in the consolidated financial statements are given in EUR thousands.
Afarak Group Plc’s Board of Directors resolved on 29 March 2018 that these financial statements are to be published.
According to the Finnish Companies Act, shareholders shall endorse the financial statements in the Annual General
Meeting convening after the financial statements have been published.
PRESENTATION OF FINANCIAL STATEMENTS
The consolidated financial statements provide comparative information in respect of the previous period. In addition,
the Group presents an additional statement of financial position at the beginning of the earliest period presented when
there is: a retrospective application of an accounting policy; a retrospective restatement; or a reclassification of items
in financial statements that has a material impact on the Group.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the parent company Afarak Group Plc, its subsidiaries, joint ventures and
associated companies. Subsidiaries refer to companies controlled by the Group. The Group gains control of a company
when it holds more than half of the voting rights or otherwise exercises control. The existence of potential voting rights
has been taken into account in assessing the requirements for control in cases where the instruments entitling their
holder to potential voting rights can be exercised at the time of assessment. Control refers to the right to govern the
financial and operating policies of an enterprise so as to obtain benefits from its activities.
Acquired subsidiaries are consolidated from the time when the Group gained control, and divested subsidiaries until the
time when control ceased. All intra-group transactions, receivables, debts, and unrealised profits, as well as internal
distribution of profits, are eliminated when the consolidated financial statements are prepared. The distribution of
profits between parent company owners and non-controlling owners is shown in the statement of comprehensive
income, and the non-controlling interest of equity is shown as a separate item in the statement of financial position
under shareholders’ equity.
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FINANCIAL STATEMENTS 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 financial position. The Group’s share of net profit or loss of the Joint venture is
also shown on one line in the income statement.
Associates are companies in which Afarak Group exercises significant influence. The Group exercises significant influence
if it holds more than 20% of the target company’s voting rights, or if the Group in other ways exercises significant
influence but not control. Associates have been consolidated in the Group’s financial statements using the equity
method. If the Group’s share of the associate’s losses exceeds the carrying amount of the investment, the investment
is recognised at zero value on the statement of financial position, and losses exceeding the carrying amount are not
consolidated unless the Group has made a commitment to fulfil the associates’ obligations. Investment in an associate
includes the goodwill arising from its acquisition.
TRANSLATION OF FOREIGN CURRENCY ITEMS
Amounts indicating the profit or loss and financial position of Group entities are measured in the currency of each
entity’s main operating environment (‘functional currency’). Figures in the consolidated financial statements are
presented in euro, the functional and presentation currency of the Group’s parent company, Afarak Group Plc.
Transactions in foreign currencies have been recorded at the functional currency using the exchange rate on the date
of the transaction or mid reference rates of central banks. Monetary items denominated in foreign currencies have
been translated into the functional currency using the exchange rates at the end of each reporting period. Exchange
rate gains and losses are included in the revenue, operational costs or financial items, corresponding to their respective
origin. Hedge accounting has not been applied.
In the Group accounts, foreign subsidiaries’ income statements and statements of cash flows are converted into euro
by using average exchange rates for the period, and the statement of financial position is converted by using the
period-end exchange rate. The translation differences arising from this are recognised in other comprehensive income.
Translation differences arising from the elimination of the acquisition cost and post-acquisition equity changes are
also recognised in other comprehensive income. If and when the foreign subsidiary is partially or fully divested, these
accrued translation differences will be taken into account in adjusting the sales gain or sales loss.
Goodwill, other assets and liabilities arising from acquisitions of subsidiaries are recognised in the Group accounts using
the functional currency of each acquired subsidiary. The balances in that functional currency have then been translated
into euro using the exchange rates prevailing at the end of the reporting period.
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 reclassified from equity to profit or loss on
disposal of the net investment.
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FINANCIAL STATEMENTS OPERATING PROFIT
IAS 1 Presentation of financial statements does not define the concept of operating profit. Afarak Group has defined
it as follows: Operating profit is the net amount derived by adding to revenue other operating income, less materials
and supplies, and expenses from work performed by the enterprise and capitalised, less costs from employee benefits,
depreciation and impairment losses, and other expenses. Shares of associated companies’and joint venture companies’
profit or loss are included in the operating profit to the extent to which they relate to the Group’s core businesses.
Exchange differences arising from operational transactions with third parties are included in operating profit; otherwise
they are recorded under financial items.
All other items of the income statement are excluded from operating profit.
IAS 1 amendment introduced the requirement for grouping of items presented in Other Comprehensive Income. Items
that are reclassified (or `recycled`) to profit or loss at a future point in time will be presented separately from items
which will never be reclassified. The amendment affected the presentation of Other Comprehensive Income.
REVENUE RECOGNITION
Income from the sale of goods is recognised once the substantial risks and benefits associated with ownership have
been transferred to the buyer. The transfer of risks depends on, among others, terms of delivery (Incoterms). The most
often used term is FCA or FOB, under which the revenue is recognised when the goods are assigned to the buyer’s
carrier or loaded on board the vessel nominated by the buyer. As typical in the business, preliminary invoices are issued
for the mineral concentrates at the time of delivery. Final invoices are issued when quantity, mineral content and pricing
have been defined for the delivery lot.
Income not generated by the Group’s main businesses is accounted for as other operating income. The expenses
incurred from disposals of non-current assets or a disposal group of assets are deducted from the gain on disposal.
PENSION LIABILITIES
Pension arrangements in Afarak Group are classified as defined contribution plans or defined benefit plans (Germany
and Turkey). Payments for defined contribution plans are recognised as expenses for the relevant period. The present
value of obligation for the defined benefit plans has been estimated applying the Projected Unit Credit Method
and recognised as a non-current liability on the statement of financial position. The actuarial gains and losses are
recognised in other comprehensive income when they occur and the net defined benefit liability or asset are presented
in full on the statement of financial position.
SHARE-BASED PAYMENTS
Option rights are measured at fair value at the time they were granted and recorded as expenses on a straight-line
basis during the vesting period. The expenses at the time the options were granted are determined according to the
Group’s estimate of the number of options expected to vest at the end of the vesting period. Fair value is determined
on the basis of an applicable option pricing model (e.g. Black-Scholes). The effects of non-market-based terms and
conditions are not included in the fair value of the option; instead, they are taken into account in the estimated number
of options expected to vest at the end of the vesting period. The Group updates the estimated final number of options
at the end of each reporting period. Changes in the estimates are recorded in the statement of comprehensive income.
When the option rights are exercised, the cash payments received from the subscriptions adjusted with potential
transaction costs are recorded under paid-up unrestricted equity reserve.
The Group from time to time directs free issues of shares to the members of the Board of Directors or key executives,
as approved by the AGM. The compensation is settled in shares and is accordingly recognised as share-based payment
in the Group’s financial statements. The fair value of the granted shares is determined based on the market price of
the Afarak Group share at the grant date. The total fair value is therefore the amount of granted shares multiplied by
the share market price at grant date. The cost is recognised as expense in personnel costs over the vesting periods and
credited to equity (retained earnings).
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FINANCIAL STATEMENTS BROAD BASED BLACK ECONOMIC EMPOWERMENT (BBBEE) TRANSACTIONS
The purpose of the South African Broad Based Black Economic Empowerment (BBBEE) 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 BBBEE. Where the Group disposes of a portion of a South African based
subsidiary or operation to a BBBEE 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 Broad Based
Black Economic Empowerment (BBBEE) Transactions). The discount provided or value given is calculated in accordance
with IFRS 2 and recognised as an expense. Where the BBBEE 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 benefits of ownership are
classified as financial leases. An asset acquired through a financial lease agreement is recognised at the fair value of
the leased object at the beginning of the lease period, or at a lower current value of minimum lease. An asset obtained
through a finance lease is depreciated over the useful life of the asset or the lease term, whichever is shorter. The leases
payable are divided into financial expenses and loan repayment during the lease term so that the interest rate for the
remaining loan is roughly the same each financial year. Leasing obligations are included in interest-bearing liabilities.
Lease agreements in which the risks and benefits typical of ownership remain with the lessor are classified as other
leases. Leases paid under other lease agreements, for instance operating leases, are recognised as expenses on a
straight-line basis over the lease term.
IMPAIRMENT
At the end of each reporting period, the Group makes an assessment of whether there are any indications of asset
impairment. If such indications exist, the recoverable amount of the asset is estimated. In addition, goodwill is assessed
annually for its recoverable amount regardless of whether there are any signs of impairment. Impairment is examined
at the cash-generating unit level; in other words, the lowest level of entity that is primarily independent of other entities
and whose cash flows can be separated from other cash flows. Impairment related to associates and other assets are
tested on a company/asset basis.
The recoverable amount is the fair value of an asset less divestment costs, or the higher value in use. Value in use
means the present value of estimated future cash flows expected to arise from the asset or cash-generating unit. Value
in use is forecast on the basis of circumstances and expectations at the time of testing. The discount rate takes into
account the time value of money as well as the special risks involved for each asset, different industry-specific capital
structures in different lines of business, and the investors’ return expectations for similar investments. An impairment
loss is recorded when the carrying amount of an asset is greater than its recoverable amount. If the impairment loss
is allocable to a cash-flow-generating unit, it is allocated first to reduce the goodwill of the unit and subsequently
to reduce other assets of the unit. An impairment loss is reversed if a change has occurred in circumstances and the
recoverable amount of the asset has changed since the impairment loss was recognised. An impairment loss recognised
for goodwill is not reversed in any circumstances.
Goodwill is tested for impairment annually at year end; for the 2017 financial year, testing took place on 31 December
2017. Impairment testing and the methods used are discussed in more detail in section 1.4 in the ‘Notes to the
consolidated financial statements’.
FINANCIAL INCOME AND EXPENSE
Interest income and expense is recognised using the effective interest method, and dividends are recognised when
the right to dividends is established. Unrealised changes in value of items measured at fair value are recognised in the
statement of comprehensive income. These items relate to currency forward contracts. Exchange rate gains or losses that
arise from intercompany loans that are considered as part of the net investment in the foreign entity are included, net of
any deferred tax effects, in the translation reserve within the equity. These exchange differences are recognised in other
comprehensive income while accumulated exchange differences are presented in the translation reserves in the equity.
107
FINANCIAL STATEMENTS BORROWING COSTS
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset
forming part of the cost of that asset, are capitalised if it is likely that they will provide future economic benefit and
can be measured in a reliable manner. Other borrowing costs are recognised as an expense in the period in which they
are incurred.
INCOME TAXES
Tax expenses in the statement of comprehensive income consist of the tax based on taxable income for the year and
deferred taxes. Taxes based on taxable income for the year are calculated using the applicable tax rates. Taxes are
adjusted with any taxes arising from previous years. Maltese companies’ income taxes are recognised and paid applying
the nominal income tax rate which is 35%. Six sevenths of this tax is refunded when the company pays 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 financial statement and, if
necessary, they will be adjusted to reflect the changes that have occurred in the expected financial benefit. The sales
gains or losses arising from the decommissioning or divestment of tangible assets are included in other operating
income or expenses.
MINES AND MINERAL ASSETS
Measurement of mineral resources and ore reserves in business combinations
Mineral resources and ore reserves acquired in business combinations are recognised as separate assets. In the
recognition and measurement of mineral resources and ore reserves the Group utilises available third party reports of
the quantities, mineral content, estimated production costs and exploitation potential of the resource. The probability
of the ore reserve is also an essential factor. In the mining and minerals business, the probability is commonly described
108
FINANCIAL STATEMENTS by classifying a mineral resource into categories such as ‘proven’, ‘probable’, ‘inferred’ and ‘hypothetical’. There are
also generally accepted standards for the classification of mineral resources in the business, such as the standards of
the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (‘SAMREC’).
The measurement of ore reserves is based on estimated market prices, estimated production costs and quantities.
In the Group’s statement of financial position, mineral resources and ore reserves are presented as tangible assets.
Rehabilitation liabilities related to mines are included in their cost of acquisition, and corresponding provision is
recognised on the statement of financial position.
Exploration and evaluation expenses of mineral resources
Exploration and evaluation expenditure relates to costs incurred on the exploration and evaluation of potential mineral
reserves and resources when new potential ore reserves are sought, for example by exploratory drilling. Exploration and
evaluation expenditure is carried forward as an asset if the Group expects such costs to be recouped in full through the
successful development of the area of interest; or alternatively by its sale; or if exploration and evaluation activities
in the area of interest have not yet reached a stage which permits the reasonable assessment of the existence of
economically recoverable reserves and active and significant operations in relation to the area are either continuing
or planned for the future. Exploration and evaluation expenditure includes material and other direct costs incurred,
for instance, by exploratory drilling and surveys. Overheads are included in the exploration and evaluation asset to
the degree to which they can be associated with finding and evaluating a specific mineral resource. Exploration and
evaluation assets are measured at cost and are transferred to mine development assets when utilisation of the mine
begins. The asset is then depreciated using the units-of-production method.
Exploration and evaluation assets are assessed for impairment if and when facts and circumstances suggest that the
carrying amount exceeds its recoverable amount. In particular, the impairment tests are carried out if the period for
which the Group has right to explore the specific area expires or will expire in the near future and future exploration and
evaluation activities are not planned for the area.
Exploration and evaluation assets acquired in conjunction with business combinations are accounted for at fair value in
accordance with the principles of IFRS 3.
Mine establishment costs
Mine establishment costs are capitalised as part of the mine’s acquisition cost and depreciated using the units-of-
production method when the production of the mine begins. The costs arising from changes in mining plan after the
production has begun are expensed as incurred.
Impairment
The value of mineral resources and ore reserves acquired in business combinations is tested for impairment if there are
indications of deterioration in the long-term ability to utilise the asset economically. In the test the cash flows generated
by the asset are assessed based on most recent information on the technical and economic utilisation of the asset.
GOODWILL AND INTANGIBLE ASSETS IDENTIFIED AT ACQUISITION
Goodwill represents the portion of acquisition cost that exceeds the Group’s share of the fair value at the time of
acquisition of the net assets of the acquired company. Instead of regular amortisation, goodwill is tested annually
for potential impairment. For this purpose, goodwill has been allocated to cash-generating units or, in the case of
an associated company, is included in the acquisition cost of the associate in question. Goodwill is measured at
original acquisition cost less impairment losses. Changes in purchase considerations, for example due to earn-out
arrangements, relating to acquisitions carried out before 2010 have been recognised against goodwill in accordance
with the earlier IFRS 3.
The net assets of an entity acquired in a business combination are measured at fair value at the date of acquisition. In
connection with business combinations, the Group also identifies intangible assets that are not necessarily recorded on
109
FINANCIAL STATEMENTS the statement of financial position of the acquired entity. These assets include, for instance, customer relationships,
trademarks and technology. The assets are recognised at fair value and amortised over their useful lives. The
amortisation periods for these intangible assets are as follows:
Customer relationships: 2-5 years depending on contractual circumstances
Technology: 5-15 years
Trademarks: 1 year
RESEARCH AND DEVELOPMENT COSTS
Research costs are always recognised as expenses. Mine development costs are capitalised as part of mining assets and
depreciated on a unit of production basis. The development costs, which primarily relate to the development of existing
products, are expensed as incurred.
OTHER INTANGIBLE ASSETS
Other intangible assets are initially recognised on the statement of financial position at cost when the costs can be
reliably determined and it is probable that the expected financial benefits of those assets will be reaped by the Group.
Other intangible assets mainly relate to IT software utilised in support of the Group’s business operations and they are
amortised over 3-5 years.
INVENTORIES
Inventories are measured at acquisition cost or a lower probable net realisable value. Acquisition costs are determined
using the average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour
expenses, other direct expenses, and an appropriate share of fixed and variable production overheads based on the
normal capacity of the production facilities. In open pit mining operations, the removal costs of overburden and waste
material (stripping costs) are included in the cost of inventory. The net realisable value is the estimated selling price
that is obtainable, less the estimated costs incurred in completing the product and the selling expenses.
FINANCIAL ASSETS
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available-for-sale financial assets or as derivatives designated as hedging
instruments, as appropriate. The Group determines the classification of its financial assets at initial recognition. All
financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or
loss, directly attributable transaction costs.
The Group’s financial assets include cash and cash equivalents, short-term deposits, money market instruments, trade
and other receivables, loan and other receivables, unquoted financial instruments and derivative financial instruments.
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading
if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative
financial instruments that are not designated as hedging instruments. Financial assets at fair value through profit
and loss are carried in the statement of financial position at fair value with changes in fair value recognised in finance
income or finance cost.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost
using the effective interest rate method (EIR), less impairment. The EIR amortisation is included in finance income. The
impairment losses are recognised as finance costs.
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-
maturity when the Group has the positive intention and ability to hold it to maturity. After initial measurement, held-
to-maturity investments are measured at amortised cost using the effective interest method, less impairment.
110
FINANCIAL STATEMENTS Financial assets classified as available-for-sale are those which are neither classified as held for trading nor designated
at fair value through profit or loss. After initial measurement, available-for-sale financial investments are subsequently
measured either at fair value with unrealised gains or losses recognised as other comprehensive income until the
investment is derecognised, at which time the cumulative gain or loss is recognised in finance income or cost, or
determined to be impaired, at which time the cumulative loss is recognised as finance costs and removed from the
available-for-sale assets.
The fair value of financial instruments that are traded in active markets at each reporting date is determined by
reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. For financial
instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such
techniques may include: using recent arm’s length market transactions; reference to the current fair value of another
instrument that is substantially the same; discounted cash flow analysis; or other valuation models.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
When necessary, the Group utilises derivative financial instruments, such as forward currency contracts and interest
rate swaps, to hedge its foreign currency risks and interest rate risks. Such derivative financial instruments are initially
recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at
fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the
fair value is negative. Any gains or losses arising from changes in fair value on derivatives are recognised on the income
statement. The Group does not apply hedge accounting.
TREASURY SHARES
Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from the paid-up
unrestricted equity reserve. No gain or loss is recognised on the purchase, sale, issue or cancellation of the Group’s own
equity instruments.
FINANCIAL LIABILITIES
Liabilities are classified as current and non-current, and include both interest-bearing and interest-free liabilities.
Interest-bearing liabilities are liabilities that either include a contractual interest component, or are discounted to
reflect the fair value of the liability. In the earlier financial years discounted non-current liabilities have included
acquisition-related deferred conditional and unconditional liabilities. Certain conditional liabilities have included an
earn-out component that needed to be met to make the liability unconditional and fix the amount of the future
payment. Acquisition-related conditional purchase considerations that were payable in the Company’s shares were
presented as interest-free liabilities.
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss;
loans and borrowings; or derivatives designated as hedging instruments, as appropriate. The Group determines the
classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value,
and in the case of loans and borrowings, plus directly attributable transaction costs. The Group’s financial liabilities
include trade and other payables, bank overdrafts, loans and borrowings, and derivative financial instruments.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using
the effective interest rate method. Gains and losses are recognised on the income statement when the liabilities
are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is
calculated by taking into account any discounts or premiums and fees or costs that are an integral part of the EIR. The
EIR amortisation is included in finance cost.
111
FINANCIAL STATEMENTS PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive), as a result of a past event and
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
The provision for rehabilitation and decommissioning costs has arisen on operating mines and minerals’ processing
facilities. These costs are provided at the present value of expected costs to settle the obligation using estimated
cash flows. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the rehabilitation
and decommissioning liability. The estimated future costs of decommissioning are reviewed annually and adjusted as
appropriate. Changes in the estimated future costs of or in the discount rate applied to the rehabilitation obligation are
added or deducted from the profit or loss or, respectively, decommissioning obligation adjusted to the carrying value of
the asset dismantled.
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
The standard IFRS 5 requires that an entity must classify a non-current asset or a disposal group as assets held for sale
if the amount equivalent to its carrying amount is accumulated primarily from the sale of the item rather than from
its continued use. In this case, the asset or disposal group must be available for immediate sale in its present condition
under general and standard terms for the sale of such assets, and the sale must be highly probable.
ACCOUNTING POLICIES REQUIRING MANAGEMENT DISCRETION AND KEY UNCERTAINTY FACTORS FOR ESTIMATES
Preparation of the financial statements requires management to make estimates, assumptions and forecasts regarding
the future. Future developments may deviate significantly from the assumptions made if changes occur in the business
environment and/or business operations. In addition, management is required to use its discretion in the application of
the financial statements’ preparation principles.
The scope of the financial statements
The consolidated financial statements include the parent company Afarak Group Plc, its subsidiaries, joint ventures
and associated companies. Subsidiaries refer to companies in which the Group has control. The Group gains control of
a company when it holds more than half of the voting rights or otherwise exercises control. The assessment of whether
control is exercised requires management discretion.
The Group holds 51% of shares of Synergy Africa Limited. However, the shareholders of Synergy Africa Limited have
entered into a joint venture agreement with joint control over the company. The joint venture agreement includes terms
and conditions which give the other shareholder participating rights. Therefore, the Group’s management has assessed,
using its discretion, that the company and its subsidiaries are not consolidated into the Group as subsidiaries but as
joint ventures.
IFRS 11 requires considering all facts and circumstances relating to joint arrangements instead of legal form only,
which influences the accounting treatment of the arrangements. Under the new standard Afarak’s share in Synergy
Africa Limited and its subsidiaries are consolidated under the equity method instead of the proportionate method of
consolidation. Synergy Africa Limited and its subsidiaries form a part of Afarak’s mining operations in South Africa.
Allocation of the cost of a business combination
In accordance with IFRS 3, the acquisition cost of an acquired company is allocated to the assets of the acquired
company. The management has to use estimates when determining the fair value of identifiable assets and liabilities.
Determining a value for intangible assets, such as trademarks and customer relationships, requires estimation and
discretion because in most cases, no market value can be assigned to these assets. Determining fair value for tangible
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FINANCIAL STATEMENTS assets requires particular judgment as well, since there are seldom active markets for them where the fair value could
be obtained. In these cases, the management has to select an appropriate method for determining the value and must
estimate future cash flows.
Impairment testing
Goodwill is tested annually for impairment, and assessments of whether there are indications of any other asset
impairment are made at 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
definition of components of discount rates applied in impairment testing requires discretion, such as estimating the
asset or business related risk premiums and average capital structure for each business segment.
Tangible and intangible assets
Afarak Group management is required to use its discretion when determining the useful lives of various tangible and
intangible assets, which affects the amount of depreciation and thereby the carrying amount of the assets concerned.
The capitalising of mine development assets and exploration and evaluation expenditure, in particular, requires the use
of discretion. Similarly, management is required to use its discretion in determining the useful lives of intangible assets
identified in accordance with IFRS 3, and in determining the amortisation period. This affects the financial result for the
period through depreciation and change in deferred taxes.
Measurement of mineral resources and ore reserves
In the Group’s mining operations, estimates have to be applied in recognising mineral resources acquired in business
combinations as assets. In the recognition and measurement of mineral resources and ore reserves, the Group utilises
available third party analyses of the quantities, mineral content, estimated production costs and exploitation potential
of the resource. The probability of the ore reserve is also a key consideration. In the mining and minerals business, the
probability is commonly described by classifying a mineral resource into categories such as ‘proven’, ‘probable’, ‘inferred’
and ‘hypothetical’. The measurement of ore reserves is based on estimated market prices, estimated production costs
and on the probability classification of the mineral resource and quantities. Therefore, the Group’s management has to
use its discretion in applying recognition and measurement principles for mineral resources.
Rehabilitation provisions
The Group assesses the rehabilitation liabilities associated with its mines and production facilities annually. The amount
of provision reflects the management’s best estimate of the rehabilitation costs. In determining the fair value of the
provision, assumptions and estimates are made in relation to discount rates, the expected cost to rehabilitate the
area and remove or cover the contaminated soil from the site, the expected timing of those costs, and whether the
obligations stem from past activity. These uncertainties may cause the actual costs to differ from the provision which
has been made.
STANDARDS AND INTERPRETATIONS EFFECTIVE AND ADOPTED IN THE CURRENT YEAR
The Group applied, for the first time, certain standards and amendments, which are effective for annual periods
beginning on or after 1 January 2017. The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
113
FINANCIAL STATEMENTS
Several other amendments apply for the first time in 2017. However, they do not impact the annual consolidated
financial statements of the Group or the interim condensed consolidated financial 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 first time in 2017, they did not have a material impact on the annual consolidated financial statements of the
Group. Other than the changes described below, the accounting policies adopted are consistent with those of the
previous financial year.
» AMENDMENTS TO IAS 7 STATEMENT OF CASH FLOWS: DISCLOSURE INITIATIVE
The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities,
including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses).
The application of the amendments resulted in additional disclosures provided by the Group.
» AMENDMENTS TO IAS 12 INCOME TAXES: RECOGNITION OF DEFERRED TAX ASSETS FOR UNREALISED LOSSES
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against
which it may make deductions on the reversal of that deductible temporary difference related to unrealized losses.
Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain
the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
The Group applied the amendments retrospectively. However, their application has had no effect on the Group’s
financial position and performance as the Group has no deductible temporary differences or assets that are in the
scope of the amendments.
» IFRIC INTERPRETATION 23 UNCERTAINTY OVER INCOME TAX TREATMENT
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application
of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to
interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately.
• The assumptions an entity makes about the examination of tax treatments by taxation authorities.
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
• How an entity considers changes in facts and circumstances.
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other
uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed.
The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs
are available. The Group will apply interpretation from its effective date.
The Group is currently assessing the impact of IFRIC 23.
STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial
statements that the Group reasonably expects will have an impact on its disclosures, financial position or performance when
applied at a future date, are disclosed below. The Group intends to adopt these standards when they become effective.
Of the other standards and interpretations that are issued, but not yet effective, as these are not expected to impact the
Group, they have not been listed.
114
FINANCIAL STATEMENTS » IFRS 9: FINANCIAL INSTRUMENTS
In July 2014, the IASB issued the final 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 financial instruments project: classification 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.
The Group plans to adopt the new standard on the required effective date and will not restate comparative information.
During 2016 and 2017, 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 from further reasonable and
supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group
expects no significant impact on its statement of financial position or equity from the adoption of IFRS 9.
(a) Classification and measurement
The Group does not expect a significant impact on its statement of financial position and equity on applying the
classification and measurement requirements of IFRS 9.
(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 simplified approach and record lifetime expected losses on all trade receivables measured at
amortised cost. The Group does not expect these changes will have a significant 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 amended in April 2016, and establishes a new five-step model that will apply to revenue
arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full or modified
retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.
The Group plans to adopt the new standard on the required effective date using the full retrospective method. During 2016
the Group performed a preliminary assessment of IFRS 15, which was followed by a more detailed analysis in 2017.
The key issues identified, and the Group’s views and perspectives, are set out below. These are based on the Group’s current
interpretation of IFRS 15 and may be subject to changes 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 financial statements.
115
FINANCIAL STATEMENTS » 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 classification of a share-based payment
transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms
and conditions of a share-based payment transaction changes its classification 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 finance 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 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 classification principle as in IAS 17 and distinguish between two types of leases: operating
and finance 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 modified 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.
116
FINANCIAL STATEMENTS 1.3 BUSINESS COMBINATIONS AND ACQUISTION OF NON-
CONTROLLING INTERESTS
1.3.1 FINANCIAL YEAR 2017
During 2017, Afarak Mogale (Pty) Ltd concluded an agreement to acquire 10% of its’ own shares from the Mogale Alloys
workers trust for an agreed consideration of ZAR 64.9 million to be paid over a period of 8 years. This acquisition of non-
controlling interest led to a reduction in equity of EUR 3.3 million as a result of the Group consolidating 100% of Afarak
Mogale (Pty) Ltd, and recognising the present value of future obligation as liability.
During 2017, a subsidiary of the Company, signed a Share Purchase Agreement with Mr Guy Konsbruck, Afarak’s CEO to
purchase his 15% shareholding for a purchase price of EUR 0.2 million. Given that LL Resources is a business partner of Afarak
and the share ownership of the CEO could have created a conflict of interest, Afarak bought the shareholding with an option
to sell back the said shares at the same price if, and when, Mr Konsbruck’s term as Group CEO ends.
1.3.2 FINANCIAL YEAR 2016
Afarak did not carry out any acquisitions during the financial year 2016.
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 2017. The following cash
generating units were defined for the impairment testing:
» Speciality Alloys business (Türk Maadin Sirketi and Elektrowerk Weisweiler) with a vertically integrated mining-
beneficiation-smelting-sales operation in the specialty grade ferrochrome business; and
» South African minerals processing business (Mogale Alloys) which has ferroalloys smelting operations with
four furnaces;
The Group assesses at the end of each reporting period whether there is any indication that assets may be impaired. If
any such indication exists, the recoverable amount of these assets is estimated. Moreover, the recoverable amount of any
goodwill and unfinished investment projects will be estimated annually, irrespective of whether there is an indication of
impairment. As a result, no impairment was recognised.
At the end of 2017, 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.
117
FINANCIAL STATEMENTS
CHANGES IN GOODWILL DURING 2017
During the financial year 2017, the total goodwill of the Group decreased by EUR 1.4 million to a total of EUR 62.4 million. The
decrease was entirely attributable to an exchange rate movement of EUR 1.4 million. In 2014, the synergy goodwill identified
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 reflect the change in segments, where
Afarak Trading is now divided to both segments to reflect 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, reflecting the volume of Afarak Trading related benefits enjoyed by the CGU. The changes are described below:
EUR ‘000
Goodwill 1.1.2017
Exchange rate movement
Goodwill 31.12.2017
Speciality Alloys Business
FerroAlloys Business
Group Total
42,771
-876
41,895
21,009
-495
20,514
63,780
-1,371
62,409
The changes in goodwill during 2016 are presented 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
Goodwill as a ratio of the Group’s equity on 31 December 2017 and 31 December 2016 was as follows:
EUR ‘000
Goodwill
Equity
Goodwill/Equity, %
31.12.2017
31.12.2016
62,409
172,365
36%
63,780
176,185
36%
METHODOLOGY APPLIED IN IMPAIRMENT TESTING
For the cash generating units that were tested, the test was carried out by calculating their value in use. Value in use has
been calculated by discounting estimated future net cash flows based on the conditions and assumptions prevailing at
the time of the testing. Future cash flows have been projected for a five-year period, after which a growth rate equalling
projected long-term inflation has been applied (Speciality Alloys: 2%, South African minerals processing: 6%). For the terminal
year after the five-year estimation period, the essential assumptions (e.g. revenue, variable costs and fixed costs) have been
based at the estimation period’s previous year’s figures.
118
FINANCIAL STATEMENTS The weighted average cost of capital (WACC) has been calculated separately for each cash generating unit andassets 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 financing. The Group has used publicly available information on the peer group companies’ capital structure, risk
premium and other factors. The market interest rates reflect the rates applicable on 31 December 2017.
The information used in the 31 December 2017 impairment testing is based on business units’ management future forecasts,
on general third-party industry expert or analyst reports where available, and to the extent possible on the current business
and asset base excluding any non-committed expansion plans. Forecasted sales volumes and profitability are based on the
management’s view on future development while also taking past performance into account. Price forecasts are based
on independent market forecasts. The cash flow models have been prepared at constant foreign exchange rates. The
management’s approach in preparing cash flow forecasts has not changed significantly from the previous impairment testing.
These pre-tax discount rates applied in 2017 impairment testing were the following:
CASH GENERATING UNIT
PRE-TAX DISCOUNT RATE
Speciality Alloys
South African minerals processing
2017
13.2%
25.5%
2016
12.1%
22.7%
The key reasons for the changes in the discount rates compared to 2016 were the changes in risk-free interest rates in both
cash-generating units.
The results of impairment testing have been evaluated by comparing the cash generating units’ recoverable amount to the
corresponding carrying amount based on the following judgment rules:
RECOVERABLE AMOUNT DIVIDED BY THE CARRYING AMOUNT: CONCLUSION:
< 100%
101-120%
121-150%
> 150%
TEST RESULTS 31 DECEMBER 2017
The impairment test results were as follows:
Impairment
Slightly above
Clearly above
Significantly above
CASH GENERATING UNIT
Speciality Alloys
South African minerals processing
Goodwill (MEUR),
pre-testing
Goodwill
(MEUR),
post-testing
Carrying amount
(MEUR),
pre-testing
Conclusion
41.9
20.5
41.9
20.5
61.3
Significantly above
66.7
Clearly above
119
FINANCIAL STATEMENTS The testable asset base (carrying amount) includes goodwill, intangible and tangible assets and net working capital less
provisions and deferred tax liabilities (in relation to purchase price allocation entries).
Key background and assumptions used in the cash flow forecasts of the impairment testing process are summarised in the
following table:
CASH GENERATING UNIT
Sales volume
Sales prices
Costs
Speciality Alloys business
FeCr:
33,000 t/a
Cr ore:
30,500 t/a
LC/ULC ferrochrome with
average Cr content of
70 %, based on external
experts (Roskill) price
forecasts
Raw material costs
generally change in line
with sales price; other
costs growing at inflation
rate
South African minerals processing
Metal alloys:
108,000 t/a
Based on external experts
(Roskill) metal alloys price
forecasts
Raw material costs
generally change in line
with sales price; other
costs growing at inflation
rate
Moreover, the USD/ZAR foreign exchange rate affects significantly the testing of the South African minerals business. The
foreign exchange rate used in the test was 12.35.
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 2017 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)
15.3% - points
6.1% - points
Change in free cash
flow (annual average)
Change in CGU’s average
EBITDA margin
-63.3%
-17.9%
-12.8% - points
-1.9% - points
1.5 OPERATING SEGMENTS
Afarak Group has two operating segments, FerroAlloys and Speciality Alloys, which are also the reporting segments. The
operating segments are organised based on their products and production processes. The current reporting structure was
adopted in 2011. The Group’s executive management reviews the operating results of the segments for the purpose of making
decisions on resource allocation and performance assessment. Segment performance is measured based on revenue as well
as earnings before interest, taxes, depreciation and amortisation (EBITDA) as included in the internal management reports
and defined consistently with the consolidated EBITDA.
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.
120
FINANCIAL STATEMENTS The Speciality Alloys business consists of Türk Maadin Şirketi A.S (“TMS”), the mining and beneficiation operation in Turkey,
and Elektrowerk Weisweiler GmbH (“EWW”), the chromite concentrate processing plant in Germany. TMS supplies EWW
with high quality chromite concentrate which produces speciality products including specialised low carbon and ultra low
carbon ferrochrome. Chrome ore from TMS that is not utilised for the production of specialised low carbon ferrochrome is
sold to the market.
The revenue and costs of the Group’s sales and marketing arm Afarak is allocated to the segments in proportion to their
sales. Afarak’s other operations, including the Group’s headquarters and other Group companies that do not have significant
operations, are presented as unallocated items.
Intercompany transactions are carried out on an arm’s length basis. The transactions between the segments have been
limited but the parent company has provided funding and administrative services to the Group’s subsidiaries.
The accounting policies applied in the operating segment information are the same as those in the consolidated financial
statements.
OPERATING SEGMENT INFORMATION 2017
Year ended 31.12.2017
EUR ‘000
Speciality
Alloys
Ferroalloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
0
89,419
89,419
621
1,015
105,079
106,094
0
1,015
194,498
195,513
621
90,040
106,094
196,134
76
3,225
3,301
2,037
5,338
0
0
0
-2,6581
-2,658
Items related to joint ventures (core)
0
3,068
3,068
0
Segment EBITDA
12,572
11,423
23,995
-6,025
Depreciation and amortisation
Impairment
-1,518
0
-4,491
-554
-6,009
-554
-8
0
Segment operating
profit / (loss)
Finance income
Finance cost
Income taxes
11,054
6,378
17,432
-6,033
0
0
0
0
0
Profit for the period from continuing operations
Profit for the period from discontinued operations
Profit for the period
1,091
197,723
198,814
0
198,814
3,068
17,970
-6,017
-554
11,399
3,728
-10,886
951
5,192
1,519
6,711
121
FINANCIAL STATEMENTS
Segment’s assets 2
143,349
135,109
278,458
13,692
-32,209
259,941
Segment’s liabilities 2
60,610
44,881
105,491
2,867
-20,782
87,576
Other disclosures
Gross capital expenditure 3
Investment in joint ventures 4
Provisions 4
2,219
0
1,848
4,645
-13,778
7,441
6,864
-13,778
9,289
0
0
0
0
0
0
6,864
-13,778
9,289
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. Values as per the consolidated statement of financial position.
OPERATING SEGMENT INFORMATION 2016
Speciality
Alloys
Ferro-
alloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
Year ended 31.12.2016
EUR ‘000
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
0
68,679
68,679
1,052
321
84,152
84,473
48
321
152,831
153,152
1,100
69,731
84,521
154,252
129
289
418
1,349
1,767
0
0
0
-2,4491
-2,449
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
profit / (loss)
Finance income
Finance cost
Income taxes
3,051
863
3,914
-4,924
0
0
0
0
Loss for the period from continuing operations
Profit for the period from discontinued operations
Loss for the period
122
450
153,120
153,570
0
153,570
116
5,478
-6,488
-1,010
2,610
-4,737
339
-2,798
1,861
-937
FINANCIAL STATEMENTS
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
Investment in joint ventures 4
Provisions 4
1,427
1,331
0
-16,234
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. Values as per the consolidated statement of financial position.
GEOGRAPHICAL INFORMATION
Revenues from external customers
EUR ‘000
Other EU countries
United States
China
Africa
Finland
Other countries
Total revenue
Non-current assets
EUR ‘000
Africa
Other EU countries
Finland
Other countries
Total
2017
97,174
34,793
316
12,491
6,368
47,672
2016
83,251
24,420
2,644
18,121
4,596
20,538
198,814
153,570
2017
48,724
6,582
0
6,705
2016
50,591
6,988
1
5,862
62,011
63,442
Revenue figures are based on the
location of the customers.
The largest customer of the Group is
in the FerroAlloys business segment
and represents approximately 7.1%
(5.5%) of the Group’s revenue in
2017. In the Speciality Alloys business
segment the largest customer
represents 3.9% (5.5%) of the
Group’s revenue in 2017.
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.
123
FINANCIAL STATEMENTS 1.6 NOTES TO THE CONSOLIDATED 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
Rental income
Other
Total
3. EMPLOYEE BENEFITS
EUR ‘000
Salaries and wages
Share-based payments
Pensions costs
Other employee related costs
Total
2017
197,723
1,091
198,814
2017
12
275
4,056
4,343
2017
-20,705
-785
-130
-2,288
-23,908
2016
153,120
450
153,570
2016
2
295
1,408
1,705
2016
-17,741
-195
-531
-1,509
-19,976
During 2017 the Company introduced a bonus incentive scheme for senior management and a provision of EUR 750,000 has
been provided for in the consolidated financial statements for the period ending 31st December 2017.
AVERAGE PERSONNEL DURING THE ACCOUNTING PERIOD
Speciality Alloys business
FerroAlloys business
Group Management
Other operations*
Total
PERSONNEL AT THE END OF THE ACCOUNTING PERIOD
Speciality Alloys business
FerroAlloys business
Group Management
Other operations*
Total
* Other operations mainly relate to the project in Serbia
124
2017
444
403
11
67
925
2017
483
434
11
89
1,017
2016
417
355
7
0
779
2016
438
369
6
0
813
FINANCIAL STATEMENTS 4. DEPRECIATION, AMORTISATION AND IMPAIRMENT
EUR ‘000
Depreciation / amortisation by asset category
2017
2016
Intangible assets
Clientele and technology
Other intangible assets
Total
Property, plant and equipment
Buildings and constructions
Machinery and equipment
Other tangible assets
Total
Impairment by asset category
Machinery and equipment
Total
5. OTHER OPERATING EXPENSES
EUR ‘000
Rental costs
External services1
Travel expenses
Other operating expenses2
Total
-1,640
-90
-1,730
-592
-2,984
-711
-4,287
-554
-554
2017
-401
-2,975
-962
-6,837
-11,175
-1,517
-283
-1,800
-520
-2,784
-1,384
-4,688
0
0
2016
-390
-2,808
-1,001
-8,553
-12,752
1. Audit fees paid to EY totalled EUR 348 (2016: 369) thousand in the financial year. The fees for non-audit services totalled
EUR 4 (2016: 51) thousand.
2. Other operating expenses include shutdown costs of EUR 3,031 (2016: 2,879) thousand in the financial year.
6. FINANCIAL INCOME AND EXPENSE
EUR '000
Finance income
Interest income on loans and trade receivables
Foreign exchange gains
Other finance income
Total
Finance expense
Interest expense on financial liabilities measured at amortised cost
Foreign exchange losses
Unwinding of discount, provisions
Other finance expenses
Total
Net finance expense
2017
1,018
2,656
54
3,728
-1,680
-8,507
-677
-22
-10,886
-7,158
2016
967
1,632
11
2,610
-833
-3,187
-579
-138
-4,737
-2,127
125
FINANCIAL STATEMENTS 7. INCOME TAXES
EUR '000
Income tax for the period
Income tax for previous years
Deferred taxes
Total
EUR '000
Profit / (loss) before taxes
Income tax calculated at parent company income tax rate
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
2017
368
0
583
951
2017
5,760
-1,152
-2,207
3,089
3,635
0
614
-52
-3,195
219
2,103
951
2016
-1,809
6
2,142
339
2016
-1,276
255
-74
286
922
6
23
-83
-1,486
490
84
339
On 31 December 2017 the Group companies had unused tax losses totalling EUR 35.3 (30.0) million for which the Group has
not recognised deferred tax assets.
8. DISCONTINUED OPERATIONS
The discontinued operation items relate to income and expenses in connection with the sawmill machinery and
environmental cleaning costs. The Group sold part of the saw mill equipment which positively affected profit by EUR 1.5
(2016: 1.9) million that includes a release of EUR 0.6 (2016: 0.8) 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
Profit for the period
2017
620
-1
900
1,519
2016
828
-47
1,080
1,861
126
FINANCIAL STATEMENTS 9. EARNINGS PER SHARE
2017
2016
Continuing
operations
Discontinued
operations
Total
Continuing
operations
Discontinued
operations
Profit / (loss) attributable to owners of
4,742
1,519
6,261
-2,476
1,861
Total
-615
the parent company (EUR '000)
Weighted average number of shares,
basic (1,000)
Basic earnings per share (EUR)
total
Profit / (loss) attributable to owners of
the parent company (EUR ‘000)
Weighted average number of shares,
basic (1,000)
259,329
259,329
259,329
258,945
258,945
258,945
0.02
4,742
0.01
1,519
0.02
-0.01
6,261
-2,476
0.01
1,861
0.00
-615
259,329
259,329
259,329
258,945
258,945
258,945
Effect of share options on issue (1,000)
1,388
1,388
1,388
851
851
851
Weighted average number of shares,
diluted (1,000)
Diluted earnings per share
(EUR) total
260,718
260,718
260,718
259,796
259,796
259,796
0.02
0.01
0.02
-0.01
0.01
0.00
Basic earnings per share is calculated by dividing profit attributable to the owners of the parent company by weighted
average number of shares during the financial year.
When calculating the diluted earnings per share, all convertible securities with a potential dilutive effect are assumed to
be converted into shares. Share options have a dilutive effect if the exercise price is lower than the share price. The diluted
number of shares is the number of shares that will be issued free of charge when share options are exercised since with the
funds received from exercising options, the Company is not able to issue the same number of shares at fair value. The fair
value of shares is based on average share price of the period.
1.7 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
10. PROPERTY, PLANT AND EQUIPMENT
EUR '000
Balance at 1.1.2017
Additions
Disposals
Reclass between items
Land and
water
property
2,292
Effect of movements in exchange rates
Balance at 31.12.2017
-41
2,251
Accumulated depreciation and
impairment 1.1.2017
Depreciation
Impairment
Disposals
Buildings and
constructions
Machinery
and
equipment
Mines and
mineral
assets
Other
tangible
assets
8,083
421
-636
7,868
57,173
5,616
-197
139
-1,935
60,796
-3,682
-23,106
-592
-2,984
9,725
998
-1,726
8,997
-7,509
-444
Total
81,422
7,412
-197
-18
-4,399
84,220
4,149
377
-157
-61
4,308
-1,994
-36,291
-267
-4,287
Effect of movements in exchange rates
305
-563
72
880
1,428
42
-563
72
2,655
127
FINANCIAL STATEMENTS Accumulated depreciation and
impairment at 31.12.2017
Carrying amount at 1.1.2017
Carrying amount at 31.12.2017
Balance at 1.1.2016
Additions
Disposals
Reclass between items
Effect of movements in exchange rates
Balance at 31.12.2016
Accumulated depreciation and
impairment 1.1.2016
Depreciation
Disposals
Effect of movements in exchange rates
Accumulated depreciation and
impairment at 31.12.2016
0
-3,969
-25,701
-6,525
-2,219
-38,414
2,292
2,251
2,049
243
2,292
4,401
3,899
7,500
785
-202
8,083
-3,326
-520
164
34,067
35,095
50,134
1,041
-162
2
6,158
57,173
-18,027
-2,784
2
-2,297
2,216
2,472
10,931
243
-1,449
9,725
-7,554
-1,148
2,155
2,089
3,328
170
409
242
4,149
-1,476
-238
1,193
-280
45,131
45,806
73,942
2,239
-162
411
4,992
81,422
-30,383
-4,690
2
-1,220
0
-3,682
-23,106
-7,509
-1,994
-36,291
Carrying amount at 1.1.2016
2,049
4,174
32,107
Carrying amount at 31.12.2016
2,292
4,401
34,067
3,377
2,216
1,852
43,559
2,155
45,131
Machinery and equipment include the prepayments made for them.
11. INTANGIBLE ASSETS
EUR '000
Balance at 1.1.2017
Additions
Disposals
Reclass between items
Goodwill
Intangible assets
identified in
acquisitions
109,968
108,158
Effect of movements in exchange rates
Balance at 31.12.2017
-2,343
107,625
-842
107,316
Accumulated amortisation and
impairment at 1.1.2017
Amortisation
-46,188
-94,090
-1,640
485
Effect of movements in exchange rates
972
Accumulated amortisation and
impairment at 31.12.2017
-45,216
-95,245
Carrying amount at 1.1.2017
Carrying amount at 31.12.2017
63,780
62,409
14,068
12,071
128
Other intangible
assets
Exploration and
evaluation assets
4,569
145
-2
-139
-360
4,213
-1,944
-80
289
-1,735
2,625
2,478
1,642
115
-67
1,690
-24
-10
Total
224,337
260
-2
-139
-3,612
220,844
-142,246
-1,730
1,746
-34
-142,230
1,618
1,656
82,091
78,614
FINANCIAL STATEMENTS Balance at 1.1.2016
98,454
102,893
4,368
Additions
Disposals
Reclass between items
Effect of movements in exchange rates
Balance at 31.12.2016
11,514
109,968
5,265
108,158
Accumulated amortisation and
impairment 1.1.2016
Amortisation
-40,105
-89,441
-1,517
-3,132
Effect of movements in exchange rates
-6,083
Accumulated amortisation and
impairment at 31.12.2016
-46,188
-94,090
-1,944
Carrying amount at 1.1.2016
Carrying amount at 31.12.2016
58,349
63,780
13,452
14,068
2,454
2,625
169
-96
-1
129
4,569
-1,914
-274
244
1,121
388
133
1,642
-12
-10
-2
-24
1,109
1,618
206,836
557
-96
-1
17,041
224,337
-131,472
-1,801
-8,973
-142,246
75,364
82,091
Other intangible assets include the prepayments made for them. Exploration and evaluation assets consist of mine projects
in various mining projects in Turkey and South Africa.
12. INVESTMENTS IN ASSOCIATES
EUR '000
Domicile
2017
Non-core associates
Incap Furniture Oy *
Finland
Valtimo Components Oyj *
Finland
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
Profit
0
0
0
0.0
8.99
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profit
0
0
0
24.1
24.9
* Incap Furniture Oy and Valtimo Components Oyj are in a corporate restructuring process.
During 2017 Valtimo Components Oyj has made a share issue which as a result diluted Afarak share holding to 8.99% (24.9%).
129
FINANCIAL STATEMENTS
The income statement related items of associated companies of Speciality Alloys and FerroAlloys business segments (´core-
associates´) are presented above EBIT; the non-core associates in financial items.
During the financial year 2017, Afarak did not acquire or
EUR ‘000
1.1.2017
MOVEMENTS IN 2017
dispose holdings in associates.
Share of profit
Exchange rate differences
Proceeds from disposal
MOVEMENTS IN 2016
31.12.2017
During the financial year 2016, Afarak did not acquire or
EUR ‘000
1.1.2016
dispose holdings in associates.
Share of profit
Exchange rate differences
Proceeds from disposal
31.12.2016
0
0
0
0
0
0
0
0
0
0
13. INVESTMENTS IN JOINT VENTURES
At the end of the financial year 2017, 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 financial reporting of the Group starting at 31 December 2010. Following the 2012 changes in
the accounting standards the company changed the accounting method from proportionate consolidation method to equity
method.
Summarised financial statement information (100% share) of the joint venture, based on its IFRS financial statements, and a
reconciliation with the carrying amount of the investment in the Group’s consolidated financial statements are set out below:
EUR '000
Revenue
Other operating income
Materials and supplies
Employee benefits expense
Depreciation and amortisation
Other operating expenses
Impairment, net
Operating profit
130
2017
32,881
361
-18,544
-1,998
-1,978
-4,929
0
5,793
2016
10,355
83
-4,348
-1,199
-906
-4,487
2,127
1,625
FINANCIAL STATEMENTS Finance income
Finance expense
Profit before taxes
Income taxes
Profit for the year
Group’s share of profit for the year
Profit attributable to:
Joint venture owners
Non-controlling interests
EUR '000
Assets and liabilities
Non-current assets
Intangible assets
Mines and mineral assets
Property, plant and equipment
Deferred tax asset
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
Total assets
Non-current liabilities
Interest-bearing debt
Interest-bearing debt to JV owners
Provisions
Deferred tax liability
Other non-current liabilities to JV owners
Non-current liabilities total
2,903
-2,523
6,173
-158
6,015
3,068
2,638
430
3,068
2017
2,065
29,015
5,951
629
37,660
1,944
1,053
3,518
529
7,044
1,214
-2,190
649
-422
227
116
248
-132
116
2016
5,656
30,875
3,016
0
39,547
304
3,643
2,999
1,653
8,599
44,704
48,146
19,472
26,252
5,194
9,128
1,742
61,788
22,651
28,134
3,837
8,738
5,549
68,909
131
FINANCIAL STATEMENTS Current liabilities
Trade and other payables
Trade and other payables to JV owners
Current liabilities total
Total liabilities
Net Liability
4,832
5,099
9,931
71,719
8,655
2,413
11,068
79,977
-27,015
-31,831
Proportion of Group's Ownership
51 %
51 %
Carrying amount of Joint venture
-13,778
-16,234
At the end of 2017, Synergy Africa Group had 89 (80) employees. The average number of employees in full year 2017 was 87 (72).
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 2017.
The statement of financial position of Synergy Africa has been assessed whether there is any indication that assets may
be impaired. If any such indication exists, the recoverable amount of these assets is estimated. Moreover, the recoverable
amount of any goodwill and unfinished investment projects is estimated annually, irrespective of whether there is an
indication of impairment. The South African mining business did not have any goodwill on its statement of financial position
at the end of the financial year 2017. Similarly to 2016, Synergy Group assessed whether there is any indication of impairment
and consequently the assets of the business were tested for impairment.
Methodology applied in impairment testing
For the cash generating units that were tested, the test was carried out by calculating their value in use. Value in use has
been calculated by discounting estimated future net cash flows based on the conditions and assumptions prevailing at the
time of the testing. Future cash flows have been projected for the life of mine with a 6% growth rate equalling projected
long-term inflation has been applied.
The weighted average cost of capital (WACC) has been calculated taking into account the business’s typical capital
structures, investors’ average required rate of return for similar investments and company size and operational location
related factors, as well as risk-free interest rates and margins for debt financing. Synergy Africa has used publicly available
information on the peer group companies’ capital structure, risk premium and other factors. The market interest rates reflect
the rates applicable on 31 December 2017.
The information used in the 31 December 2017 impairment testing is based on business units’ management future forecasts,
on general third-party industry expert or analyst reports where available, and to the extent possible on the current business
and asset base excluding any non-committed expansion plans. Forecasted sales volumes and profitability are based on the
management’s view on future development while also taking past performance into account. Price forecasts are based on
independent market forecasts. The cash flow models have been prepared at constant foreign exchange rates. The underground
production in the models does not solely come from reserves, as some come from resources that are not yet converted to
132
FINANCIAL STATEMENTS 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 2017 impairment testing was 26.94% for Mecklenburg mine and 41.04% for Stellite mine.
The cash flows in the Stellite mine impairment test review include both opencast and recycling of tailing dam by way of using
the shaking table technology. The cash flows in the Mecklenburg mine impairment test review includes both opencast and
underground operation. Both the Stellite mine model and the Mecklenburg model have a life of mine of 15 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 2017
As a result of the tests carried out Synergy Africa did not pass any impairment as the impairment tests indicated that the recoverable
amounts from the mines exceed the carrying amount and consequently no impairment was required.
The testable asset base includes intangible and tangible assets and net working capital less provisions and deferred tax liabilities (in
relation to purchase price allocation entries).
The USD/ZAR foreign exchange rate affects significantly the testing of the South African minerals business. The foreign exchange rate
used in the test was 12.35.
Key background and assumptions used in the cash flow forecasts of the impairment testing process are summarised in the
following table:
Cash generating unit
Sales volume
Sales prices
Costs
Stellite mine
Concentrate:
Opencast mining
averaging 410,000t/a as
from 2018 till 2031
Lumpy:
Average of 118,300 t/a
from 2018 till 2031
SA Chrome Ore – UG2
CIF adjusted for FOM,
based on external experts
(Roskill) price forecasts
Mecklenburg mine
ROM:
Opencast mining of
62,252t in 2018;
143,000t in 2018; 213,000t
in 2019; and is planned to
increase to an average of
332,000t/a as from 2020
till 2031
SA Chrome Ore – Lumpy
CIF adjusted for FOM,
based on external experts
(Roskill) 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 better benefication.
This cost has been
estimated and adjusted for
inflation for the opencast
life of mine. The cost over
the life of mine excluding
inflation is estimated to be
ZAR 925 per saleable ton of
chrome.
The costs for underground are
based on past experiences
of our mining team in
underground operations
adjusted for inflation rate.
The cost over the life of
mine excluding inflation is
estimated to be ZAR 609 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
133
FINANCIAL STATEMENTS as of 31 December 2017 are given below:
Cash generating unit
Stellite Mine
Mecklenburg Mine
Change in pre-
tax discount rate
(compared to the level
used in testing)
Change in
free cash flow
(annual average)
Change in CGU’s
average Cost of
Production
Change in CGU’s
average EBITDA
margin
140.6% - points
22.9% - points
-83.1%
-66.7%
3.8%
13.2%
-18.2% - points
-37.3% - points
14. FINANCIAL ASSETS AND LIABILITIES
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
168
168
168
18,687
637
11,437
28,186
476
10,702
70,125
70,125
18,855
637
11,437
28,186
476
10,702
70,293
70,293
2,548
3,168
9,393
17,416
2,548
3,168
9,393
17,416
32,525
32,525
32,525
32,525
31.12.2017, EUR '000
Non-current financial
assets
Non-current interest-bearing
receivables
Trade and other receivables *
Current financial assets
Current interest-bearing receivables
Trade and other receivables *
Other Financial Assets
Cash and cash equivalents
Carrying amount of
financial assets
Fair value of financial assets
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial liabilities
Current interest-bearing liabilities
Trade and other payables *
Carrying amount of
financial liabilities
Fair value of financial liabilities
134
FINANCIAL STATEMENTS
31.12.2016, EUR '000
Non-current financial
assets
Non-current interest-bearing
receivables
Trade and other receivables *
Current financial assets
Current interest-bearing receivables
Trade and other receivables *
Other Financial Assets
Cash and cash equivalents
Carrying amount of
financial assets
Fair value of financial assets
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial liabilities
Current interest-bearing liabilities
Trade and other payables *
Carrying amount of
financial liabilities
Fair value of financial liabilities
Assets available-
for-sale
Assets held-to-
maturity
Loans and other
receivables
Liabilities
measured at
amortised cost
Total carrying
amount
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
29
4,170
3,764
14,110
22,073
22,073
22,073
22,073
* Non-financial assets and liabilities are not included in the figures
135
FINANCIAL STATEMENTS
FAIR VALUE HIERARCHY
31.12.2017 EUR '000
Financial assets at fair value
Carrying amounts at the end of the reporting period
Level 1
Level 2
Level 3
Derivatives
Other financial assets
Total
Available-for-sale financial assets
Other financial assets
Financial liabilities at fair value
Derivatives
Total
31.12.2016, EUR ‘000
Financial assets at fair value
Carrying amounts at the end of the reporting period
Level 1
Level 2
Level 3
Derivatives
Other financial assets
Total
Available-for-sale financial assets
Other financial assets
Financial liabilities at fair value
Derivatives
Total
31.12.2017, EUR ‘000
Level 3 reconciliation
Acquisition cost at 1.1.2017
Acquisition cost at 31.12.2017
Accumulated impairment losses at 1.1.2017
Accumulated impairment losses at 31.12.2017
Carrying amount at 31.12.2017
136
40
40
-40
-40
0
FINANCIAL STATEMENTS
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
Interest-bearing debt
EUR '000
Non-current
Acquisition of NCI liability
Finance lease liabilities
Total
Current
Bank loans
Finance lease liabilities
Cheque account with overdraft facility
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
2017
2,517
31
2,548
1,895
109
7,389
9,393
2017
109
31
140
109
31
140
40
40
-40
-40
0
2016
0
29
29
3,515
76
173
3,764
2016
76
29
105
76
29
105
137
FINANCIAL STATEMENTS
Changes in liabilities arising from financing activities
EUR ‘000
1 January 2017
Cash flows
Acquisition
Non-current borrowings
-
-727
3,334
Current borrowings
3,688
6,384
-
Lease liabilities
105
-249
309
Foreign
exchange
movement
-90
-788
-25
Other 31 December 2017
-
2,517
-
9,284
-
140
Total liabilities from
financing activities
3,793
5,408
3,643
-903
-
11,941
EUR ‘000
1 January 2016
Cash flows
Acquisition
Foreign
exchange
movement
Other 31 December 2016
Non-current borrowings
2,975
-
-
-
-2,975
-
Current borrowings
12,111
-11,709
-
311
2,975
3,688
Lease liabilities
Total liabilities from
financing activities
22
-65
161
-13
-
105
15,108
- 11,774
161
298
-
3,793
The ‘Other’ column includes the effect of reclassification of non-current portion of interest-bearing loans and borrowings to
current due to the passage of time, the effect of accrued but not yet paid interest on interest-bearing loans and borrowings
and various other adjustments.
FINANCIAL RISKS AND RISK MANAGEMENT
The Board of Directors of Afarak Group Plc has outlined the key risks of the Group in the Board of Directors’ Report. In the
following section, the financial and commodity risks are presented in more detail with the related sensitivity analyses.
SUMMARY OF FINANCIAL ASSETS AND LOAN ARRANGEMENTS
Financial assets 31 December 2017
In addition to the operating result and the cash flow generated from it the factors described below have most significantly
affected the year-on-year change in the Group’s financial assets at the 2017 closing date:
The Group’s financial assets at the end of the reporting period increased marginally when compared to the comparative
period primarily due to advances received from financial and other institutions to the various entities forming part of the
Group.
On 31 December 2017, 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 (0.0) million. Other financial
assets comprise interest-bearing loans and other receivables.
One of the Group’s South African subsidiaries has increased its primary lending facility from ZAR 100 million as at the end of
the previous reporting period to ZAR 150 million as at the end of this reporting period. The South African subsidiary utilised
ZAR 75.9 (0.0) million as at the end of the reporting period and the Group has given a corporate guarantee amounting to
ZAR 75.0 (0.0) million as collateral.
138
FINANCIAL STATEMENTS One of the Group’s Maltese subsidiaries has been granted a trade finance loan facility amounting to US$ 5.0 million during
2016. The Maltese subsidiary utilized US$ 0.6 (0.0) million as at the end of the reporting period and the Group has given a
corporate guarantee amounting to US$ 5.0 (5.0) as collateral.
Interest-bearing debt 31 December 2017
» Floating rate loans from financial institutions total EUR 8.7 (3.5) million. Fixed rate loans total EUR 0.6 (0.2) million.
» The interest rate of the South African loans is tied to the market rate of JIBAR. The interest rate on 31 December 2017,
based on market interest rates at that date, was 6.11% (5.50%). The interest rate margin for floating rate notes was 2.25%
(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
2017, based on market interest rates at that date, was 1.56% (0.98%). The interest rate margin for floating rate notes was
3.5% (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 2017,
based on market interest rates at that date, was 1.47% (0.69%). The interest rate margin for the fixed rate notes was 0.40%
(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 66.3% (67.7%).
The Group’s loans from financial institutions include financial covenants that if breached might have a negative effect on
the financial positon of the Group. 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 financial
plans to remain within the covenant limits. The loan which was granted to Afarak Trading Limited was repaid during February
2017, while the loan which was granted to Mogale Alloys was repaid during December 2017. Thus, the Group is no longer
exposed to such financial covenants.
139
FINANCIAL STATEMENTS Financial Risk Management
In its normal operations, the Group is exposed to various financial risks. The main financial risks are liquidity risk, foreign
exchange rate risk, interest rate risk, credit risk and commodity price risk. The objective of the Group’s risk management is to
identify and, to as far as reasonably possible, mitigate the adverse effects of changes in the financial markets on the Group’s
results. The general risk management principles are accepted by Afarak Group Plc’s Board of Directors and monitored
by its Audit and Risk Management Committee. The managements of the Group and its subsidiaries’ are responsible for
the implementation of risk management policies and procedures. Group management monitors risk positions and risk
management procedures on a regular basis, and supervises that the Group’s policies and risk management principles are
followed in all day-to-day operations. Risks and risk management are regularly reported to the Audit and Risk Management
Committee.
The Group’s significant financial instruments comprise bank loans and overdrafts, finance leases, other long-term liabilities,
cash and short-term deposits and money market investments. The main purpose of these financial instruments is to finance
the Group’s acquisitions and ongoing operations. The Group also has various other financial assets and liabilities such as
trade receivables and trade payables, which arise directly from its operations.
(i) Liquidity risk
The Group regularly assesses and monitors its investment and working capital needs and financing, so that it has enough
liquidity to serve and finance its operations and pay back loans. The availability and flexibility of financing are targeted to be
guaranteed by using multiple financial institutions in the financing and financial instruments, and to agree on financial limit
arrangements.
If the liquidity risks were to be realised, it would probably result in overdue interest expenses and damage the relations with
suppliers. Consequently, the pricing and other terms for input goods and services and for financing could be affected.
The maturity distribution of the Group debt at the end of the financial year was as follows:
31.12.2017, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
1,895
140
-1,939
-140
Trade and other payables
20,585
-20,585
Bank overdraft
Acquisition of NCI liability
7,389
2,517
-7,389
-2,517
Total
32,526
-32,570
-26,613
-1,753
-55
-17,416
-7,389
0
31.12.2016, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
3,515
105
-3,674
-105
-3,430
-38
Trade and other payables
18,280
-18,280
-14,110
-106
-55
0
0
-360
-521
-164
-38
0
0
1-2
years
-80
-30
-3,168
0
-360
-3,638
1-2
years
-80
-29
-4,170
0
173
-173
-173
22,073
-22,232
-17,751
-202
-4,279
Bank overdraft
Total
140
2-5
years
More than
5 years
0
0
0
0
-1,079
-1,079
0
0
0
0
-719
-719
2-5
years
More than
5 years
0
0
0
0
0
0
0
0
0
0
FINANCIAL STATEMENTS (ii) Foreign exchange rate risk
The Group operates internationally, including in Turkey, Malta and South Africa, and is therefore exposed to foreign exchange
rate risks. The risks arise both directly from the outstanding commercial cash flows and currency positions, and indirectly
from changes in competitiveness between various competitors. The foreign exchange differences arising from inter-company
loans designated as net investments in foreign subsidiaries have been recognised in the translation reserve in the equity.
The Group is exposed to currency-derived risks that affect its financial results, financial position and cash flows. In particular
the exchange rates of US Dollar and South African Rand against the Euro have a significant impact on the Euro-denominated
profitability of the Group. The cash inflows of the business are denominated in US Dollars, whereas a significant portion of the
costs are denominated in the South African Rand. The fluctuation of the South African Rand has a significant impact on the
Group’s profit and loss as well as on the Group’s assets and liabilities. In its risk management, the Group aims to match its cash
inflows and outflows as well as receivables and liabilities in terms of the currency in which these items are denominated.
The following tables present the currency composition of receivables and debt, and changes thereby relative to the previous
year-end.
31.12.2017, EUR ‘000
EUR exchange rate
1
1.1993
0.8872
4.5464
14.8054
Cash and cash equivalents (EUR)
EUR
965
USD
8,517
GBP
101
Trade and other receivables (EUR)
4,956
21,585
Loans and other financial assets (EUR)
20,429
Trade and other current payables (EUR)
Loans and other liabilities (EUR)
-2,249
-554
-3,313
-517
TRY
53
113
198
-861
-895
ZAR
1,066
1,149
607
-10,337
-13,144
Currency exposure, net (EUR)
3,118
26,272
20,530
-1,392
-20,659
Currency exposure, net in currency ('000)
3,118
31,508
18,215
-6,330
-305,862
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 financial assets (EUR)
32,924
TRY
235
217
181
ZAR
1,815
1,346
1,108
141
FINANCIAL STATEMENTS
Trade and other current payables (EUR)
Loans and other liabilities (EUR)
-1,216
-173
-660
-3,067
-588
-154
-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
The effect on the 31 December 2017 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%.
31 December 2017
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
31 December 2016
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
Derivatives
USD
6,723
4,746
2,988
1,415
0
-1,281
-2,445
-3,508
-4,482
USD
5,748
4,057
2,555
1,210
0
-1,095
-2,090
-2,999
-3,832
GBP
5,132
3,623
2,281
1,081
0
-978
-1,866
-2,678
-3,422
GBP
8,261
5,831
3,672
1,739
0
-1,574
-3,004
-4,310
-5,507
TRY
-348
-246
-155
-73
0
66
127
182
232
TRY
-27
-19
-12
-6
0
5
10
14
18
ZAR
-5,156
-3,640
-2,292
-1,086
0
982
1,875
2,690
3,438
ZAR
-2,902
-2,048
-1,290
-611
0
553
1,055
1,514
1,934
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities
(when revenue or expense is denominated in a foreign currency).
Operative foreign currency derivatives that are valued at fair value on the reporting date cause timing differences between
the changes in the derivative’s fair values and hedged operative transactions. Changes in fair values for derivatives
designated to hedge future cash flow but are not accounted for according to the principles of hedge accounting impact the
Group’s operating profit for the financial year. The underlying foreign currency transactions will realise in future periods.
142
FINANCIAL STATEMENTS (iii) Interest rate risk
The Group is exposed to interest rate risk when Group companies take loans, or make other financing agreements or deposits
and investments related to liquidity management. In addition, changes in interest rates can alter the fair values of the Group’s
assets. The Group’s revenue and operative cash flows are mainly independent of the changes in market interest rates.
To manage interest rate risks, the Group has used both fixed and floating rate debt instruments and derivative instruments,
such as interest rate swaps, when needed. At the end of 2017, the Group’s interest-bearing debt was mainly based on
floating interest rates; and there were no interest rate swaps in place. The Group aims to match the loan maturities with the
businesses’ needs and to have the maturities spread over various periods so that the Group’s interest rate risks are somewhat
diversified. Floating rate financing is mainly tied to the market rates of different countries (United Kingdom, South Africa),
changes to which will then influence the Group’s total financing cost and cash flows.
The short-term interest-bearing receivables of the Group are mainly loan receivables and receivables on past asset disposals.
The Group’s interest-bearing liabilities have been discussed above.
The split of interest-bearing debt and receivables, also classified into fixed rate and floating rate instruments on 31 December
2017 and 31 December 2016 was as follows:
Interest rate profile of interest-bearing financial instruments (EUR '000)
Fixed rate instruments
Financial assets
Financial liabilities
Fixed rate instruments, net
Variable rate instruments
Financial assets
Financial liabilities
Variable rate instruments, net
31.12.2017
31.12.2016
3,500
-7,389
-3,889
26,792
-2,004
24,788
3,500
-212
3,288
28,300
-3,476
24,824
Interest-bearing net debt
20,899
28,112
The following table presents the approximate effect of changes in market interest rates on the Group’s income statement
should the deposits’ and loans’ interest rates change. The analysis includes floating rate financial assets and liabilities. The
sensitivity analysis is illustrative in nature and applicable for the forthcoming 12 month period if the period’s asset and
liability structure were to be equal to that of 31 December 2017, and if there were no changes in exchange rates.
143
FINANCIAL STATEMENTS 31 December 2017
Interest rate
change
Change in interest income Change in interest expense
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
-536
-402
-268
-134
0
134
268
402
536
40
30
20
10
0
-10
-20
-30
-40
31 December 2016
Interest rate
change
Change in interest income Change in interest expense
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
-566
-424
-283
-141
0
141
283
424
566
70
52
35
17
0
-17
-35
-52
-70
Net
effect
-496
-372
-248
-124
0
124
248
372
496
Net
effect
-496
-372
-248
-124
0
124
248
372
496
(iv) Credit risk
Credit risk can be realised when the counterparties in commercial, financial or other agreements cannot take care of their
obligations and thus cause financial damage to the Group. The Group’s operational policies define the creditworthiness
requirements for customers and for counterparties in financial and derivative transactions, as well as the principles followed
when investing liquidity. In the case of major sales agreements, the counterparty’s credit rating is checked.
The Group’s key customers are major international stainless steel companies, and a number of specialist agents selling to the
steel sector, with typically long and successful business histories. Since the customers represent one sector of industry, major
changes in that industry’s profitability could increase the credit risk. In order to mitigate credit risk, the Group started to
credit insure its trade receivables during the period under review.
The Board of Directors of Afarak Group Plc has determined a cash management policy for the Group’s parent company,
according to which the excess cash reserves are deposited for a short-term only and with sound financial institutions with which
the Group has established business relations. The credit rating of all significant counterparties is analysed from time to time.
During the financial year, credit losses booked through the profit and loss were EUR 0.7 (1.6) million. The maximum credit risk
is equal to the carrying value of the receivables as of 31 December, and is split as follows:
144
FINANCIAL STATEMENTS 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 associates
Long-term receivables
Interest-free, total
Total
(v) Commodity risks
EUR ‘000
31.12.2017
EUR ‘000
31.12.2016
10,702
30,116
176
40,994
22,193
2,102
4,367
2,547
31,209
9,651
31,634
166
41,451
21,508
5,671
2,925
5,926
36,030
72,203
77,481
The Group is exposed to price risks on various output and input products, materials and commodities. Also, securing the
availability of raw materials without any serious disruptions is vital to its businesses.
The price risks on input materials and commodities are managed by pricing policies so that changes in input materials
and commodities can be moved into sales prices. This, however, is not always possible or there may be delays as a result of
contractual or competitive reasons.
The Group’s units that have production operations are exposed to availability, quality and price fluctuations in raw materials
and commodities. To diminish these risks, the Group’s business units seek to enter into long-term agreements with known
counterparties; although this is not always possible due to the tradition and practice of the business. For the most part,
because it is not possible or economically feasible to hedge commodity price risks in the Group’s business sectors with
derivative contracts, the Group did not have any commodity derivative contracts in place as of 31 December 2017.
Sensitivity Analysis - Speciality Alloys business
The effect of changes in the sales price of special grade ferrochrome, produced by the Group’s Speciality Alloys business, to the
Group’s operating profit and equity is illustrated below, assuming that the EUR/USD rate were constant. The analysis is based
on December 2017 price level. Since the products are priced in USD, the exchange rate changes could have a major effect on
the Group’s profitability in EUR. Full capacity for simulation purposes is set at 36,000 t/a, and it is also assumed that only one
ferrochrome quality is produced. Various raw materials are used in ferrochrome production, including chrome concentrate and
ferrosilicochrome. The purchase prices of the main raw materials typically in the same direction as the sales prices, although
the correlation is not perfect and the timing may differ. In practice, therefore the net effect on the Group’s profitability most
probably would be lower than shown below. Electricity usage is also substantial, and hence changes in electricity prices have a
significant effect on profitability; electricity prices do not correlate with changes in commodity prices.
145
FINANCIAL STATEMENTS
FINANCIAL YEAR 2017
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
2.82
2.70
2.59
2.47
2.35
2.23
2.12
2.00
1.88
FINANCIAL YEAR 2016
Change in Sales price
(USD / lb Cr)
2.64
2.53
2.42
2.31
2.20
2.09
1.98
1.87
1.76
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
21,772
16,329
10,886
5,443
0
-5,443
-10,886
-16,329
-21,772
20,684
15,513
10,342
5,171
0
-5,171
-10,342
-15,513
-20,684
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
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
Sensitivity Analysis – FerroAlloys business
The FerroAlloys business’s smelting operation, Mogale Alloys, is able to change its product mix quite rapidly and flexibly, and
so only rough estimates on its sensitivity to commodity price changes can be given. Its full production capacity is about
110,000 metric t/a of various metal alloys. Assuming, for simplicity, that all of the Mogale capacity was used for charge
chrome production only, and using the year-end 2017 sales price indications for charge chrome, the following table represents
a rough proxy of the sales price sensitivities. It should also be taken into account that the profitability of the smelting
operations can be substantially impacted by changes in the USD and ZAR exchange rates and in electricity prices, as well as
changes in market prices. In South Africa the majority of the electricity supply, price and availability are controlled by one
entity, Eskom. Mogale Alloys may participate in Eskom’s electricity buyback program in the foreseeable future.
146
FINANCIAL STATEMENTS FINANCIAL YEAR 2017
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
1.06
1.01
0.97
0.92
0.88
0.84
0.79
0.75
0.70
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
18,150
13,613
9,075
4,538
0
-4,538
-9,075
-13,613
-18,150
13,068
9,801
6,534
3,267
0
-3,267
-6,534
-9,801
-13,068
FINANCIAL YEAR 2016
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
1.44
1.38
1.32
1.26
1.20
1.14
1.08
1.02
0.96
15. INVENTORIES
EUR '000
Goods and supplies
Unfinished products
Finished products
Total
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
2017
14,252
151
35,541
49,944
2016
21,552
83
26,789
48,424
147
FINANCIAL STATEMENTS 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
2017
22,193
476
11,437
6,502
2,833
5,993
49,434
2016
21,508
487
3,512
3,664
2,699
4,422
36,292
Prepaid expenses and accruals mainly relate to rental contracts, personnel expenses, VAT receivables and accrued interest
for loans. The values of receivables at the end of the reporting period closely correspond to the monetary value of maximum
credit risk, excluding the fair value of received guarantees, in the potential case where the counterparties cannot fulfil their
commitments.
The aging of trade receivables at the end of the reporting period
EUR '000
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 90 days
Total
17. CASH AND CASH EQUIVALENTS
EUR '000
Cash and bank balances
Pledged deposits
Cash and cash equivalents in the consolidated statement of cash flows:
EUR ‘000
Cash and bank balances
Short-term money market investments
Total
148
2017
16,469
5,629
-298
43
350
22,193
2017
10,500
3
2017
10,500
202
10,702
2016
11,624
8,108
651
211
914
21,508
2016
9,609
3
2016
9,609
42
9,651
FINANCIAL STATEMENTS 18. NOTES TO EQUITY
Number of
registered shares
Number
of shares
on issue
Share
capital,
EUR '000
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
Subscriptions based on share based payment
0
390,556
0
31.12.2017
263,040,695
259,686,534
23,642
There is no nominal value for the Company’s share.
The equity reserves are described below:
SHARE PREMIUM RESERVE
Related to the old Finnish Companies Act, the Company has a share premium reserve in relation to old share issues, where
the premium in excess of the par value of the shares subscribed has been recognised in the share premium reserve.
PAID-UP UNRESTRICTED EQUITY RESERVE
Paid-up unrestricted equity reserve comprises other equity investments and subscription price of shares to the extent that it
is not recognised in the share capital based on a specific decision.
TRANSLATION RESERVE
The translation reserve comprises all foreign currency differences arising from the translation of financial statements of
foreign operations.
TREASURY SHARES
On 31 December 2017 the Company had altogether 3,354,161 (3,744,717) of its own shares, which was equivalent to 1.27 (1.42)
% of all registered shares. The total number of shares outstanding, excluding the treasury shares held by the Company on 31
December 2017 was 259,686,534 (259,295,978).
The Company’s subsidiaries do not hold any of Afarak Group Plc’s shares.
149
FINANCIAL STATEMENTS SHARE ISSUE AUTHORISATIONS GIVEN TO THE BOARD OF DIRECTORS
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.
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 financial year 2017, the price of Afarak Group’s share in London Stock Exchange varied between GBP 0.55 (0.28)
and GBP 0.93 (0.38) and in NASDAQ Helsinki between EUR 0.72 (0.39) and EUR 1.15 (0.90). Afarak’s share closed in London at
the end of the financial year at GBP 0.73 (0.38) and Helsinki at EUR 0.85 (0.78). 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 190.7 (98.6) million and
EUR 222.3 (203.9) million.
A total of 66,112 (2,451,925) Afarak shares were traded in London and 64,867,107 (36,108,050) shares in Helsinki during the
financial year, representing 0.03% (0.93%) of stock in London and 24.66% (13.73%) in Helsinki.
SHAREHOLDERS
On 31 December 2017, the Company had a total of 6,525 shareholders (5,140 shareholders on 31 December 2016), of which
eight were nominee-registered. The registered number of shares on 31 December 2017 was 263,040,695 (263,040,695).
LARGEST SHAREHOLDERS ON 31 DECEMBER 2017
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 Suokas Petri Kristian
10 Clearstream Banking S.A.
Total
Other Shareholders
Total shares registered
Shares
155,877,326
36,991,903
12,541,123
9,000,000
6,916,116
3,602,905
3,354,161
1,902,038
1,450,000
1,092,263
232,727,835
30,312,860
263,040,695
%
59.3 %
14.1 %
4.8 %
3.4 %
2.6 %
1.4 %
1.3 %
0.7 %
0.6 %
0.4 %
88.6 %
11.4 %
100.0%
*According to the flagging notification 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.
150
FINANCIAL STATEMENTS
Afarak Group Plc’s Board members and Chief Executive Officer owned in total 325,000 (8,266,116) Afarak Group Plc shares on
31 December 2017, including shares owned either directly, through persons closely associated with them or through controlled
companies. This corresponds to 0.1% (3.2%) of the total number of registered shares on 31 December 2017.
SHAREHOLDERS BY CATEGORY 31 DECEMBER 2017
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
1,036
2,890
2,154
394
41
7
3
6,525
8
15.88
44.29
33.01
6.04
0.63
0.11
0.05
59,443
1,520,626
7,483,973
10,510,553
10,738,265
27,317,483
205,410,352
100.00
263,040,695
0.12
159,841,837
263,040,695
0.02
0.58
2.85
4.00
4.08
10.39
78.09
100.00
60.77
100.00
SHAREHOLDERS BY SHAREHOLDER TYPE ON 31 DECEMBER 2017
Finnish shareholders
of which:
Companies and business enterprises
Banking and insurance companies
Households
Foreign shareholders
Total
of which nominee-registered
19. SHARE-BASED PAYMENTS
% of share capital
21.68%
67.16%
0.52%
13.99%
78.32%
100.00%
63.61%
The Company had an incentive-related option scheme, I/2011 which expired on 1 August 2017 and no options were exercised.
The scheme was granted to the key personnel of the Company, as recommended by the Board. The scheme entitled the
option holders to subscribe for a maximum of 6,900,000 shares in the Company. The vesting period was from 1 July 2014 to
1 August 2017 for various option series denoted with different letters and years. The share subscription price was calculated
by a formula based on the Volume Weighted Average Price of the Company’s share and varied between the option series. All
options have been treated according to the principles set forth in IFRS 2 Share-based Payments standard. The main terms of
the option arrangements are detailed in the table below.
151
FINANCIAL STATEMENTS
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 first 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 were given in
December 2017 prorate over the second year which resulted to 335,000 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.
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 first 500,000 Company shares fell due to be received 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 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 0.81 per share. The value at year end was EUR 582,534.25.
In July 2017 the Group has granted Alistair Ruiters Incentive shares in the company amounting to 400,000 shares, which will be
given pa on each completed year of service commencing on the effective date. The value at year end was EUR 173,413.70.
Share options
granted to
employees in 2012
Share options
issued
1.4.2012
6,191,998
I/2011
1.7.2014-1.8.2017
yes
0.00 - 0.86
0.90
1.1 - 3.1
Employment until
the vesting date
and target share
price
In shares
45 %
5.3 years
2.24%
0.00%
0.14-0.46
Up and in Call
Share option plan
Nature of the plan
Grant date
Number of options
Options series
Exercise period
Dividend adjustment
Exercise price (with dividend and capital
redemption adjustment)
Share price at grant date
Option life
Conditions
Execution
Expected volatility
Expected option life at grant date (years)
Risk free rate, Euribor 12 months
Expected dividend yield
Fair value at grant date (EUR)
Valuation model
152
FINANCIAL STATEMENTS 153
FINANCIAL STATEMENTS Changes in share options issued and in weighted average exercise prices:
At the beginning of 2016
At the end of 2016
Exercisable at the end of 2016
At the beginning of 2017
Forfeited options
At the end of 2017
Exercisable at the end of 2017
Weighted average exercise price (with
dividend and capital redemption
adjustment)
EUR/share
0.26
0.26
0.26
0.26
0.26
0.00
0.00
Number of options
6,191,998
6,191,998
2,100,000
6,191,998
-6,191,998
0
0
The exercise price of share options forfeited in 2017 was as presented below:
Year of forfeiting
2017
Exercise price (EUR)
Number of shares
0.00-0.86
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 2017
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
31.12.2016
Exchange rate
differences
Recognised
in income
statement
31.12.2017
1,530
821
1,124
964
4,439
4,846
1,011
5,857
-6
-68
-66
-140
-126
-30
-156
897
-144
-1,125
-286
-658
-686
-555
-1,241
2,421
677
-69
612
3,641
4,034
426
4,460
154
FINANCIAL STATEMENTS Movements in deferred taxes in 2016
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 1.1.2017
Additions
Releases and reversals
Unwinding of discount
Exchange differences
Balance at 31.12.2017
EUR ‘000
Long-term provisions
Short-term provisions
Total
31.12.2015
Exchange rate
differences
Recognised
in income
statement
31.12.2016
608
815
1,127
710
3,260
4,947
1,002
5,949
-12
-35
-47
704
120
824
934
6
-3
289
1,226
-805
-111
-916
Environmental and
rehabilitation provisions
Other provisions
9,647
3
-1,639
688
-391
8,308
2017
9,180
109
9,289
1,143
360
-377
0
-145
981
2016
10,691
99
10,790
1,530
821
1,124
964
4,439
4,846
1,011
5,857
Total
10,790
363
-2,016
688
-536
9,289
The long-term provisions in the statement of financial 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
Defined benefit pension plans
The majority of the Group’s pension plans are defined contribution plans for which a total expense of EUR 0.7 (0.8) million
has been recognised on the 2017 statement of comprehensive income. In addition, the Group’s German subsidiary has
defined benefit plans. The obligations relating to the plans have been defined by actuarial calculations.
155
FINANCIAL STATEMENTS The pension scheme is arranged by recognising a provision on the statement of financial position. The present value of the
obligation less fair value of plan assets totalled EUR 19.9 (20.1) million on 31 December 2017. 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 BENEFIT OBLIGATION
EUR '000
Present value of funded obligation
Fair value of plan assets
Net liability
MOVEMENTS IN DEFINED BENEFIT OBLIGATION
EUR '000
Defined benefit obligations at 1.1.
Benefits paid
Current service costs
Interest expense
Actuarial losses / (gains)
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
Benefits paid by the plan
Return on plan assets greater/(less) than discount rate
Contributions paid into the plan
Closing balance at 31.12.
2017
26,007
-6,071
19,936
2017
25,896
-836
389
446
112
26,007
2017
5,799
103
-154
-83
406
6,071
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
The funded pension plan has been financed through an insurance company and therefore asset specification is not available.
156
FINANCIAL STATEMENTS EXPENSE RECOGNISED IN STATEMENT OF COMPREHENSIVE INCOME
EUR '000
Current service cost
Net interest on net defined benefit 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 (0.08) million in 2017.
PRINCIPAL ACTUARIAL ASSUMPTIONS
Discount rate
Expected retirement age
Expected return on plan assets
Expected rate of salary increase
Inflation
2017
-389
-342
-731
2017
198
83
-85
196
2017
1.77 %
63
0.34 %
3.00 %
2.25 %
2016
-364
-402
-766
2016
-205
-81
1,895
1,609
2016
1.75 %
63
3.69 %
3.00 %
2.25 %
The expected retirement age has been assumed to be in accordance with German legislation (RVAGAnpG 2007). Similarly,
the expected pension increases have been assumed to be in line with the German legislation, and 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 2017, the employee severance indemnity recognised in accordance with IAS 19 totalled EUR 0.6 (0.8) million.
23. TRADE PAYABLES AND OTHER INTEREST-FREE LIABILITIES
EUR ‘000
Non-current
Other liabilities
Total non-current
2017
3,168
3,168
2016
4,170
4,170
157
FINANCIAL STATEMENTS 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 2017
Name
Afarak Commodities Ltd
Afarak doo Belgrade
Afarak Holdings Ltd
Afarak Investments Ltd
Afarak Mining Ltd
Afarak Mogale (Pty) Ltd
Afarak Processing Technologies (Pty) Ltd
Afarak Services Sagl
Afarak South Africa (Pty) Ltd
Afarak Trading Ltd
Auburn Avenue Trading 88 (Pty) Ltd
Destiny Spring Investments 4 (Pty) Ltd
Destiny Spring Investments 11 (Pty) Ltd
Destiny Spring Investments 12 (Pty) Ltd
Duoflex (Pty) Ltd
Elektrowerk Weisweiler GmbH
Intermetal Madencilik ve Ticaret A.S.
LP Kunnanharju Oy
Metal ve Maden ic ve Dis Pazarlama Tic Ltd, Sti
Rekylator Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
ZCM Holdco One (Pty) Ltd
158
5
16,402
655
4,652
0
2,934
356
25,004
6
13,291
339
4,349
200
4,655
274
23,114
Country of
incorporation
Group's
ownership and
share of votes
(%)
Afarak Group
Plc's direct
ownership and
share of votes
(%)
Malta
Serbia
Malta
Malta
South Africa
South Africa
South Africa
Switzerland
South Africa
Malta
South Africa
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Turkey
Finland
Finland
Turkey
South Africa
100.00
100.00
100.00
100.00
100.00
92.30
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
100.00
100.00
98.75
51.00
0.00
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
0.00
100.00
100.00
98.75
0.00
FINANCIAL STATEMENTS Joint ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
51.00
51.00
37.74
41.05
44.24
0.00
0.00
0.00
0.00
0.00
Afarak Mogale (Pty) Ltd entered into an agreement to buy back 100 ordinary shares currently held by the trustees as part of
the Mogale Alloys Trust. These shares constitute an effective 10% of the issued share capital of the company and will be bought
back in a series of buy backs over a period of 8 years. During the current year Afarak Mogale (Pty) Ltd repurchased 23 ordinary
shares held by the Mogale Alloys Trust. However, in Afarak Group, 100% of Afarak Mogale (Pty) Ltd is being consolidated.
Rekyaltor Invest Oy and Rekylator Wood Oy were merged with Rekylator Yhtiöt Oy during the year 2017.
1.8.2 RELATED PARTY TRANSACTIONS
Afarak Group Plc defines the related parties as:
• companies, entities or persons having common control or considerable voting power in Afarak Group
• subsidiaries
• joint ventures
• associates
• Afarak Group Plc’s and the above mentioned entities’ top management
Related party transactions with persons belonging to the Group’s Board and management
Finnish accounting legislation, KPA 2:8 § 4 paragraph disclosure requirement
2017
2016
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
EUR ‘000
CEO
Ruiters Alistair
Board member 8.5.2015 - 23.5.2017,
CEO 21.5.2015 - 15.1.2017
14
Konsbruck Guy
CEO 15.1.2017 onwards
Board Members
Abrahamsen
Thorstein
Board member 23.5.2017 onwards
Djakov Milan
Board member 12.5.2016 - 23.5.2017
Hoyer Thomas
Board member 23.5.2017 onwards
Jakovcic Ivan
Board member 8.5.2015 onwards,
Chairman 12.5.2016 - 05.2.2018
Kankaala Markku
Board member 30.6.2003 -17.3.2017
415
36
24
36
65
15
360
178
145
583
35
68
60
159
FINANCIAL STATEMENTS Lillja Michael
Board member 11.2.2013 - 12.5.2016
54
Manojlovic Jelena
Parodi Afredo
Board member 11.7.2008 onwards,
Chairman 5.2.2018 onwards
Board member 11.2.2013 – 12.5.2016,
Chairman 8.5.2015 – 12.5.2016
Rourke Barry
Board member 8.5.2015 onwards
Scott Keith
Board member 12.5.2016 - 9.12.2016
67
85
60
26
80
35
Total
14
743
728
414
363
178
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.
During 2017, the Company paid the CEO EUR 345,000 for his service and a signing bonus of EUR 70,000. The Company also
paid a salary of EUR 14,000 to the outgoing CEO.
The CEO shall also receive 500,000 Company Shares as an incentive for each completed year of service acting as the Chief
Executive Officer, the first 500,000 Company shares fell due to be received on 15 January 2018 and the second 500,000
shares shall be received on 15 January 2019 if he is still acting as CEO at that time.
In December 2017 the outgoing CEO received 335,000 Company Shares prorate over the second year of service acting as the
Chief Executive Officer. He is not entitled to any bonus plans or severance pay in addition to the salary for the notice period.
In July 2017 the Group has granted Alistair Ruiters Incentive shares in the company amounting to 400,000 shares, which will
be given pa on each completed year of service commencing on the effective date.
Management remuneration
EUR ‘000
Fixed salaries and fees
Provision for variable performance related compensation
Total
2017
482
195
677
2016
366
0
366
The table includes the Executive Management Team remuneration excluding the CEO. The CEO and Board members
compensation has been presented separately.
During 2017 the Company introduced a bonus incentive scheme for the CFO and COO and shall each potentially receive an
annual bonus equal to 0.5% of the Company’s reported full year EBITDA, calculated before the effects of the Company Bonus
Incentive Scheme deductions as an incentive for each completed year of service. The bonus will become effective if the
Group’s EBITDA, before the bonus incentive scheme, will improve by at least 15% over the average of the preceding two years.
FINANCING ARRANGEMENT WITH RELATED PARTIES
The Group has a EUR 18.7 (28.1) million loan receivable and EUR 14.0 (8.5) 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 0.7
(0.3) million. Interest income from a joint venture company totalled EUR 0.9 (0.8) million during the financial year 2017.
The Group had on 31 December 2017 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 1.1 (0.4)
million. The Group has also made raw material purchases from a joint venture amounting to EUR 19.2 (4.6) million.
160
FINANCIAL STATEMENTS
Dividends received from associated companies totalled EUR 0.0 (0.0) million.
On 31 December 2017 the Group’s parent company had short-term loan receivables from the members of the Board
amounting to EUR 0.0 (0.0) million.
During 2017, a subsidiary of the Company, signed a Share Purchase Agreement with Mr Guy Konsbruck, Afarak’s CEO to
purchase his 15% shareholding for a purchase price of EUR 0.2 million. Given that LL Resources is a business partner of Afarak
and the share ownership of the CEO could have created a conflict of interest, Afarak bought the shareholding with an option
to sell back the said shares at the same price if, and when, Mr Konsbruck’s term as Group CEO ends.
1.9 COMMITMENTS AND CONTINGENT LIABILITIES
1.9.1 MORTGAGES AND GUARANTEES PLEDGED AS SECURITY
On 31 December 2017 the Group had loans from financial institutions totalling EUR 9.3 (3.7) million. The Group has provided real
estate mortgages and other assets as collaterals for total carrying value of EUR 1.8 (48.8) million. Moreover, the Group companies
have given cash deposits totalling EUR 0.3 (0.1) million as security for their commitments. The value of other collaterals totalled EUR
9.2 (4.7) million as at 31 December 2017. Afarak Group Plc has given guarantees for third party loans totalling EUR 0.0 (0.2) 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 2017 the balance was US$ 0.0 (EUR 0.0) million. The Group’s South African subsidiary, Mogale Alloys also had bank
facilities with local banks amounting to ZAR 0.0 (EUR 0.0) million at year end. The Group’s loans from financial institutions
include financial covenants that if breached might have a negative effect on the financial positon of the Group. The loan
which was granted to Afarak Trading Limited was repaid during February 2017, while the loan which was granted to Mogale
Alloys was repaid during December 2017. Thus, the Group is no longer exposed to such financial covenants.
1.9.3 RENTAL AGREEMENTS
Liabilities associated with rental and operating lease agreements totalled some EUR 0.4 (0.4) million for the period.
Typically, the rental agreements maturity varies between two to five years, and normally there is a possibility to continue
these agreements beyond the original maturity date. For these contacts, their price indexing, renewal and other terms
differ contract by contract. As guarantees for these rental agreements, the Group companies have made cash deposits of
approximately EUR 0.0 (0.0) million as at 31 December 2017.
1.9.4 COLLATERALS GIVEN BY AFARAK GROUP PLC TO THIRD PARTIES
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 2017 the indebtedness subject to these guarantees was EUR 0.0 (0.2) million in aggregate.
1.10 EVENTS AFTER THE REPORTING PERIOD
On 1 February 2018, Afarak Group has received a notification from a group of shareholders, representing 10.86% of shares
and voting rights, that they withdrew their demand for an extraordinary general meeting and demand for resolutions and
proposals for decisions they had presented on the 8th November 2017. The resolutions presented by the shareholders and
inserted as Agenda items 9, 10 and 11 in the invitation to the Extraordinary General Meeting published on 15th December 2017
that were withdrawn are:
•
•
•
Agenda Item 9. Demand for conducting a special audit in the Company
Agenda Item 10. Dismissal of the Board of Directors.
Agenda Item 11. Election of a new Board of Directors.
161
FINANCIAL STATEMENTS On 1 February 2018, the Nomination and Remuneration Committee of Afarak Group proposed to the Annual General Meeting
that Dr Jelena Manojlovic, Ivan Jakovcic, Thorstein Abrahamsen and Barry Rourke will be re-elected. The Committee also
proposed Guy Konsbruck, the current CEO, to replace Thomas Hoyer who was not seeking re-election.
On 1 February 2018, the Company received a copy of a letter sent by Joensuun Kauppa ja Kone Oy to the Finnish Financial
Supervisory Authority informing it that it is withdrawing from the petition presented by a group of shareholders on 18
September 2017. Out of the group of shareholders holding 10.79 per cent shareholding that presented the petition, Joensuun
Kauppa ja Kone Oy held 4.73 per cent.
On 5 February 2018, the Company held its Extraordinary General Meeting. The resolutions presented by a minority group
of shareholders related to the demand for conducting a special audit and the dismissal of the Board of Directors were
withdrawn. The EGM resolved that the Board of Directors would start working on preparing a plan for delisting from the
Helsinki Stock Exchange. The EGM resolved that the Board of Directors would comprise of five (5) members: Dr Jelena
Manojlovic (UK citizen), Mr Barry Rourke (UK citizen), Mr Ivan Jakovcic (Croatian citizen) and Mr Thorstein Abrahamsen
(Norwegian citizen) were reelected. Mr Guy Konsbruck (Luxembourg citizen) was elected. Following the EGM, the Board of
Directors held a meeting in which Dr Jelena Manojlovic was unanimously reappointed as the Chairman.
On 22 February 2018, the Company announced that it had received a communication from FIN-FSA.
On 14 March 2018, the Company announced that its application for new order mining right on its Vlakpoort site has been
granted in terms of Section 23(1) of the Mineral and Petroleum Resources Development Act, 2002 (Act 28 of 2002) as
amended by Mineral and Petroleum Resources Development Amended Act, 2008 (Act 49 of 2008 by the Department of
Mineral Resources (DMR) in 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 was acquired in 2011 after the prospecting right was granted to Destiny
Springs Investments 11 a subsidiary of Afarak by the DMR. Since then, extensive exploration work was conducted which
included geological drilling, trenching and bulk sampling of the LG5 and LG 6 seams. The property has a minimum proven
resource of 6.656m tons of chrome and 330,314 ounces of PGMs. This includes the underground potential. The resource
consists of the LG1-6, MG1-4 and the UG1- 2 and Merensky reefs.
162
FINANCIAL STATEMENTS Parent Company’s
Financial Statements
INCOME STATEMENT (FAS)
EUR '000
Revenue
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:
Dividend from subsidiaries
Other financial income
From Group companies
From others
Interests and other financial expenses
To Group companies
To others
Impairment of intra-group receivable
Financial income and expenses total
Loss before taxes
Income taxes
Income taxes
Loss for the year
Note
1
1.1. - 31.12.2017
1.1. - 31.12.2016
2,116
1,482
2
3
4
5
-1,922
1
-1
0
-1,922
-1
-1
-2,011
-1,818
800
1,123
50
-51
-59
-5,111
-3,248
-5,066
0
-5,066
-1,041
-8
-19
-27
-1,068
-12
-12
-2,265
-1,863
0
1,882
20
-51
-174
0
1,677
-186
0
-186
163
FINANCIAL STATEMENTS Parent Company’s
Financial Statements
STATEMENT OF FINANCIAL POSITION (FAS)
EUR '000
ASSETS
Non-current assets
Property, plant and equipment
Machinery and equipment
Total property, plant and equipment
Investments
Shares in Group companies
Receivables from Group companies
Total investments
Total non-current assets
Current assets
Receivables
Non-current receivables
Receivables from Group companies
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
164
Note
31.12.2017
31.12.2016
6
7
8
0
0
215,931
2,904
218,835
218,835
38,782
38,782
1
11,212
477
8
13
17
11,728
40
1
1
215,931
8,015
223,946
223,947
43,105
43,105
1
9,667
1,166
31
3
13
10,881
291
50,550
54,277
269,385
278,224
FINANCIAL STATEMENTS Parent Company’s
Financial Statements
STATEMENT OF FINANCIAL POSITION (FAS) (CONT.)
EUR '000
Note
31.12.2017
31.12.2016
EQUITY AND LIABILITIES
Shareholders’ Equity
Share capital
Share premium reserve
Paid-up unrestricted equity reserve
Retained earnings
Loss for the period
Total shareholders' equity
Liabilities
Non-current liabilities
Liabilities to Group companies
Total non-current liabilities
Current liabilities
Liabilities to Group companies
Accounts payable
Accounts payable to Group companies
Other liabilities
Accrued expenses and deferred income
Total current liabilities
Total liabilities
9
10
23,642
25,223
236,071
-14,140
-5,066
265,730
1,248
1,248
1,212
35
155
38
967
2,407
3,655
23,642
25,223
241,257
-13,953
-186
275,983
1,248
1,248
162
11
150
458
212
993
2,241
Total equity and liabilities
269,385
278,224
165
FINANCIAL STATEMENTS Parent Company’s
Financial Statements
STATEMENT OF CASH FLOWS (FAS)
EUR '000
1.1. - 31.12.2017
1.1. - 31.12.2016
Operating activities
Loss for the year
Adjustments for:
Depreciation and amortisation
Impairment, net
Unrealised foreign exchange gains and losses
Finance income and expense
Cash flow before working capital changes
Working capital changes:
Change in current trade receivables
Change in current non interest-bearing debt
Cash flow before financing items and taxes
Interests received from Group companies
Interests received and other financing items
Interests paid and other financing items
Income taxes paid
Net cash used in operating activities
Investing activities
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 from financing activities
Change in cash and cash equivalents
Cash at beginning of period
Cash at end of period
Change in the statement of financial position
166
-5,066
1
5,111
17
-1,081
-1,018
-835
358
-1,495
443
53
-60
0
-1,059
0
0
5,000
-11
1,000
5
-5,186
808
-251
291
40
-251
-186
12
-809
142
-894
-1,735
6
8
-1,721
945
20
-225
34
-947
2
2
5,719
84
0
6
-5,176
633
-312
603
291
-312
FINANCIAL STATEMENTS 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 financial income.
The value of property, plant and equipment in the statement of financial position is stated at acquisition cost,
less accumulated depreciation. Other assets have been stated in the statement of financial 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 defined based on practice and experience
Asset
Intangible rights
IT equipment
Other machinery and equipment
Depreciation Method & Period
5 years straight line
2 years straight line
5 years straight line
TRANSLATIONS OF FOREIGN CURRENCY ITEMS
Items in the statement of financial 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 financial year and the previous year were both calendar years and are thus comparable. The Company
has been actively restructuring its business, which has required various ownership and financial arrangements. The
transactions have had significant non-recurring effects on the Company’s income statement and statement of
financial position, which make comparison of financial statements and estimating the future more difficult.
167
FINANCIAL STATEMENTS 2.2 Notes to the income statement
1. REVENUE
EUR '000
By business line:
Services
Total
By geography:
Finland
EU countries
Other countries
Total
2017
2,116
2,116
3
1,147
966
2,116
2016
1,482
1,482
3
786
693
1,482
2. DEPRECIATION, AMORTISATION AND IMPAIRMENT
EUR '000
2017
2016
Depreciation and amortisation according to plan
Machinery and equipment
Total
3. OTHER OPERATING EXPENSES
EUR '000
Voluntary employee benefits
Premise expenses
Machinery and equipment expenses
Travelling expenses
Administration expenses
Other operating expenses
Total
4. FINANCIAL INCOME AND EXPENSE
EUR '000
Dividend from Group companies
Other financial income
From Group companies
From others
Other financial expense
To Group companies
To others
Impairment of intra-group receivables
Total
168
-1
-1
2017
-1
-11
-33
-175
-1,727
-64
-2,011
2017
800
1,123
50
-51
-59
-5,111
-3,248
-12
-12
2016
-72
-20
-77
-54
-1,762
-279
-2,265
2016
0
1,882
20
-51
-175
0
1,676
FINANCIAL STATEMENTS 5. INCOME TAXES
EUR '000
Loss 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
2.3 NOTES TO ASSETS
6. NON-CURRENT 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.
7. INVESTMENTS
Acquisition cost 1.1.2017
Acquisition cost 31.12.2017
Accumulated depreciation and
impairment 1.1.2017
Impairment charge
Accumulated depreciation and
impairment 31.12.2017
Book value 31.12.2017
2017
-5,066
4,316
-750
0
0
0
0
0
0
20156
-186
-784
-970
0
0
0
0
0
0
2017
2016
275
0
275
274
1
275
0
Shares in Group
companies
Shares in associated
companies
Receivables from
Group companies
285,979
285,979
-70,048
0
-70,048
215,931
8,153
8,153
-8,153
0
-8,153
0
19,618
19,618
-11,603
-5,111
-16,714
2,904
277
-2
275
263
11
274
1
Total
313,750
313,750
-89,804
-5,111
-94,915
218,835
169
FINANCIAL STATEMENTS 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 Commodities Ltd
Afarak doo Belgrade
Afarak Holdings Ltd
Afarak Investments Ltd
Afarak Mining (Pty) Ltd
Afarak Mogale (Pty) Ltd
Afarak Processing Technologies (Pty) Ltd
Afarak Services Sagl
Afarak South Africa (Pty) Ltd
Afarak Trading Ltd
Auburn Avenue Trading 88 (Pty) Ltd
Destiny Spring Investments 4 (Pty) Ltd
Destiny Spring Investments 11 (Pty) Ltd
Destiny Spring Investments 12 (Pty) Ltd
Duoflex (Pty) Ltd
Elektrowerk Weisweiler GmbH
Intermetal Madencilik ve Ticaret A.S.
LP Kunnanharju Oy
Metal ve Maden ic ve Dis Pazarlama Tic Ltd, Sti
Rekylator Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
ZCM Holdco One (Pty) Ltd
Joint Ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
Malta
Serbia
Malta
Malta
South Africa
South Africa
South Africa
Switzerland
South Africa
Malta
South Africa
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Turkey
Finland
Finland
Turkey
South Africa
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
100.00
100.00
100.00
100.00
100.00
92.30
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
100.00
100.00
98.75
51.00
51.00
51.00
37.74
41.05
44.24
0.00
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
0.00
100.00
100.00
98.75
0.00
0.00
0.00
0.00
0.00
0.00
Afarak Mogale (Pty) Ltd entered into an agreement to buy back 100 ordinary shares currently held by the trustees as
part of the Mogale Alloys Trust. These shares constitute an effective 10% of the issued share capital of the company
and will be bought back in a series of buy backs over a period of 8 years. During the current year Afarak Mogale (Pty)
Ltd repurchased 23 ordinary shares held by the Mogale Alloys Trust. However, in Afarak Group, 100% of Afarak Mogale
(Pty) Ltd is being consolidated.
Rekyaltor invest Oy and Rekylator Wood Oy were merged with Rekylator Yhtiöt Oy during the year 2017.
170
FINANCIAL STATEMENTS 8. RECEIVABLES
EUR '000
Receivables from group companies
Non-current
Loan and other receivables
Total
Current
Loan receivables
Trade receivables
Interest receivables
Prepayments and accrued income
Total
Other interest-bearing receivables
EUR ‘000
Current
Loan receivables
VAT receivable
Total
Other interest-free receivables
EUR ‘000
Current
Trade receivables
Receivables from associated companies
Other receivables
Total
Prepaid expenses and accrued income
EUR ‘000
Accrued interest income
Other prepaid expenses and accrued income
Total
2017
2016
38,782
38,782
7,304
3,073
8
827
11,212
43,105
43,105
7,304
2,345
3
15
9,667
2017
2016
8
10
18
2017
1
477
3
481
2017
1
16
17
12
19
31
2016
1
1,166
3
1,170
2016
1
12
13
171
FINANCIAL STATEMENTS 2.4 NOTES TO EQUITY & LIABILITIES
9. 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.
Capital redemption to the shareholders
Paid-up unrestricted equity reserve 31.12
Retained earnings
Retained earnings 1.1.
Loss for the previous financial year
Retained earnings 31.12.
Loss for the financial year
Total shareholders’ equity
Distributable funds
Retained earnings 1.1.
Loss for the financial year
Retained earnings 31.12.
Paid-up unrestricted equity reserve
Distributable funds 31.12.
2017
23,642
23,642
2017
25,223
25,223
2017
241,257
-5,186
236,071
2017
-13,954
-186
-14,140
-5,066
2016
23,642
23,642
2016
25,223
25,223
2016
246,433
-5,176
241,257
2016
-13,839
-115
-13,954
-186
265,730
275,983
2017
-14,140
-5,066
-19,206
236,071
216,865
2016
-13,953
-186
-14,139
241,527
227,388
172
FINANCIAL STATEMENTS 10. LIABILITIES
Non-current liabilities
EUR ‘000
Non-current interest bearing debt
Loans from Group 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
2017
1,248
1,248
2017
50
50
2017
35
155
38
1,162
967
2,357
2016
1,248
1,248
2016
50
50
2016
11
150
458
112
212
942
OPTION RIGHTS
The Company’s option schemes are presented in the notes to the consolidated financial statements. The Company had an
option scheme I/2011 (maximum 6,900,000 shares) which expired on 1 August 2017.
173
FINANCIAL STATEMENTS 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
31.12.2017
31.12.2016
9.2
0.0
9.2
3.1
0.2
3.3
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 8 (13)
thousand.
Information on the personnel
Personnel, annual average
(all employees)
Employees
Management remuneration
Chief Executive Officer
Board members
2017
1
2017
429
328
2016
3
2016
360
363
During 2017, the Company paid the CEO EUR 345,000 for his service and a signing bonus of EUR 70,000. The Company also
paid a salary of EUR 14,000 to the outgoing CEO.
The CEO shall also receive 500,000 Company Shares as an incentive for each completed year of service acting as the Chief
Executive Officer, the first 500,000 Company shares fell due to be received on 15 January 2018 and the second 500,000
shares shall be received on 15 January 2019 if he is still acting as CEO at that time.
In December 2017 the outgoing CEO received 335,000 Company Shares prorate over the second year of service acting as the
Chief Executive Officer. He is not entitled to any bonus plans or severance pay in addition to the salary for the notice period.
In July 2017 the Group has granted Alistair Ruiters Incentive shares in the company amounting to 400,000 shares, which will
174
FINANCIAL STATEMENTS be given pa on each completed year of service commencing on the effective date.
INFORMATION ON SHARES AND SHAREHOLDERS
Changes in the number of shares and share capital
On 31 December 2017, 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 2017, the Company had 3,354,161 (3,744,717) own shares in treasury, which was equivalent to 1.27% (1.42%)
of the issued share capital. The total amount of shares outstanding, excluding the treasury shares held by the Company on 31
December 2017, was 259,686,534 (259,295,978).
In December 2017, Afarak transfered 335,000 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 2017 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 financial
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 Officer owned in total 325,000 (8,266,116) Afarak Group Plc shares
on 31 December 2017 when including shares owned either directly, through persons closely associated with them or through
controlled companies. This corresponds to 0.1% (3.2%) of all outstanding shares that were registered in the Trade Register on
31 December 2017.
31.12.2017
Board and CEO total:
Jelena Manojlovic
Barry Rourke
Ivan Jakovcic
Thomas Hoyer
Chairman & Dependent
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Thorstein Abrahamsen
Non-Executive Director
Board and CEO total
All shares outstanding
Proportion of all shares
Shares
Options
150,000
150,000
0
25,000
0
325,000
0
0
0
0
0
0
263,040,695
263,040,695
0.1 %
0.0 %
On 31 December 2017 the total number of registered shares was 263,040,695 and the Board and CEO’s ownership
175
FINANCIAL STATEMENTS corresponded to 0.1% of the total number of registered shares.
Auditor’s fees
EUR ‘000
Ernst & Young Oy
Audit
Other services
Total
2017
184
4
188
2016
189
51
240
BOARD’S DIVIDEND PROPOSAL
In 2018 the Board of Directors will propose to the Annual General Meeting that the Annual General Meeting would authorise
the Board to resolve on its discretion on the payment of capital redemption up to a maximum of two cents per share in
quarter four 2018.
176
FINANCIAL STATEMENTS Signatures to the Board of Directors
Report and the Financial Statements
HELSINKI 29 MARCH 2018
JELENA MANOJLOVIC
Chairman
GUY KONSBRUCK
CEO
BARRY ROURKE
Member of the Board
IVAN JAKOVCIC
Member of the Board
THOMAS HOYER
Member of the Board
THORSTEIN ABRAHAMSEN
Member of the Board
177
FINANCIAL STATEMENTS The Auditor’s
Note
Our auditor’s report has been issued today.
HELSINKI 29 MARCH 2018
ERNST & YOUNG OY
ERKKA TALVINKO
Authorised Public Accountant
178
FINANCIAL STATEMENTS 2017 Afarak
Auditor’s Report
To the Annual General Meeting of Afarak Group Oyj
responsibilities in accordance with these requirements.
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, 2017. 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 best knowledge and understanding, the non-audit
services that we have provided to the parent company
and group companies are in compliance with laws and
regulations applicable in Finland regarding these services,
and we have not provided any prohibited non-audit services
referred to in Article 5(1) of regulation (EU) 537/2014.
The non-audit services that we have provided have been
disclosed in note 5 to the consolidated financial statements
and in note 2.6 to the financial statements of the parent
company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
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.
Our opinion is consistent with the additional report
submitted to the Audit Committee.
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
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.
179
FINANCIAL STATEMENTS
Key Audit Matter
How our audit addressed the Key Audit Matter
Valuation of Goodwill
We refer to accounting principles and notes 1.4 and 13
At the balance sheet date 31 December 2017, the value of goodwill
amounted to 62,4 M€ representing 24 % of the total assets and 36 %
of the total equity (2016: 63,8 M€, 24% of the total assets, 36 % 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 assumptions used by the Group management in respect of
future market and economic conditions such as, economic growth,
discount rates, expected inflation rates, revenue and margin
developments.
The valuation of goodwill is based on the value-in-use calculations
of the cash generating units. Estimated values-in-use may vary
significantly when the underlying assumptions are changed and the
changes in above-mentioned individual assumptions may result in an
impairment of goodwill.
Valuation of goodwill was determined to be a significant risk of
material misstatement referred to in EU Regulation No 537/241, point
(c) of Article 10(2).
Our audit procedures included, among others:
• We involved 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.
• We assessed the Group’s disclosures in notes 1.4 and 13 in the
financial statements about the assumptions to which the out-
come of the impairment tests were more sensitive.
Environmental Obligations
We refer to the accounting principles and the note 21
Our audit procedures included, among others:
The provision for rehabilitation and decommissioning costs relates
to mines and processing facilities. At the balance sheet date 31
December 2017, the value of the provision amounted to 8,3 M€
(2016: 9,6 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.
Environmental obligation was determined to be a significant risk of
material misstatement referred to in EU Regulation No 537/241, point
(c) of Article 10(2).
Valuation of Inventory
We refer to accounting principles and note 15.
The total value of inventory as of December 31, 2017 amounted to
49,9 M€ representing 19 % of the total assets (2016: 48,4 M€, 19 %
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.
Valuation of inventory was determined to be a significant risk of
material misstatement referred to in EU Regulation No 537/241, point
(c) of Article 10(2).
• 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 reha-
bilitated, the nature of expenses to be incurred (i.e. related to
asset or expense).
• We assessed the Group’s disclosures in the financial statements
in respect of environmental and rehabilitation provisions.
Our audit procedures involved among others:
• We assessed the Group’s accounting policies over recognizing
inventory in compliance with applicable accounting standards.
• We tested the costing of the inventory and performed net real-
izable 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.
• We performed analytic audit procedures on inventory.
• We assessed the Group’s disclosures in the financial statements
in respect of inventory.
180
FINANCIAL STATEMENTS
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 parent company or the group 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.
• 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.
181
FINANCIAL STATEMENTS 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
INFORMATION ON OUR AUDIT ENGAGEMENT
We were first appointed as auditors by the Annual General
Meeting on 7.5.2009, and our appointment represents a total
period of uninterrupted engagement of 8 years.
OTHER INFORMATION
The Board of Directors and the Managing Director are
responsible for the other information. The other information
comprises the report of the Board of Directors and the
information included in the Annual Report, but does not
include the financial statements and our auditor’s report
thereon.
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 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 of the other information,
we are required to report that fact. We have nothing to
report in this regard.
Helsinki 29.3.2018
Ernst & Young Oy
Authorized Public Accountant Firm
Erkka Talvinko
Authorized Public Accountant
182
FINANCIAL STATEMENTS