N
N U A L REP O RT 2018
U A L
R EP O RT
2018
AFA R A K A N
A N
We are
Afarak
the speciality
alloy producer
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
Strategic Review
Financial Statements
Global Footprint
CEO Report
The Ferro-Chrome and Chrome Ore Market
Group Operational Review
Group Financial Performance
Segments Review
Speciality Alloys Segment
Ferroalloys Segment
Risk Management
Sustainability Review
8
10
12
14
16
22
24
28
32
35
Resource Statement
Resource Statement
42
Governance Review
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 2018
Board Committees
Corporate Governance Statement
Internal Control
Insider Administration
Resolutions of the AGM
Additional Information
Remuneration Report
58
60
62
64
66
68
71
73
74
75
76
78
79
80
81
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
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
86
89
89
91
93
95
96
96
96
110
111
114
117
120
150
153
155
155
156
158
159
159
160
161
164
166
166
170
171
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. SERBIA
Magnohrom - mines in Kraljevo
8
1
3
7
8
2
6
4 5
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 REVIEWAFARAK ANNUAL REPORT 2018 CEO Report
GUY KONSBRUCK
CEO
2018 marked a particularly disruptive and difficult
year for Afarak. The unforeseen challenges in the
South African assets were exacerbated by the lower
average ferrochrome benchmark prices. These factors
led to the Group posting poor results when compared
to the record performance for 2017.
The Afarak leadership team has designed and
implemented corrective measures across the
business. Despite some setbacks we are balanced,
resilient and ready to continue to integrate and
optimise the business.
We have a clear objective to ensure that Afarak
returns to growth.
2018 IN REVIEW
Several operational issues including technical
faults in processing equipment in our South African
mining operations, weak geological formations and
lower quality of ore caused reduced production
outputs, ultimately affecting raw material supply to
Mogale. In addition, increasing production costs, a
strengthening of the Rand and the forced closure of
the P3 furnace in Mogale all had a bearing on the
results. This has also happened against the backdrop
of lower benchmark prices for ferrochrome. In 2018,
the average benchmark price for ferrochrome was
USD 131 c/lb compared to USD 142 c/lb in 2017.
The Speciality segment continued to improve its
operations. Revenues increased on account of
higher sales volumes and stable prices for material
produced until the end of Q3. Our new investment
in a fine tailing plant in Turkey supported the
The Afarak leadership
team has designed
and implemented
corrective measures
across the business.
Despite some
setbacks we are
balanced, resilient
and ready to continue
to integrate and
optimise the business.
10
STRATEGIC REVIEW
improved performance of the segment. However, the
weakening of the US Dollar against the Euro and the
softening market prices starting in Q4 2018 impinged
on the results.
communities whilst supporting local charities. Our
commitment to these communities will continue to be
a key focus on our local management teams.
LOOKING AHEAD
The market continues to remain volatile and challenging.
The Ferrochrome benchmark for Q1 2019 fell to USD 112 c/
lb on account of a softening demand for stainless steel in
China. This is the lowest since the benchmark settled in
Q3 2017.
As a Company, as well as improving performance at
Mogale, we are focusing on reducing our cost of mining,
increasing our yields and improving extraction of
resources on a continued basis. The Company is focused
on further consolidating and streamlining its operations
and is committed to increasing its resilience to pricing
fluctuations. Improved commercial execution, cost
discipline and technical excellence are the areas of focus
for ensuring the delivery of our strategy.
As instructed by the Extraordinary General Meeting
held in November 2018, management is currently
working on the repurchase of Afarak’s own shares
and plans are underway to present the proposals
and documentation to the shareholders as soon as
practicable. As communicated, the Company is also
looking into potential changes in domicile and a delisting
from Nasdaq Helsinki. Management is currently finalising
funding arrangements and it is believed that the offer
period will run from end-May to June 2019. Further details
will be communicated in due course.
THANK YOU
The year has been challenging however all local teams;
employees and management have responded. We have
worked as a team across units and countries to face
the challenges and more importantly to implement
resilience-building strategies at plant and unit level. I
would like to thank everybody for the countless hours,
the mutual respect and the support and belief in
changing practices and processes.
I would like to also thank all our clients for their
continued support and trust and also our host
communities for their positive attitude to our Group.
Lastly, I thank the Board, led by our Chairman, for
putting their trust in me and for continuing to serve
the Company with their experience and insight.
The Group is responding to these challenges. The
Executive Management Team is highly focused on
optimising the performance of the South African
assets. The Mogale plant is today under a new
management team which is tasked with improving
operations and cutting costs. The team has already
started to implement a turnaround strategy and
production is shifting from charge chrome to high
carbon ferrochrome which currently commands
higher margins. Mining operations are also being re-
focused with a resulting reduction in fixed costs and
capital expenditure. In our German plant we have
managed to reduce the production costs in order to
cope with lower market prices.
GROWTH STRATEGY
A number of initiatives are currently underway across
our units to further strengthen our operations. The
Mecklenburg underground mining investment could
be delayed and open-pit mining is set to continue
in first quarter 2019. The PGM Plant in Stellite is
operating and further improvements are expected to
come on stream in the coming quarters. At Zeerust,
mine beneficiation equipment is currently being
repaired, and processing of tailings is expected to
start in Q2 2019. Vlakpoort restarted operations
during the year and plans are underway to increase
the highwalls. In Serbia, the Company continues to
upgrade the beneficiation plant and the rotary kiln at
the Magnohrom site for operation later this year.
SUSTAINABILITY
Afarak remains committed to sustainable operations
and continues to focus its efforts both on the health
and safety of its employees as well as on its corporate
social responsibility. This year has seen Mogale
commission a 2.8 MW waste gas heat recovery unit
now producing electric power, which saves electricity
costs and reduces CO2 emissions. This is just one
of our environmental initiatives, we are investing in
mine rehabilitation and also water management.
As miners, we believe that we have an obligation
towards the environment, and we will continue
investing in supporting such initiatives.
I am also proud of our local management teams
that have focused their efforts and energies on
improving our performance in health & safety. We
remain determined to preserve the lives, health and
the overall well-being of our employees. In 2018 we
have registered an improvement in key health &
safety indicators across all of our assets. We remain
committed to continue investing and implementing
initiatives in this regard.
We continue to engage with our local host
communities, in Turkey and South Africa. Our efforts
extend beyond the social dimension. We continue
supporting educational initiatives, infrastructure
investments and also local entrepreneurship. We see
ourselves as enablers to invest and build skills in local
11
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018
The Ferro-Chrome and
Chrome Ore Market
Afarak Group operates primarily in the chrome industry.
Chrome ore is generally used in metallurgical applications in order to produce Ferro-Chrome. However, chrome ore is also
used, though to a much lesser extent, in manufacturing of refractories, pigments and dyes. Finally, chrome ore can be
utilized as foundry sand. Afarak produces metallurgical, refractory and foundry grade ore, together with ferrochrome.
Ferro-Chrome is an important ingredient of stainless steel, hence, our activity is correlated to the developments of the
stainless-steel industry
2018 in Review
Global economic growth has slowed down and is estimated to be at 3.7% in 2018, mainly due to Europe and Asia. The
tariff increases in the United States and China had a bearing with the latter economy slowing down, although still
showing growth. Growth is expected to contract further in 2019.
STAINLESS STEEL
In 2018, global stainless-steel production is estimated to have increased by 6.1% year on year, on par with 2017’s
increased production, despite increasing macroeconomic uncertainty in key producing regions.
Asia continued to be the major source of increase in production with Indonesia, India and China being the main drivers.
On the other hand, US production increased only marginally, whilst Europe’s production remained broadly stable.
The long-term outlook for stainless steel demand remains positive. Key global mega trends such as urbanization,
modernization, and increased mobility combined with growing global demand for energy, food, and water are
expected to support the future growth of stainless-steel demand. However, in the short term, negative developments,
like recently the China-US trade dispute, regularly create strong variance in usage and price of Chrome units.
12
STRATEGIC REVIEW FERROCHROME
FeCr Benchmark (USD cents/lb)
180
160
140
120
100
80
60
40
20
0
Q1 Q2 Q3
Q4 Q1 Q2 Q3
Q4 Q1 Q2
Q3
Q4
Q1 Q2
2016
2017
2018
2019
Despite the increase in demand for stainless steel and ferrochrome, chrome and ferrochrome prices did not mirror this
stronger demand. Although price levels recovered after the low benchmark price in quarter one, prices again declined
throughout the year. The average ferrochrome benchmark price for 2018 was USD 131c/lb compared to USD 142c/lb in
2017. Going forward, the market is expected to strengthen again after another contraction in quarter one. However, the
benchmark remains highly unstable as pricing cycles have become more frequent and more volatile as shown below.
FeCr Benchmark (USD cents/lb)
250
200
150
100
50
0
2000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018 2019
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-added products and
offer a broader product portfolio.
13
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 Group Operational Review
Operationally, 2018 presented mixed results for the Group. The tonnages gained from the mining sector were partly offset
by the reduction in smelting activity due to plant specific issues at Mogale in South Africa. In addition, sales volumes
contracted from a year earlier despite growth in the speciality segment.
Group Sales
100,567mt
(101,598mt)
Group Mining
549,410mt
(503,914mt)
Group Processing
102,120mt
(107,630mt)
Human Resources
942
(928)
SALES
The expansion in sales of the Speciality
Alloys segment was more than offset by
the contraction in the FerroAlloys Segment.
As a result, Group sales of processed
goods stood at 100,567 (FY/2017: 101,598)
tonnes, down by 1.0% when compared
to a year earlier. Sales of Speciality Alloys
advanced by 4,127 tonnes on the back of
stronger market fundamentals and on the
growth in business of the standard grade
ferrochrome. On the other hand, the lower
benchmark prices for Charge ferrochrome
and adverse industry conditions, together
with reduced production outputs, led to
a contraction of 5,158 tonnes from a year
earlier in the FerroAlloys Segment.
120000
120000
100000
100000
80000
80000
60000
60000
40000
40000
20000
20000
0
0
14
Group sales (tonnes)
Group sales (tonnes)
2015
2016
Speciality Alloys
2016
2017
FerroAlloys
2018
2017
Speciality Alloys
FerroAlloys
STRATEGIC REVIEW GROUP MINING
When compared to a year earlier,
Group mining activity increased by
9.0% and stood at 549,410 (503,914)
tonnes, with fast growth being
registered in the Speciality Alloys
segment.
Annual mining levels in the Speciality
Alloys segment expanded by more
than 20% to 64,461 (53,120) tonnes
on account of planned productivity
gains in the mines in Turkey. The
recommencement of mining activity in
Vlakpoort in the first half of 2018 was
the main driver for the 7.6% increase in
FerroAlloys mining output to 484,949
(450,794) tonnes.
550000
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
120000
100000
80000
60000
40000
20000
0
2016
Group mining (tonnes)
Group sales (tonnes)
2017
2016
Speciality Alloys
Speciality Alloys
2017
2018
FerroAlloys
FerroAlloys
GROUP PROCESSING
Group processing for 2018 contracted by 5.1%
to 102,120 (107,630) tonnes as the processing
arm of the FerroAlloys segment experienced
a challenging year offsetting the Speciality
Alloys segment which registered an increase in
processing activity.
This reduction was driven by the poor performance
of the processing plant of the FerroAlloys segment.
During 2018, production levels in the FerroAlloys
contracted by 9.3% to 71,193 (78,479) tonnes.
The interplay of several operational issues in
South Africa led to this decline. Weak geological
formations at the Stellite and Mecklenburg mines
led to poor quality ore which impacted processing
yields and qualities. The forced closure of the P3
furnace in Mogale due to technical issues and
emergency repairs led to further losses. This
negative performance was partly offset by the
gains registered in the Speciality Alloys segment
with processing levels increasing to 30,927 (29,151)
tonnes. This was mainly driven by the increased
demand for speciality low carbon ferrochrome, as
well as the increased production of standard 0.10%
carbon ferrochrome.
HUMAN RESOURCES
120000
100000
80000
60000
40000
20000
0
2016
2017
2018
Speciality Alloys
Ferroalloys
At the end of 2018, Afarak had 942 (928) employees. The average number of employees during 2018 was 932 (838)
employees. Employment increased in the Turkish operation due to expanded mining activities during 2017 which
continued in 2018.
15
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 Group Financial Performance
2018 marked a challenging year for Afarak. The unforeseen challenges in the South African assets were exacerbated by
the lower average ferrochrome benchmark prices. These factors led to the Group posting substantially weaker results
when compared to the record performance for 2017.
REVENUE
PROFIT
EBIT
€194.0 mln
[€198.8 mln]
€-18.6 mln
[€6.7 mln]
€-14.1 mln
[€11.4 mln]
EBITDA
€-1.0 mln
[€18.0 mln]
The combination of factors such as the lower sales volumes, the higher production costs and the weakening of the US
Dollar caused EBITDA to swing into deficit. In addition, an impairment write-down related to Mogale business of EUR 6.5
million in the fourth quarter, also impacted profitability.
EBITDA (€mln)
17.2
18.0
20.0
15.0
14.0
10.0
9.2
8.4
5.5
5.0
0.0
-5.0
2012
2013
2014
2015
2016
2017
2018
-1.0
15
10
5
0
-5
-10
-15
-20
EBIT (€mln)
9.9
2012
2013
1.7
2014
2015
2016
-1
-8
-16.8
EBITDA (€mln)
11.1
2017
2018
-14.1
Seasonality remains a key issue
that the Company needs to
continue adjusting for. In quarter
three, the seasonal shutdowns
in both Europe and South Africa
resulted in unabsorbed overhead
costs. In addition, the high
winter electricity tariffs in South
Africa further contributed to the
seasonal effects. In 2018, the poor
performance was mainly due to
lower ferrochrome benchmark
prices, higher production costs
and adverse exchange rate
movements.
14
12
10
8
6
4
2
0
-2
-4
16
2013
2014
2015
2016
2017
2018
Q1
Q2
Q3
Q4
STRATEGIC REVIEW 2018 PERFORMANCE
Revenues fell only marginally by 2.4% from the all-time high revenue registered in 2017 and stood at EUR 194.0 (198.8)
million. Despite revenues in the Speciality Alloys segment advanced by 7.5%, these were offset by an 8.6% contraction
in the revenues of the FerroAlloys segment.
Revenue (€mln)
187.7
153.6
198.8
194.0
2015
2016
2017
2018
250
200
150
100
50
0
60
50
40
30
20
10
0
50.2
54.3
47.0
42.6
Q1
Q2
Q3
Q4
In 2018, revenues in the Speciality Alloys segment
increased to EUR 96.1 (89.4) million driven by strong sales
volumes of ferrochrome processed material and improved
selling prices. The segment continued to boost its
performance driven by the strong market fundamentals.
However, lower average benchmark prices in 2018
compared to year earlier and a contraction in sales
volumes caused revenues of the FerroAlloys segment to
decline to EUR 97.0 (106.1) million.
Due to the challenging environment of the FerroAlloys
segment in South Africa, profitability for the year
was hard-hit when compared to the figures of a year
earlier. Lower average Market prices and adverse
conditions in our South African subsidiaries, primarily
relating to mining conditions and technical faults, led
to significant contraction in EBITDA, to EUR -1.0 (18.0)
million. On the other hand, the performance of the
Speciality Alloys segment remained broadly stable when
compared to a year earlier. The increased revenues in
this segment did not reflect into higher profitability since
the higher revenues were offset by higher production
costs and unfavorable exchange rate movements.
Group profitability was also negatively impacted by an
impairment write-down on goodwill related to the Mogale
business of EUR 6.5 million, as well as the result of the
joint venture which had a difficult year due to the lower
revenue and higher mining costs.
EBITDA (€mln)
17.2
18.0
5.5
2015
2016
2017
2018
-1.0
20
15
10
5
0
-5
1.2
Q2
Q1
-0.7
1.0
Q4
Q3
-2.5
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
17
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 The full year EBITDA from unallocated items was EUR -5.5 (-6.0) million. During 2018, the newly acquired asset
Magnohrom posted a negative contribution to EBITDA by of EUR -1.0 (-0.4) million. We expect Magnohrom to become
fully operative during 2019.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
50.2
-0.7
-1.4%
-2.4
Q2
54.3
1.2
2.2%
-0.4
Q3
42.6
-2.5
-5.9%
-4.3
Q4
47.0
1.0
2.1%
-7.0
FY18
194.0
-1.0
-0.5%
-14.1
-4.7%
-0.8%
-10.0%
-14.9%
-7.3%
Profit for the period
-1.9
-2.7
-2.8
-11.1
-18.6
FY17
198.8
18.0
9.0%
11.4
5.7%
6.7
BALANCE SHEET, CASH FLOW AND FINANCING
The performance registered during 2018 had an impact on the Group’s balance sheet however management remained
focused on a prudent and successful cash and working capital management.
ROE
-11.5%
(3.0%)
ROCE
-6.0%
(8.2%)
Equity ratio
58.3%
(66.3%)
Gearing ratio
8.2%
(0.7%)
Inventories
Turnover-on-inventory
Trade receivables
Cash balance
€56.9 mln
(€49.9 mln)
3.4
(4.0)
€27.2 mln
(€24.0 mln)
€12.1 mln
(€10.7 mln)
The equity ratio was 58.3% (66.3%). Afarak’s gearing at the
end of 2018 increased to 8.2% (0.7%), driven by the expansion
in the interest-bearing debt to EUR 24.4 (11.9) million.
The Company sold its shareholding in LL Resources for
EUR 0.227 million in the third quarter.
The Group’s total assets on 31 December 2018 stood at
EUR 258.6 (259.9) million and net assets totaled EUR 150.8
(172.4) million. During the year the translation differences
on conversion of foreign denominated subsidiaries moved
by EUR -2.5 (-2.5) million. The Group’s cash and cash
equivalents, as at 31 December 2018, totalled EUR 12.1 (10.7)
million. Cash flow from operations during the year was
positive, standing at EUR 3.1 (1.6) million.
INVESTMENTS, ACQUISITIONS AND DIVESTMENTS
Capital expenditure for the full year 2018 totalled EUR 9.8
(7.7) million. Capital expenditure in both the Speciality
Alloys and FerroAlloys segment was incurred to sustain
Group operations. During 2018, in the Speciality Alloys
segment, TMS invested in the fines tailing processing
plant at Kavak and in the FerroAlloys segment, the Group
finalised its investment in the secondary spirals project,
realized its investment in the PGM project and launched
the chemical grade project during Q3 2018.
During the third quarter, Afarak concluded the
acquisition of Magnohrom, a sinter magnesite refractory
material company, with ore mines and production
facilities in Serbia, for an acquisition price of EUR 1.0
million.
19
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018
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 2018, the price of Afarak Group’s share in London Stock Exchange varied between GBP 0.73
(2017: 0.55) and GBP 0.93 (2017: 0.93) and in NASDAQ Helsinki between EUR 0.67 (2017: 0.72) and EUR1.20 (2017: 1.15).
Afarak’s share closed in London at the end of the financial year at GBP 0.73 (2017: 0.73) and Helsinki at EUR 0.73
(2017: 0.85). The closing price on 31 December gives the Company a market capitalisation of the entire capital stock
263,040,695 (2017: 263,040,695) shares of GBP 190.7 (2017: 190.7) million and EUR 191.0 (2017: 222.3) million.
A total of 28,124 (2017: 66,112) Afarak shares were traded in London and 29,237,916 (2017: 64,867,107) shares in Helsinki
during the financial year, representing 0.01% (2017: 0.03%) of stock in London and 11.12% (2017: 24.66%) in Helsinki.
SHAREHOLDERS
On 31 December 2018, the Company had a total of 6,266 shareholders (6,525 shareholders on 31 December 2017), of
which seven were nominee-registered. The registered number of shares on 31 December 2018 was 263,040,695 (2017:
263,040,695).
LARGEST SHAREHOLDERS ON 31 DECEMBER 2018
Shareholder
1 Nordea Bank Ab (Publ), Suomen Sivuliike
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 Suokas Petri Kristian
9 OP Life Assurance Company Ltd
10 Clearstream Banking S.A.
Total
Other Shareholders
Total shares registered
Shares
152,683,870
36,991,903
12,757,240
9,000,000
6,797,690
3,560,272
2,387,494
1,380,000
1,281,700
1,098,699
227,938,868
35,101,827
263,040,695
%
58.0 %
14.1 %
4.8 %
3.4 %
2.6 %
1.4 %
0.9 %
0.5 %
0.5 %
0.4 %
86.7 %
13.3 %
100.0 %
Afarak Group Plc’s Board members and Chief Executive Officer owned in total 800,000 (2017: 325,000) Afarak Group Plc
shares on 31 December 2018, including shares owned either directly, through persons closely associated with them or through
controlled companies. This corresponds to 0.3% (2017: 0.1%) of the total number of registered shares on 31 December 2018.
20
STRATEGIC REVIEW SHAREHOLDERS BY CATEGORY 31 DECEMBER 2018
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
1,026
2,644
2,058
478
50
7
3
6,266
7
16.37
42.20
32.84
7.63
0.80
0.11
0.05
57,543
1,386,515
7,336,456
13,301,475
13,019,838
25,505,855
202,433,013
100.00
263,040,695
0.11
155,058,607
263,040,695
0.02
0.53
2.79
5.06
4.95
9.70
76.96
100.00
58.95
100.00
SHAREHOLDERS BY SHAREHOLDER TYPE ON 31 DECEMBER 2018
Finnish shareholders
of which:
Companies and business enterprises
Banking and insurance companies
Non-profit organisations
Households
Foreign shareholders
Total
of which nominee-registered
% of share capital
26.90%
10.95%
0.93%
0.00%
15.02%
73.10%
100.00%
58.95%
21
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018
Segments
Reviews
Segments
Reviews
Speciality Alloys Segment
2018 in Review
The Speciality Alloys segment registered an improved operational performance during 2018,
however the increase in revenue did not translate into increased profitability due to higher cost.
REVENUE
€96.1mln
(€89.4mln)
EBITDA
€12.6mln
(€12.6mln)
EBIT
€10.8mln
(€11.1mln)
MINING PRODUCTION
PROCESSING PRODUCTION
64,461mt
(53,120mt)
30,927mt
(29,151mt)
SALES OF
PROCESSED MATERIALS
29,467mt
(25,340mt)
PERSONNEL
526
(483)
24
STRATEGIC REVIEW PRODUCTION
Total production levels during 2018 increased by 15.9% to 95,388 (82,271) tonnes
driven by a significant improvement in mining tonnages.
Total Speciality Alloys Production (mt)
Mining Production (mt)
100000
80000
60000
40000
20000
0
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2017
2018
Mining
Processing
Q1
Q2
Q3
Q4
2017
2018
Mining levels were up by over 20% due to the new fine tailings plant at Kavak in Turkey which came on stream during the
second half of the year. Quarter one also saw a stronger mining production given that, in February 2017, the Kavak mines
in Turkey were subject to planned stoppages due to maintenance.
Processing production (mt)
Q1
Q2
Q3
Q4
2017
2018
Sales of processed material (mt)
The production of processed material increased
by 6.1% and was driven by higher tonnages in
quarter two 2018. Otherwise, production levels
remained broadly stable. The relative increase in
quarter two was primarily due to lower volumes
in 2017, following last year’s temporary shut-down
at the EWW plant in Germany, due to planned
maintenance.
SALES
2018 was characterised by buoyant demand for all
the Group’s Speciality Alloys products on the back
of stronger market fundamentals, primarily in the
first half of the year.
10000
8000
6000
4000
2000
0
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Q1
Q2
Q3
Q4
2017
2018
25
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 FINANCIAL PERFORMANCE
The strong operational performance of the Speciality Alloys segment registered in 2018 did not fully reflect in the
financial results. Although the revenue expanded by 7.5% to EUR 96.1 (89.4) million, it did not translate into improved
profitability. Revenue increased on the back of higher sales volumes and improved selling prices however this was offset
by increased raw material costs and unfavourable exchange rate movements. The combination of these factors led to a
stable EBITDA and a marginal decline in EBIT to EUR 10.8 (11.1) million.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
24.9
2.7
Q2
26.4
3.9
Q3
21.3
2.0
Q4
23.6
4.0
10.8%
14.8%
9.3%
17.1%
2.2
3.5
1.3
3.8
FY18
96.1
12.6
13.1%
10.8
FY17
89.4
12.6
14.1%
11.1
8.9%
13.1%
6.2%
16.0%
11.2%
12.4%
Revenue (€ mln)
Revenue (€ mln)
95.6
89.4
96.1
68.7
24.9
26.4
21.3
23.6
30
25
20
15
10
5
0
2015
2016
2017
2018
Q1
Q2
Q3
Q4
EBITDA (€ mln)
EBITDA (€ mln)
12.7
12.6
12.6
5.4
3.9
4.0
2.7
2.0
5
4
3
2
1
0
2015
2016
2017
2018
Q1
Q2
Q3
Q4
120
100
80
60
40
20
0
14
12
10
8
6
4
2
0
26
STRATEGIC REVIEW EBIT (€ mln)
EBIT (€ mln)
12
10
8
6
4
2
0
10.1
11.1
10.8
3.1
2015
2016
2017
2018
5
4
3
2
1
0
3.5
3.8
2.2
1.3
Q1
Q2
Q3
Q4
LOOKING AHEAD
Afarak will continue focusing on specialities optimising production costs. Through various initiatives and with the cooperation
of its staff, Afarak is seeking to be ever more responsive to market needs and trends.
27
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 FerroAlloys Segment
2018 in Review
The lower ferrochrome benchmark prices and a contraction in sales volumes led to a weakened financial
performance of the segment compared to the historically high result registered a year earlier.
REVENUE
€97.0mln
(€106.1mln)
EBITDA
€-8.1mln
(€11.4mln)
EBIT
€-19.3mln
(€6.4mln)
MINING PRODUCTION
PROCESSING PRODUCTION
484,949mt
(450,794mt)
71,193mt
(78,479mt)
SALES OF
PROCESSED MATERIALS
71,100mt
(76,258mt)
PERSONNEL
324
(345)
28
STRATEGIC REVIEW PRODUCTION
Operationally, the segment registered a positive performance with total production increasing by 5.1% to 556,142
(529,273) tonnes.
Total FerroAlloys Production (mt)
Mining Production (mt)
600000
500000
400000
300000
200000
100000
0
2017
2018
Mining
Processing
This increase was driven by the improved output of
the mining assets during the first half of the year
which managed to offset the subsequent decline in
productivity in the second-half. The recommencement
of mining activity in Vlakpoort in the first half of 2018
was the main contributing factor to this growth which
was partly offset by unsound geological formations
that were encountered during the second half,
particularly in the fourth quarter at Mecklenburg and
Stellite.
Processing levels at Mogale during 2018 were down by
a 9.3% contraction and stood at 71,193 (78,479) tonnes.
This decline is the result of poor quality ore from the
mines and unexpected stoppages at Mogale due to the
technical fault at the P3 furnace.
30000
25000
20000
15000
10000
5000
0
140000
120000
100000
80000
60000
40000
20000
0
Q1
Q2
Q3
Q4
2017
2018
Processing production (mt)
Q1
Q2
Q3
Q4
2017
2018
SALES
The sales of processed material from the FerroAlloys segment declined by 5,158 tonnes throughout the year with a
significant contraction in quarter one.
Sales of processed material (mt)
25000
20000
15000
10000
5000
0
The reduction in sales of processed
material is mainly due to the forced
shut-down of furnace number 3 which
reduced the availability of volumes for
sales.
Q1
Q2
Q3
Q4
2017
2018
29
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 FINANCIAL PERFORMANCE
2018 proved to be a very challenging and difficult year for the segment as it registered a poor performance compared
to the record-high 2017.
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
24.9
-2.2
Q2
27.8
-1.1
Q3
21.1
-3.0
Q4
232.2
-1.8
FY18
97.0
-8.1
FY17
106.1
11.4
-9.7%
-4.1%
-14.4%
-7.7%
-8.4%
10.8%
-3.4
-2.3
-4.2
-9.5
-19.3
-13.6%
-8.4%
-19.7%
-40.7%
-19.9%
6.4
6.0%
Revenue (€ mln)
Revenue (€ mln)
91.8
84.5
106.1
97.0
2015
2016
2017
2018
EBITDA (€ mln)
11.4
7.5
5
2015
2016
2017
2018
-8.1
30
25
20
15
10
5
0
0
-0.5
-1
-1.5
-2
-2.5
-3
-3.5
27.8
24.9
21.1
23.2
Q1
Q2
Q3
Q4
EBITDA (€ mln)
Q1
Q2
Q3
Q4
-1.1
-2.2
-1.8
-3.0
120
100
80
60
40
20
0
15
10
5
0
-5
-10
30
STRATEGIC REVIEW Q1
Q2
Q3
Q4
0
-1
-2
-7
-3
-5
-4
-8
-9
-6
-10
-2.3
-4.2
-3.4
10
EBIT (€ mln)
Apart from the seasonal challenges
associated with the third quarter, the
ferroalloys segment faced a difficult
business environment in South Africa,
negatively impacting the segment’s
profitability throughout the year. The
lower ferrochrome benchmark prices led
to reduced sales volumes and revenues.
In addition, cost pressures also weighed
on profitability as raw material costs
increased significantly. Performance was
further impacted by several technical
issues. Temporary stoppages as well as
weak geological formations in the mines
led to the mining of poor quality ore which
adversely affected the financial result of
Mogale. This was further exacerbated by
technical issues and forced stoppages due to the repairs needed on P3 furnace. Finally, the weakening of the US
dollar and the strengthening of the South African Rand also influenced profit margins. During the fourth quarter,
an impairment on goodwill related to Mogale business of EUR 6.5 million was booked. The negative results of the
joint-venture also contributed to the unsatisfactory result.
-19.3
2016
2018
2015
2017
-20
-25
0.9
6.4
-10
2.8
-15
-5
-9.5
0
5
JOINT-VENTURE
Afarak’s share of joint venture revenue for the full year decreased by 11.8%, to EUR 14.8 (16.8) million on account of
lower sales volumes. Lower revenues were amplified by higher mining costs negatively impacting profitability which
brought Afarak’s share of joint venture’s total result down to EUR -2.7 (3.1) million.
The results were mainly driven by significantly lower production and sales volumes at the Stellite mine as well as
continued operational losses at Mecklenburg. The lower quality raw material mined at Stellite reduced the beneficiation
yields affecting the available monthly sales volumes of sellable concentrate. However, this off-spec material will still be
utilized, reprocessed and sold going forward with the expectation that it will add to the margins further down the line.
The Share of profit from joint ventures is made up as follows:
EUR MILLION
Revenue
EBITDA
EBITDA margin
EBIT
EBIT margin
Q1
4.5
-0.4
-9.3%
-0.7
Q2
4.1
0.1
2.5%
-0.2
Q3
2.6
0.0
Q4
3.6
-0.5
FY18
14.8
-0.8
FY17
16.8
4.0
-0.1%
-14.5%
-5.7%
23.6%
-0.1
-0.7
-1.6
3.0
-15.5%
-3.9%
-2.1%
-18.4%
-10.6%
17.6%
Profit for the period
-1.0
-0.4
-0.4
-0.9
-2.7
3.1
LOOKING AHEAD
The Group is responding to these challenging circumstances. The Executive Management Team is focused on optimising
the performance of the South African assets. The Mogale plant is today under a new experienced management team
which is tasked with improving operations and cutting costs. The team has already started to implement a turnaround
strategy and production is shifting from charge chrome to high carbon ferrochrome which currently commands
higher margins. Mogale is an important part of our South African operations and integral to our policy of vertical
integration. In order for us to achieve our growth objectives, it is critical that it performs to its potential and Group
management will be carefully monitoring progress under the new local management team. Mining operations are
also being re-focused with a resulting reduction in fixed costs and capital expenditure. Several initiatives are currently
underway across our units to further strengthen our operations. The Mecklenburg open-pit mining is set to continue in
first quarter 2019, enabling us to delay the underground operations. The PGM Plant in Stellite is operating and further
improvements are expected to come on stream in the coming quarters. At ZCM, mine beneficiation equipment is
currently being repaired, and processing of tailings is expected to start in Q2 2019. Vlakpoort restarted operations
during the year and plans are underway to increase the highwalls and the output.
31
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 Risk Management
Afarak’s prudent approach to risk management is a crucial
component of our continued success and is present in
managing all aspects of our performance.
By understanding and managing risk, we provide greater
certainty and confidence for our shareholders, employees,
customers, suppliers and host communities. In fact, we
believe that successful risk management can be a source of
competitive advantage.
Our risks are viewed and managed on a Group-wide
basis. As a truly global operation, 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.
2018 DEVELOPMENTS
2018 was a challenging year for Afarak. The Audit
Committee played a key role in monitoring the risk
management function of the Group.
Due to the lower average ferrochrome benchmark prices,
revenues and profitability both fell. As unfavourable
exchange rate movements kept presenting a threat of
further margin erosion, the Management team took
decisions to reduce such exposure. The Audit Committee,
together with management, continued improving internal
processes and procedures to reduce currency risk. Certain
production decisions were also taken in view of the lower
benchmark prices. All these activities resulted in positive
cash flow effects. A risk mitigation initiative was started by
the mining teams in South Africa and further actions are
underway to strengthen existing operations. Our exposure
to electricity costs in the South African smelter has been
somewhat reduced through the commissioning of a 2.8 MW
waste gas heat recovery unit which is now producing electric
power, saving electricity costs and reducing CO2 emissions.
Having seen the positive results the Group intends to enlarge
this activity.
Management continued to work closely with the Units to
provide continuous monitoring and oversight in accordance
with the Group’s risk management policy.In terms of health
& safety, the initiatives introduced in 2017 and 2018 led to
an improvement in the Company’s performance in this
regard. Health & safety and the stated aim of ‘Zero-Harm’
will continue to be a central pillar of the Company’s risk
management strategy.
PRINCIPAL RISKS
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
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
Volatility of energy costs
Political and social risks
32
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
33
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 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 latest
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
34
STRATEGIC REVIEW Sustainability
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 employees’ 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 feel committed to gradually 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 intends to deliver 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 whilst supporting social causes.
35
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 SAFETY
Afarak strives to achieve what we call “Zero Harm Policy”
at all levels of our operations and to provide 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 2018 aiming to achieve “Zero
Harm”.
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 2018 aiming to achieve “Zero
Harm”.
During 2018, the Group’s employees contributed
approximately 2,654,736 working hours during which the
company suffered 15 (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 Total Recordable
Injuries also declined and in 2018 47 were registered, down
from 52 a year earlier. As a result, further improvements
were registered in incidence, frequency and lost time
injury frequency rates.
We are proud that no fatalities happened on our sites for
the second year running.
Lost Time Injury
Total Recordable Injuries
15
(16)
47
(52)
Incidence Rate
47.5
(52.3)
Frequency Rate
Lost Time Injury Rate
17.7
(23.2)
5.7
(7.1)
Going forward, management remains focused on continuously monitoring and further improving the safety
performance at Afarak Group through various initiatives and investments.
37
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 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 providing healthcare to our co-workers, we
can actively contribute to their long-term well-being.
In our factories we assess, monitor and control the risks
to our workers. In Germany, we have installed a sound
abatement system to reduce the noise. We have also
invested in de-dusting filter systems, even if already
compliant with the law requirements, 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.
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.
38
STRATEGIC REVIEW WASTE MANAGEMENT
We intend to minimise the waste our activity produces.
The main part of the waste which 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 too. In 2018 we finalised an investment in a
new tailings plant in Kavak adding further beneficiation.
Additional stages of beneficiation will increase the
processing of tailings during 2019.
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 the
mines we currently work in. We recognise that our activities
impact the grounds on which we work. By re-establishing
land, managing its biodiversity and considering the needs
of locals, we can reduce the level of our environmental
impact. We have supported a tree and shrubbery nursery
in Mecklenburg which will sell trees and plants to Afarak in
due course. This project not only back up the community
entrepreneurship but will also support local flora and fauna.
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 South Africa, we
have installed and commissioned 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.
We are firm believers that through our operations we deliver
socio-economic benefits to our host communities.
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 and maintaining good relationships
with the host community is vital for our future.
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
ENTERPRISE
INFRASTRUCTURE
COMMUNITY
INITIATIVES
39
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 EMPLOYMENT
By providing direct and indirect employment, we believe that we
are making a tangible contribution to our host communities.
Philisile Msikwa, Metallurgist
“Getting that opportunity to get a permanent job, means
a lot because it allows us to become better and more
developed people. I look forward to growing in the company
and to being exposed to different areas in the operations of
the company.”
INFRASTRUCTURE
Throughout the years, we have helped our local
communities with their infrastructural requirements. This
year, we have concluded various investments including a
road project that will improve connectivity between a local
community and a school. This road is also expected to bring
additional benefits to the community.
Andrew Nyagawa, Site Manager Paragon Deep, Road
Project
“We are currently involved in the road project in the area
of Macacala which is being sponsored by Afarak. It is a
great satisfaction to see the people from the community so
happy with this project that Afarak is supporting.”
COMMUNITY INITIATIVES
We continue to support local communities with various
assistance programs that are of a social and educational
nature. Afarak is supporting 9 orphans who are currently
residing at Jade House. The House was built as a place of
safety for orphans and offers foster care to these children.
Afarak has several 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 a Centre in Krugersdorp that
provides shelter for abused women and children. The
Centre can hold up to 40 families.
Belinda Kotze, House of Jade
“We currently house about 9 children but the house can take
approximately 13. Since Afarak Mogale has been involved in
our house we have seen an increase in project maintenance,
the upkeep of the house has improved drastically. There’s
been a lot of social interaction between us and the children,
there’s been a general higher standard that wasn’t there
before. Thank you so much for your generosity and thanks
for being part of this journey with us.”
40
Philisile Msikwa, Metallurgist
Andrew Nyagawa, Site Manager Paragon
Deep, Road Project
Belinda Kotze, House of Jade
STRATEGIC REVIEW 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.
Dr Phindi Thabethe, PGL
“PGL is a 100 per cent black owned mine and we are
grateful to Afarak for the opportunity they have given us
to learn how to do mining and how to train us. Through
this support, we have grown our company.”
PROCUREMENT
In our procurement, we work closely with local enterprises
to support the local economy.
Manasseh Maakhudu – Shuma Plausible
“I am the owner of the company called Shuma Plausible
Solutions and Afark have procured our services for
erecting a fence around the mining grounds. I am very
thankful for the opportunity that was granted by Afarak
as it has helped me grow my business and employ more
local people.”
Dr Phindi Thabethe, PGL
Manasseh Maakhudu – Shuma Plausible
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 the Management 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 2019 to further minimise the impact of our operations on nature. Also, community investments will
be maintained.
41
STRATEGIC REVIEWAFARAK ANNUAL REPORT 2018 Resource
Statement
Executive
Summary
subsequent to the granting of a new-order mining right for
Vlakpoort Mine by the Department of Mineral Resources. A
Phase 2 exploration program is planned during Q1 of 2019
to extend the mineral resources towards the South-Western
side of the exiting mining area.
The combined PGM Mineral Resources for Stellite and
Vlakpoort declared at 31 December 2018, decreased from
that declared in December 2017, by 0.079 million tonnes
from 26.165 to 26.086 million tonnes, which resulted in PGM
2E+Au ounces decreasing by 0.870 million ounces from 1.257
million to 1.256 million ounces.
The decrease in PGM Mineral Resources from December 2018
as compared to December 2017 can be ascribed to Vlakpoort
LG1-3 and LG6 depletion in the respective open pits.
The baseline summary of Stellite PGM Mineral Resources was
based on the Venmyn Deloitte (Pty) Ltd Competent Persons
report for June 2017. No Mineral Reserves could be declared
for Stellite yet as the feasibility study to extract PGM’s, are
still in progress.
Aligning with the Afarak Group strategy to increase its
measured mineral resource base, the aim of this document
is to provide a Mineral Resource and Mineral Reserve
Statement at 31 December 2018 for:
(i) Chromitite for Mecklenburg, Stellite and Vlakpoort
Mines respectively;
(ii) Platinum Group Metals (PGM), specifically
Platinum, Palladium and Gold, in the Chromitite
seams for Stellite and Vlakpoort Mines. Mecklenburg
Mine is excluded due to the fact that the Platinum
Group Metals (PGM) rights at Mecklenburg Mine do
not belong to Afarak and therefore do not satisfy the
all the requirements for reporting.
The Chromitite Mineral Resources for Mecklenburg, Stellite
and Vlakpoort declared in 31 December 2018 decreased
by 1.120 million tonnes compared to those declared in
December 2017, mainly due to depletion.
The Chromitite Mineral Resources for Mecklenburg, Stellite
and Vlakpoort as 31 December 2018, decreased from that
declared in December 2017 from 44.861 to 43.741 million
tonnes mainly due to depletion.
The Chromitite exploration results reported at Vlakpoort
Mine remained the same at 1.947 million tonnes. Mining at
Vlakpoort commenced during the second quarter of 2018
44
RESOURCE STATEMENT
Stellite Mine
Chromitite Mineral Resource for Stellite Mine
The Chromitite Mineral Resource for Stellite declared in 31 December 2018 decreased by 0.865 million tonnes from 29.617 to
28.752 million tonnes compared to those declared in December 2017 mainly due to due to depletion.
Stellite LG6-MG4 tailings mineral reserve and resource decreased from 0.700 to 0.225 million tons whereas the chrome grade
and Cr to Fe ratio remained the same at 24.10 % and 1.14 respectively
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
LG6-MG4
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
Stellite: Underground
MG4
LG6 + 6A
Total Proved
Reserves
PROBABLE:
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
Stellite: Underground
MG4
LG6 + 6A
Total Proved
Reserves
Total Proved
& Probable
Reserves
225
1,111
674
346
598
103
MEASURED:
Stellite: Tailings
24.1
1.14 LG6-MG4
225
24.1
30.39
30.64
35.98
37.72
33.68
Stellite: Open Pit
1.2 MG4
1.18 MG3
1.32 MG2
1.4 MG1
1.37
LG6+6A
Stellite: Underground
MG4
1,306
788
405
700
120
1,211
4,222
31.86
31.68
37.20
39.00
38.11
33.59
37.7
2,702
34.98
1.36 LG6 + 6A
5,759
33.48
1.30
Total
Measured
Resources
INDICATED:
Stellite: Open Pit
1.14
1.22
1.19
1.32
1.4
1.46
1.24
1.41
8,977
35.51
1.33
3,015
1,276
948
1,914
239
262
3,628
30.75
30.82
36.08
37.53
33.88
32.69
34.26
1.2 MG4
1.16 MG3
1.28 MG2
1.38 MG1
1.43 LG6+6A
Stellite: Underground
1.22 MG4
1.38 LG6 + 6A
3,526
1,492
1,109
2,239
280
306
4,243
32.25
31.68
37.30
38.80
38.54
33.8
37.5
1.23
1.19
1.31
1.41
1.46
1.25
1.41
11,282
33.60
1.30
17,041
33.56
1.30
Total
Indicated
Resources
Total
Measured
& Indicted
Resources
INFERRED
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6+6A
Total Inferred
Resources
Total
Resources
13,195
35.58
1.33
22,172
35.55
1.33
1,440
2,110
1,920
1,070
40
6,580
28,752
33.18
32.64
37.10
38.90
37.82
35.11
35.45
1.24
1.26
1.32
1.41
1.44
1.30
1.32
45
Table 1: Shows the Chromitite Mineral Reserves
and Resources for Stellite Mine as at 31
December 2018.
RESOURCE STATEMENTAFARAK ANNUAL REPORT 2018 PGM Mineral Resource
for Stellite Mine
No Mineral Reserves or Measured Mineral resources could be declared for Stellite yet as the feasibility study to extract PGMs,
are still in progress.
The Indicated and Inferred PGM Mineral Resources for Stellite as declared at 31 December 2018, remained the same as
that declared in December 2017, namely 18.642 million tonnes. The resulting PGM resources declared in 2E+Au ounces are
0.927 million ounces.
The total declared PGM mineral resource remain the same due to the fact that PGM mineral resources for Stellite are
declared in only the Indicated and Inferred Mineral Resource reporting categories.
Mineral Reserves (ROM Feed Numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
2E + Au
Ozs
Tonnage (kt)
2E+Au
Ozs
PROVED:
Stellite: Open Pit
MG4
MG3
MG2
MG1
MEASURED:
Stellite: Open Pit
MG4
MG3
MG2
MG1
Stellite: Underground
Stellite: Underground
MG4
MG4
MG4
MG4
Total Proved
PROBABLE:
Stellite: Open Pit
MG4
MG3
MG2
MG1
MG4
MG3
MG2
MG1
Total
Measured
Resources
INDICATED:
Stellite: Open Pit
MG4
MG3
MG2
MG1
Stellite: Underground
Stellite: Underground
MG4
MG4
MG4
MG4
Total Probable
Total Proved
& Probable
Reserves
46
MG4
MG3
MG2
MG1
Total
Indicated
Resources
Total
Measured
& Indicted
Resources
INFERRED
Stellite: Open Pit
MG4
MG3
MG2
MG1
Total Inferred
Resources
Total
Resources
-
-
-
-
-
-
-
-
-
952
440
698
722
-
-
-
-
-
-
-
-
-
-
-
-
-
1.40
1.78
1.73
0.84
-
-
-
-
-
-
-
-
-
-
-
-
-
42,855
25,183
38,828
19,501
-
-
-
-
2,812
1.40
126,367
2,812
1.40
126,367
5,710
3,950
2,740
3,430
15,830
18,642
1.38
2.13
2.06
0.86
1.57
1.55
253,370
270,531
181,492
94,849
800,241
926,608
RESOURCE STATEMENT Mecklenburg Mine
The Mineral Reserve for Mecklenburg underground declared in 31 December 2018 remained the same at 7.27 million tonnes
compared to those declared in December 2017. No underground mining was conducted during 2017.
The Chromitite Mineral Reserves for Mecklenburg declared for open-Pit (65m high-wall) as at 31 December 2018, decreased
from that declared in December 2017 from 0, 25 to 0.074 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: Open Pit
Mecklenburg: Open Pit
LG6+6A
61
40.76
1.58 LG6+6A
73.91
44.10
1.64
Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
2,682
41.85
1.57
LG6+6A
4,190
43.66
Total Proved
Reserves
PROBABLE:
2,743
41.83
1.57
Total
Measured
Resources
INDICATED:
4,264
43.67
1.59
1.59
Mecklenburg: Underground
Mecklenburg: Underground
LG6+6A
1,924
41.83
1.57
LG6+6A
3,006
43.37
1.59
Total Proved
& Probable
Reserves
4,667
41.83
1.57
Total
Measured
& Indicted
Resources
INFERRED
7,270
43.54
1.59
Mecklenburg: Underground
LG6+6A
Total
Resources
1,142
8,412
43.41
43.53
1.59
1.59
Table 2. Shows the Chromitite Mineral Reserves and Resources for Mecklenburg Mine as at 31 December 2018.
The chrome grade and Cr to Fe ratio remained the same at 43.67 % and 1.59 respectively since there was no sampling done
in 2018. Underground mining scheduled in 2020 financial year whereas Open-cast life of mine end Dec 2019.
47
RESOURCE STATEMENTAFARAK ANNUAL REPORT 2018 Vlakpoort Mine
Mining at Vlakpoort commenced during the second quarter of 2018 subsequent the granting of a new-order mining right for
Vlakpoort Mine by the Department of Mineral Resources. The Chromitite Mineral Resources for Vlakpoort decreased by 0.07
million tonnes from 4.698 to 4.630 million tonnes from that declared in December 2017 from mainly due to depletion.
The exploration results reported at Vlakpoort Mine remained the same at 1.947 million tonnes. A Phase 2 exploration program
is planned during Q1 of 2019 to extent the mineral resources towards the South-Western side of the exiting mining area.
Mineral Reserves (ROM Feed Numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
0
18
55
52
101
0
0
4
3
37
16
9
0
0
69
MEASURED:
Vlakpoort: Open Pit
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 -2
0
42
140
131
164
398
754
41.57
38.77
36.85
30.01
21.46
33.32
19.65
1.82
1.55
1.53
1.29
1.12
1.59
1.06
1,629
33.73*
1.52**
17
10
64
75
24
793
421
41.57
39.92
33.95
29.92
27.61
33.92
19.83
1.86
1.55
1.58
1.35
1.25
1.58
1.06
1,404
33.81*
1.57**
3,033
33.76
1.54
Vlakpoort: Underground
LG6
UG2
Total
Measured
Resources
INDICATED:
Vlakpoort: Open Pit
Vlakpoort: Underground
LG6
UG2
Total
Indicated
Resources
Total
Measured
& Indicted
Resources
226
34.16*
1.40**
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
31.69*
1.56**
295
33.58
1.44
PROVED:
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
Vlakpoort: Underground
LG6
UG2
Total Proved
Reserves
PROBABLE:
Vlakpoort: Open Pit
LG1-3
LG5
LG6
MG1-4
UG1-2
Vlakpoort: Underground
LG6
UG2
Total Probable
Reserves
Total Proved
& Probable
Reserves
48
RESOURCE STATEMENT INFERRED
Vlakpoort: Open-Pit
LG1 -3
LG5
LG6
MG1 -4
UG1 -2
Vlakpoort: Underground
LG6
UG2
Total Inferred
Resources
Total
Resources
(Excl
Exploration
Results)
EXPLORATION RESULTS
Vlakpoort: Open-Pit
LG1 -3
LG6
MG1 & MG3
MG4 & MG4a
Total
exploration
Results
Total
Resources
(Incl
Exploration
Results)
41
0
1
119
0
1,321
115
41.55
28.61
33.67
33.67
20.27
1.79
1.59
1.30
1.59
1.08
1,597
33.88*
1.57**
4,630
33.81
1.55
50
365
25
264
36.86
33.55
33.60
29.70
1,947
33.50
1.82
1.60
1.65
1.23
1.60
1.56
6,577
33.72*
1.55**
Vlakpoort; Underground
LG6
1,243
34.16
NOTES:
* Excluding Cr2O3 % of UG1, UG2 and MR
** Excluding Cr:Fe (ratio) of UG1, UG2 and MR
Table 3. Shows the Chromitite Mineral Reserves and Resources for Vlakpoort Mine as at 31 December 2018.
49
RESOURCE STATEMENTAFARAK ANNUAL REPORT 2018 Combined Chromitite Mineral
Resource and Reserve Statemente
Mineral Reserves (ROM Feed Numbers)
Mineral Resources (Geological Losses Applied)
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
Tonnage (kt)
Cr2O3 (%)
Cr:Fe ratio
MEASURED:
Stellite Tailings
24.1
1.14 LG6 - MG4
225
24.1
30.39
30.64
35.98
37.72
33.68
Stellite: Open-Pit
1.20 MG4
1.18 MG3
1.32 MG2
1.40 MG1
1.37
LG6 + 6A
Stellite: Underground
MG4
1,306
788
405
700
120
1,211
4,222
31.86
31.68
37.20
39.00
38.11
33.59
37.7
2,702
34.98
1.36 LG6 + 6A
Mecklenburg: Open Pit
Mecklenburg:Open-Pit
LG6 + 6A
61
40.76
1.58 LG6 + 6A
73.91
44.10
Mecklenburg: Underground
Mecklenburg: Underground
LG6 + 6A
2,682
41.85
1.57
LG6 + 6A
4,190
43.66
Vlakpoort: Open Pit
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
0
42
140
131
164
398
754
41.57
38.77
36.85
30.01
21.46
33.32
19.65
Vlakpoort: Underground
LG6
UG2
Total
Measured
Resources
INDICATED
Stellite: Open-Pit
3,015
1,276
948
1,914
239
262
3,628
30.75
30.82
36.08
37.53
33.88
32.69
34.26
1.20 MG4
1.16 MG3
1.28 MG2
1.38 MG1
1.43 LG6 + 6A
Stellite: Underground
1.22 MG4
1.38 LG6 + 6A
3,526
1,492
1,109
2,239
280
306
4,243
32.25
31.68
37.30
38.80
38.54
33.8
37.5
8,571
36.14*
1.39**
14,870
37.92*
1.41**
225
1,111
674
346
598
103
4
3
37
16
9
0
0
PROVED:
Stellite Tailings
LG6 - MG4
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6 + 6A
Stellite: Underground
MG4
LG6 + 6A
LG1 -3
LG5
LG6
MG1 -4
UG1 -2
Vlakpoort: Underground
LG6
UG2
Total Proved
Reserves
PROBABLE:
Stellite: Open Pit
MG4
MG3
MG2
MG1
LG6 + 6A
Stellite: Underground
MG4
LG6 + 6A
1.14
1.22
1.19
1.32
1.40
1.46
1.24
1.41
1.64
1.59
1.82
1.55
1.53
1.29
1.12
1.59
1.06
1.23
1.19
1.31
1.41
1.46
1.25
1.41
1.59
Mecklenburg: Underground
Mecklenburg: Underground
LG6 + 6A
1,924
41.83
1.57 LG6 + 6A
3,006
43.37
50
RESOURCE STATEMENT Vlakpoort: Open Pit
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
4
3
37
16
9
0
0
LG1 -3
LG5
LG6
MG1 -4
UG1 -2
Vlakpoort: Underground
LG6
UG2
Total Probable
Reserves
Total Proved
& Probable
Reserves
13,275
34.78*
1.34**
21,846
35.32
1.36
17
10
64
75
24
793
421
41.57
39.92
33.95
29.92
27.61
33.92
19.83
1.86
1.55
1.58
1.35
1.25
1.58
1.06
17,605
36.81*
1.38**
32,475
37.31
1.40
Mecklenburg: Underground
LG6 + 6A
1,142
43.41
Vlakpoort: Open-Pit
1,440
2,110
1,920
1,070
40
33.18
32.64
37.10
38.90
37.82
41
1
119
0
1,321
115
41.55
28.61
33.67
33.67
20.27
Vlakpoort: Underground
LG6
UG2
Total
Indicated
Resources
Total
Measured
& Indicated
Resources
INFERRED
Stellite: Open-Pit
MG4
MG3
MG2
MG1
LG6 + 6A
LG1 -3
LG5
LG6
MG1 -4
UG1 -2
Vlakpoort: Underground
LG6
UG2
Total Inferred
Resources
Total
Resources
(Excl
Exploration
Results²)
EXPLORATION RESULTS
Vlakpoort: Open-Pit
LG1 -3
LG6
MG1 & MG3
MG4 & MG4a
50
365
25
264
36.86
33.55
33.60
29.70
Vlakpoort: Underground
LG6
1,243
34.16
9,319
35.94*
1.38**
41,794
37.01
1.39
1.24
1.26
1.32
1.41
1.44
1.59
1.79
1.59
1.30
1.59
1.08
1.82
1.60
1.65
1.23
1.60
“NOTES:
* Excluding Cr2O3 % of UG1, UG2 and MR
** Excluding Cr:Fe (ratio) of UG1, UG2 and MR”
Total
Exploration
Results
Total
Resources
(Incl
Exploration
Results²)
1,947
33.50
1.56
43,741
36.85*
1.40**
51
RESOURCE STATEMENTAFARAK ANNUAL REPORT 2018 Combined PGM Mineral
Resource and Reserve Statemente
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 -MR
MEASURED:
Vlakpoort: Open-Pit
-
-
-
-
-
-
-
-
-
-
-
LG1 -3
LG5
LG6
- MG1 -4
159
1.4
7,158 UG1 -MR
Vlakpoort: Underground
Vlakpoort: Underground
LG6
UG2
MR
Total Proved
Reserves
PROBABLE:
Stellite: Open Pit
MG4
MG3
MG2
MG1
-
-
-
-
-
-
-
LG6
- UG2
- MR
159
1.40
7,158
Total
Measured
Resources
INDICATED
Stellite: Open Pit
MG4
MG3
MG2
MG1
Vlakpoort: Open Pit
Vlakpoort: Open-Pit
-
-
-
-
-
-
-
LG1 -3
LG5
LG6
- MG1 -4
0.19
55 UG1 -MR
Vlakpoort: Underground
-
-
-
-
LG6
- UG2
- MR
0
42
140
131
205
398
754
618
0.18
0.74
0.46
1.13
1.77
0.43
4.04
2.15
0
999
2,066
4,760
11,667
5,503
97,947
42,723
2,288
2.25
165,666
952
440
698
722
17
10
64
75
24
793
421
208
1.40
1.78
1.73
0.84
0.22
0.66
0.40
0.85
0.31
0.43
4.45
2.96
42,855
25,183
38,828
19,501
120
212
823
2,050
239
10,964
60,240
19,797
0.19
55
168
1.34
7,213
Total
Indicated
Resources
Total
Measured
& Indicated
Resources
INFERRED
Stellite: Open-Pit
MG4
MG3
MG2
MG1
4,424
1.55
220,813
6,712
1.79
386,479
5,710
3,950
2,740
3,430
1.38
2.13
2.06
0.86
253,370
270,531
181,492
94,849
-
-
-
-
9
-
-
-
9
LG1 -3
LG5
LG6
MG1 -4
UG1 -MR
Vlakpoort: Underground
LG6
UG2
MR
Total Probable
Reserves
Total Proved
& Probable
Reserves
52
RESOURCE STATEMENT Vlakpoort: Open-Pit
LG1 -3
LG5
LG6
MG1-4
UG1 -MR
Vlakpoort: Underground
LG6
UG2
MR
Total Inferred
Resources
Total
Resources
(Excl
Exploration
Results²)
EXPLORATION RESULTS
Vlakpoort: Open-Pit
LG1
LG2
LG3
LG6
MG1
MG3
MG4 + 4a
Vlakpoort: Underground
LG6
Total
exploration
Results
Total
Resources
(Incl
Exploration
Results)
41
0
1
119
0
1,321
115
-
17,427
0.23
-
0.42
1.00
-
0.42
4.78
-
1.50
303
-
14
3,826
-
17,840
17,675
-
839,899
24,139
1.58
1,226,378
10
7
33
365
20
5
264
0.30
0.17
0.27
0.42
0.85
1.67
0.87
96
38
286
4,929
547
268
7,385
1,243
0.41
16,387
1,947
0.48
29,938
26,086
1.50
1,256,316
Table 5. Shows the Chromitite Mineral Reserves and Resources for Vlakpoort Mine as at 31 December 2018.
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 the 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.
53
RESOURCE STATEMENTAFARAK ANNUAL REPORT 2018 Competent Persons
The information in this statement that relates to Exploration Results and Mineral Resources is based on the Mineral Reserve and
Mineral 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: Chief Consulting Geologist, Afarak SA Mining,
Pr.Sci.Nat (reg no:400092/04), EDP (UNISA SBL), NDip (Geology), NHDip, Geotechnology, MTech
Research (Industrial Minerals), MGSSA, MSAAG, MSAQS
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, have 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 consent to the inclusion of the matters based on his
information in the form and context in which it appears.
Daniel Thenga
Cuan Kloppers
54
RESOURCE STATEMENT
Governance
Review
58
GOVERNANCE REVIEW Chairman’s
Introduction
Dear Shareholders,
In the past year Afarak has navigated a challenging
operational environment.
In 2018, we made some encouraging progress in certain
areas of our business but overall it was a tough year
and our financial performance reflects the challenges.
Improved commercial execution, cost discipline and
technical excellence are the areas of focus for ensuring
the delivery of our strategy.
Throughout 2018, your Board empowered the
management and the different units around the world
to focus on implementing initiatives that would further
strengthen our operations. A turn-around strategy in our
South African operations is being implemented led by a
new and experienced management team.
Looking ahead, we are confident that the investments
that are underway such as additional beneficiation
plants and the PGM plant will further build our resilience
to volatile markets. 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.
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 happened in
2018 and improvements in health & safety performance
were registered across our unit . 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. This year, I am satisfied
with our efforts to invest in much needed infrastructure
that will benefit our host communities.
Afarak’s return to growth can only be achieved if it is
underpinned by sound corporate governance. 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.
Afarak is privileged to have a diverse, skilled and
experienced Board. The Board is substantially smaller
than in previous years which affords cost savings,
improved information flows changes and a stable
environment for long-term strategic thinking and active
oversight of the business, but also places considerable
pressure on members. We will continue to review whether
the size of the Board is optimal for both efficiency and
effectiveness.
I thank all for their continuing commitment and
contribution.
I am also grateful to those Directors who chair and are
members of the Committees of the Board, which are set
out later in this report. The diligent way in which they
carry out their Committee duties enables us to discharge
our responsibilities efficiently and effectively.
We are always mindful of the trust shareholders
place in us as your elected Directors and of our wider
responsibilities to all of Afarak’s stakeholders. We seek to
apply rigorous governance standards in our work for you
and other stakeholders, which you can read about in this
Governance Review.
As instructed by the Extraordinary General Meeting held
in November 2018, management is currently working
on the repurchase of Afarak’s own shares and plans are
underway to present the proposals and documentation
to the shareholders as soon as practicable.
I am confident that we have a leadership team with the
resolve and commitment to ensure that Afarak returns
to growth. I share our CEO’s enthusiasm for the future
prospects of Afarak as an innovator of value-added
ferrochrome products and its ability to deliver value for
customers and shareholders.
As I talk to our employees around the world, I am
constantly reminded that our achievements are only made
possible by a skilled and talented team. I am grateful for
their efforts over the past year and look forward to working
with them to deliver a return to growth.
DR JELENA MANOJLOVIC
Chairman
59
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 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
1.7. Notes to the statement of financial
position, 10. Property, plant and equipment.
Publication of unaudited financial information Not applicable
Details of long-term incentive schemes
1.7. Notes to the statement of financial
position, 19. Share-based payments
Waiver of emoluments by a director
Not applicable
Waiver of future emoluments by a director
Not applicable
Non pre-emptive issues of equity for cash
Not applicable
Item (7) in relation to major subsidiary
undertakings
Parent participation in a placing by a listed
subsidiary
Not applicable
Not applicable
Contracts of significance
Provision of services by a controlling
shareholder
Shareholder waivers of dividends
1.7. Notes to the 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.
60
GOVERNANCE REVIEW Our People
The Board of Directors
CHAIRMAN
Dr Jelena Manojlovic
Chairman and Dependent Non-Executive Director
Ph.D. (Medicine), Clin. D. (Psychology), MA (Psychotherapy)
Born 1950
Jelena Manojlovic has been a member of the Board since July 11, 2008. She has acted
as Chairman of the Board during 2009 and 2015 and again since 2017. 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. Dr Manojlovic is independent of the Company but is dependent on a major
shareholder of the Company.
INDEPENDENT NON-EXECUTIVE DIRECTORS
Barry Rourke
Independent Non-Executive Director
FCA
Born 1950
Barry Rourke was a member of the Afarak Board, the Chairman of the Audit Committee
and a member of the Remuneration Committee from April 2010 to February 2013 and
rejoined the Board in 2015. 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.
Thorstein Abrahamsen
Independent Non-Executive Director
M.Sc. (Electrochemical Engineering)
Born 1948
Thorstein Abrahamsen is an internationally respected stainless steel and ferro-alloy
industry professional. He has served as Chief Executive Officer of various manufacturing
companies within stainless steel, ferro-alloy, 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 ferro- alloy 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.
62
GOVERNANCE REVIEW EXECUTIVE DIRECTOR
Guy Konsbruck
CEO and Executive Director
BA; MBA (SHU Fairfield)
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.
63
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 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; MBA (SHU Fairfield)
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.
Dr Danko Koncar
COO
B.Sc. (Engineering), M.Sc. (Engineering), Ph.D. (Engineering)
Born 1942
Dr Danko Koncar was appointed as Chief Operating Officer on December 9, 2016.
He has extensive experience in minerals processing and trading, more than 20 years
in ferrochrome industry with six years of experience in application of direct current
technology to ferrochrome processing. Before joining Afarak, he served in different
management positions in chrome industry and was the Chairman of Samancor
Chrome from 2005 - 2009.
64
GOVERNANCE REVIEW 65
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 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:
Melvin Grima
Finance Director
ACCA, MIA, CPA
Born 1982
Melvin Grima joined Afarak in 2013 as Group Finance Manager. He was responsible of the relocation of the
Group’s corporate finance function to Malta and its setup. He was promoted to Finance Director in 2015 and
appointed to the role of Chief Financial Officer on January 11, 2019. 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 1996-2001 and then joined Samancor Cr in 2001
as manager of the low carbon production and eventually became the COO of Samancor Cr. In 2012 he left
to do consulting in the Ferroalloy and steel industry. He also gained extensive experience with reductant
technology in Portnex. In June 2017 he joined Afarak SA.
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.
66
GOVERNANCE REVIEW 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 and was appointed as Managing Director in December 2003.
Dr Kurt Maske
Managing Director, Afarak SA Mining
PhD (Minerals Engineering)
Born 1955
Kurt Maske is the acting General Manager for the SA Mining Operations and manages the South African
marketing and logistics processes. Prior to joining Afarak in 2011, Kurt was with BHP Billiton for nearly 25
years where he started his career as a Process Engineer responsible for developing the DC arc furnace
technology for FeCr production at what is now Mogale Alloys. After serving as Works Manager he was
transferred to Samancor’s marketing team to globally manage the sale of the group’s low and medium
carbon ferrochrome products.
67
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 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
Committees
Health, Safety &
Sustainable
Development
Committee
Nomination &
Remuneration
Committee
68
GOVERNANCE REVIEW Executive
Management Team
Audit & Risk
Management
Committee
Corporate
Management Team
Chief Executive
Officer
(CEO)
69
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 GENERAL MEETING
General Meeting.
Afarak’s ultimate decision-making body is the
shareholders’ General Meeting which convenes once
a year and is held within six months of the end of the
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 will be published as a
stock exchange release without undue delay and will be
available on the Group’s website, along with the minutes
of the General Meeting, no later than two weeks after the
meeting.
Shareholders have the right to add items falling within
the scope of the Annual General Meeting to the meeting’s
agenda. The request must be submitted to the Board of
Directors in advance so that the item can be included to
the notice. Afarak publishes the details of how and when
to submit the requests to the Board on its website.
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.
The Company uses the Annual General Meeting to develop
an understanding of the views of its shareholders about
the Company.
The Annual General Meeting was held on May 29, 2018 at
Union Square Auditorium, Helsinki, Finland.
GENERAL MEETINGS IN 2018
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.
All the resolutions of the above-mentioned General
Meeting can be found at:
http://www.afarak.com/en/investors/shareholder-
meetings/2018/
EXTRAORDINARY GENERAL MEETINGS
The most significant items on the Annual General
Meeting’s agenda include:
An Extraordinary General Meeting was held on February 5,
2018 at Union Square Auditorium, Helsinki, Finland.
• Approving the year’s financial statements;
• Confirming the financial year’s profit or loss, the
dividend distribution or other distribution, such as
capital redemption;
• Determining the number of directors on the Board
of Directors, their remuneration and electing those
directors to the Board; and
• Electing the auditor or auditors and approving their fees.
In addition, certain significant matters (such as amending
the Articles of Association or deciding on a capital
increase) require a resolution by the shareholders in a
Another Extraordinary General Meeting was also held on
November 12, 2018 at Union Square Auditorium, Helsinki,
Finland.
All the resolutions of the above-mentioned General
Meeting can be found at:
http://www.afarak.com/en/investors/shareholder-
meetings/2018/
70
GOVERNANCE REVIEW
The Board of Directors
TASKS AND RESPONSIBILITIES
The Board of Directors is composed of between three and
nine members who are elected by the General Meeting of
shareholders, which also approves their remuneration. The
tenure of each Board member is for one year and expires at
the end of the next annual General Meeting immediately
following their election. The Board elects a chairman from
among its members. None of the non-executive directors
has a service contract with the Company and none of the
directors has waived or agreed to waive any emoluments
from the Company or any subsidiary undertaking.
The 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 2018 Annual General Meeting elected five members to
the Board. Dr Jelena Manojlovic, Mr Barry Rourke, Mr Ivan
Jakovcic and Mr Thorstein Abrahamsen were re-elected. Mr
Ivan Jakovcic resigned from the Board in July 2018.
The duties of a Board member are specified in the Finnish
Companies Act. The Afarak Board also has a written charter
governing its functions.
DIVERSITY OF THE BOARD OF DIRECTORS - SKILLS,
EXPERIENCE AND ATTRIBUTES
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 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 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.
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;
• knowledge of world capital markets.
71
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018
SENIOR INDEPENDENT DIRECTOR
BOARD INDEPENDENCE
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.
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 and Mr Thorstein Abrahamsen are independent
of the Company and significant shareholders whilst Dr
Jelena Manojlovic is independent 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
-
Chair
Barry Rourke
Thorstein Abrahamsen
NED
NED
08 May 2015
Independent
Chair
Member
23 May 2017
Independent
Member
Member
Chair
Guy Konsbruck
ED
05 February 2018
N/A
72
GOVERNANCE REVIEW The differences in the meetings attended, related to the
changes in Board composition.
REMUNERATION
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.
Those members of the Board of Directors that are executives
of the Company are not entitled to receive any remuneration
for Board membership.
During the financial year 2018, the Board members received
a total of EUR257,000 and Committee membership fees.
The Board in 2018
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.
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, Germany and Serbia, which made
the units able to respond to changing market conditions.
The Board also supported various capital investments and
restructuring processes especially in South Africa.
RISK MANAGEMENT
The Board continued enhancing the Group’s risk
management function across the Group. Key factors were
identified and various mitigating measures were applied,
including reducing the exposure to currency fluctuations.
In addition, the Board has overseen measures to improve
liquidity and in particular to manage its working capital
effectively.
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 including
the investment and installation of a heat recovery pump
at Mogale. The Board continued the Company’s support
towards host communities in South Africa.
A total of 9 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
Thorstein Abrahamsen
Guy Konsbruck
Ivan Jakovcic
9/9
9/9
9/9
9/9
5/5
A total of 9 meetings were held during the reporting period.
73
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 Board Committees
AUDIT AND RISK MANAGEMENT COMMITTEE
NOMINATION AND REMUNERATION COMMITTEE
The Audit and Risk Management Committee is composed
of two members: Barry Rourke (Chairman), and Thorstein
Abrahamsen.
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 constant contact with auditors and evaluating
their reports. The Committee reports regularly to the Board.
In 2018, the Committee continued to oversee the Group’s
financial performance and reporting. The Committee also
worked with management to 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 finalising
the acquisition of the Zeerust Chrome Mine and concluding
the purchase agreement of the Magnohrom plant in Serbia.
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.
The combined Nomination and Remuneration Committee
of the Company currently has three members: Ivan Jakovcic
(Committee Chairman), Dr Jelena Manojlovic and Barry
Rourke. Mr Ivan Jakovcic resigned from the Board in July 2018.
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 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 2018,
the Committee continued to monitor safety improvement
progress and initiatives across various Units of the Company
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.
74
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 may not be included.
For each resolution, proxy
appointment forms should
provide shareholders with the
option to direct their proxy to
vote either for or against the
resolution or to withhold their
vote.
The Company’s AGM is arranged in accordance with the Finnish
Companies Act so certain procedural and other matters differ from
the UK CG recommendation. The Company does not provide proxy
voting forms.
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 2018 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.
75
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 Internal Control
The principles of internal control are confirmed by the Board.
The Group’s EMT members oversee 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.
Internal control refers to elements of financial and
operational management which are designed to ensure:
• Achievement of defined performance targets;
• Efficient use of resources and protection of assets;
• Effective management of risks;
• Accurate, timely and continuous delivery of financial
and operational information;
• Full compliance with laws and regulations as well as
internal policies; and
• Business continuity through secure systems and stable
operating procedures.
76
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.
GOVERNANCE REVIEW
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, monitor and reassess them on a regular basis as
part of the Group’s strategy and goal-setting process. The
Board reports to the shareholders of the Company.
AUDIT AND RISK MANAGEMENT COMMITTEE
The Audit and Risk Management Committee is responsible
for the following internal control related activities:
Monitoring the reporting process of the financial
statements;
Supervising the financial reporting process;
Monitoring the efficiency of the Group’s internal
control, internal audit and risk management systems;
and
Monitoring the statutory audit of the financial
statements and consolidated financial statements.
GROUP MANAGEMENT
The Group’s management is oversees 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.
During Afarak’s General Meeting held in May 2018,
Authorised Public Accountant Ernst & Young Oy (“EY”) was
elected as auditor, with Authorised Public Accountant Erkka
Talvinko having the principal responsibility. EY is also the
local auditor of all of the Group companies.
In 2018, the Company paid EUR 504,000 for audit fees
(348,000) and EUR 36,000 for non-audit services (4,000) to EY.
77
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018
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.
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.
PUBLIC INSIDER REGISTER
COMPANY-SPECIFIC INSIDER REGISTER
The Company’s permanent public insiders comprise the
Board members, the CEO, the Executive Management
Team and the auditors. All permanent public insiders and
the statutory information about them, their related parties
and the entities controlled by them or in which they exercise
influence, have been entered into the Company’s public
insider register which is published on the Group’s website.
In addition to the public insider register, the Company holds
a company-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.
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
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 2018
Title
Shares
Related Party Shares
Options
Members of the Board
Jelena Manojlovic
Guy Konsbruck*
Chairman
150,000
Chief Executive Officer,
Executive Director
500,000
Barry Rourke
Non-Executive Director
150,000
Thorstein Abrahamsen
Non-Executive Director
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar**
Pedrag Kovacevic
Auditor
Executive
Chief financial Officer
0
0
0
0
0
0
0
* The CEO received an additional 500,000 shares in January 2019 after completing his second year of service.
** Dr Koncar has sold his shareholding in LNS (formerly Kermas Ltd) on January 20,2018.
78
GOVERNANCE REVIEW Resolutions of the
Annual General Meeting
The Company’s Annual General Meeting (“AGM’) was
held on May 29, 2018. 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.
NOMINATION AND REMUNERATION COMMITTEE
Ivan Jakovcic (Chair), Dr Jelena Manojlovic and Barry
Rourke. Mr Jakovcic resigned in July 2018 and Dr Manojlovic
took over the Chairmanship of the Committee and
Thorstein Abrahamsen joined too.
The AGM resolved that no dividend would be paid for 2017.
The AGM resolved that the Board would decide in quarter
four 2018 whether a capital redemption of a maximum of
EUR 0.02 per share would be paid.
SAFETY, HEALTH AND ENVIRONMENT COMMITTEE
Thorstein Abrahamsen (Chair) and members of
management
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. Those members of the Board of
Directors that are executives of the Company are not
entitled to receive any remuneration for Board membership.
The AGM resolved that authorised public accountant firm
Ernst & Young Oy was re-elected as the Auditor of the
Group for the year 2018.
The AGM authorised the Board of Directors to resolve upon
acquiring a maximum of 25,000,000 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 June
25, 2019.
The AGM 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), Mr Thorstein Abrahamsen (Norwegian
citizen) and Mr Guy Konsbruck (Luxembourg citizen) were
re-elected. Mr Jakovcic resigned from the Board in July
2018. The Board appointed from among its members the
following members to the Committees:
AUDIT AND RISK MANAGEMENT COMMITTEE
Barry Rourke, (Chair), Thorstein Abrahamsen
79
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 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 2018, the registered number of Afarak
Group Plc shares was 263,040,695 (263,040,695) and the
share capital was EUR 23,642,049.60 (23,642,049.60).
On 31 December 2018, the Company had 2,387,494
(3,354,161) own shares in treasury, which was equivalent to
0.91% (1.28%) of the issued share capital. The total number
of shares outstanding, excluding the treasury shares held
by the Company on 31 December 2018, was 260,653,201
(259,686,534).
At the beginning of the period under review, the Company’s
share price was EUR 0.86 on NASDAQ Helsinki and GBP
0.87 on the London Stock Exchange. At the end of the
review period, the share price was EUR 0.73 and GBP
0.73 respectively. During the fourth quarter of 2018, the
Company’s share price on NASDAQ Helsinki ranged from
EUR 0.67 to 0.92 per share and the market capitalisation, as
at 31 December 2018, was EUR 191.0 (1 January 2018: 222.3)
million. For the same period on the London Stock Exchange,
the share ranged from GBP 0.73 to 0.78 per share and the
market capitalisation was GBP 190.7 (1 January 2018: 190.7)
million, as at 31 December 2018.
Based on the resolution at the AGM on 29 May 2018, the
Board is authorised to buy-back up to a maximum of
15,000,000 of its own shares. This authorisation is valid until
29 November 2019. The Company did not carry out any share
buy-backs during the fourth quarter of 2018.
Furthermore, based on the resolution at the EGM on 12
November 2018, the Board is authorised to decide on the
acquisition of a maximum of 31,500,000 own shares by a
voluntary takeover bid made to Afarak’s shareholders at a
price of EUR 1.015 per share. This authorisation is valid until
31 May 2019. The Company did not carry out any share buy-
backs during the fourth quarter of 2018.
80
GOVERNANCE REVIEW Remuneration Report
This report sets out the remuneration policy and practices
for Afarak’s Board and Executive Management Team
(“EMT) and provides details of their remuneration and share
interests for the year ended 31 December 2018.
NON-EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
Non-executive directors do not have service contracts with
the company.
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 29, 2018 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 or committee membership.
As some of the Board members have also had executive
management roles, both the Board fees and the salaries in
relation to executive role have been presented below.
REMUNERATION POLICY
Afarak operates in a very competitive sector in terms of
human capital with a shortage of highly qualified and
experienced executives. The Group’s remuneration policy
is designed to attract, retain and incentivise high-calibre
executives to implement its business strategy and enhance
shareholder value.
The policy seeks to align the interests of the business and
shareholders by rewarding executives appropriately for
achieving individual and group targets and thereby ensuring
long-term value creation for the benefit of all shareholders.
NOMINATION AND REMUNERATION COMMITTEE
The Nomination and Remuneration Committee makes
recommendations to the Board regarding executive
remuneration and submits proposals to the Annual General
Meeting of shareholders regarding the Board’s remuneration.
The committee is responsible for the overall direction of the
remuneration policy, as well as determining, within agreed
terms of reference, the specific remuneration packages of
the EMT. This includes pension rights, executive incentive
schemes and any compensation payments. To ensure that
the Group’s remuneration packages are both appropriate
and competitive, the committee evaluates information
on market-based remuneration levels for comparable
companies.
The members of the committee in 2018 were Mr Ivan
Jakovcic (Chairman), Dr Jelena Manojlovic and Mr Barry
Rourke. Mr Jakovcic resigned on July 31, 2018, and Mr
Thorstein Abrahamsen assumed the vacant position in the
committee.
CEO SERVICE AGREEMENT
The Board appoints the Chief Executive Officer (CEO) to
manage, develop, guide and supervise the Group’s activities
and leads the EMT. The Board decides upon the CEO’s
remuneration based on the recommendations made by the
Committee.
The CEO receives an annual salary of EUR 360,000. He shall
also receive 500,000 Company shares as an incentive for each
completed year of service acting as CEO. Mr Guy Konsbruck
received two share transfers since his appointment.
The Group makes no pension arrangements for the CEO
beyond the statutory pension coverage and there is no set
retirement age.
81
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018
RELATED PARTY TRANSACTIONS WITH PERSONS BELONGING TO THE GROUP’S BOARD AND MANAGEMENT
EUR ‘000
CEO
Ruiters Alistair
Konsbruck
Guy
BOARD
MEMBERS
Abrahamsen
Thorstein
Djakov Milan
Hoyer Thomas
Jakovcic Ivan
Kankaala
Markku
Manojlovic
Jelena
Rourke Barry
Total
Board member 8.5.2015
- 23.5.2017, CEO
21.5.2015 - 15.1.2017
Board member
05.2.2018 onwards, CEO
15.1.2017 onwards
Board member
23.5.2017 onwards
Board member 12.5.2016
- 23.5.2017
Board member
23.5.2017 - 05.2.2018
Board member 8.5.2015
- 31.07.2018, Chairman
12.5.2016 - 23.05.2017
Board member
30.6.2003 -17.3.2017
Board member 11.7.2008
onwards, Chairman
23.5.2017 onwards
Board member 8.5.2015
onwards
2018
2017
Salaries
Fees
Share-based
remuneration
Salaries
Fees
Share-based
remuneration
0
0
14
145
360
219
415
583
60
0
6
34
0
72
85
617
0
36
24
36
65
15
67
85
743
728
219
14
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.
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
liability insurance, traveller’s insurance and telephony services.
None of Afarak’s executive directors have received any
compensation for serving as a NED in other companies.
Management remuneration
EUR ‘000
Fixed salaries and fees
Provision for variable performance related compensation
Total
82
2018
564
-14
550
2017
482
195
677
GOVERNANCE REVIEW SHARE-BASED COMPENSATION
SHARE OPTIONS
As part of the remuneration package of its CEO, Afarak pays
a share-based compensation of 500,000 shares for every
completed year. As at December 2018, Alistair Ruiters had
received a total of 1,466,667 shares over his span as both CEO
and Consultant.
Guy Konsbruck has received in total 1,000,000 shares after
completing his second year as CEO in January 2019. These
shares have a lock-up period of two years from subscription
date.
DIRECTORS’ AND EMT MEMBERS’ SHAREHOLDINGS AND OPTIONS AT 31 DECEMBER 2018
Title
Shares
Related Party Shares
Options
Members of the Board
Guy Konsbruck
Barry Rourke
Jelena Manojlovic
Chief Executive Officer,
Executive Director
500,000
Non-Executive Director
150,000
Chairperson & Dependent Non-
Executive Director
150,000
Thorstein Abrahamsen
Non-Executive Director
Auditors
Erkka Talvinko
Other Insiders
Danko Koncar**
Predrag Kovacevic
Auditor
Chief Operating Officer
Chief financial Officer
0
0
0
0
800,000
0
0
0
0
0
0
0
0
* The CEO received an additional 500,000 shares in January 2019 after completing his second year of service.
** Dr Koncar has sold his shareholding in LNS (formerly Kermas Ltd) on January 20,2018.
0
0
0
0
0
0
0
0
83
GOVERNANCE REVIEWAFARAK ANNUAL REPORT 2018 Financial
Statements
Key Figures
FINANCIAL INDICATORS
CONTINUING OPERATIONS
2018
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
%
%
%
%
194,013
-1,017
-0.5 %
-14,092
-7.3 %
-18,541
-9.6 %
-11.5 %
-6.0 %
-58.3 %
8.2 %
942
198,814
153,570
17,970
9.0 %
11,399
5.7 %
4,241
2.1 %
3.0 %
8.2 %
66.3 %
0.7 %
928
5,478
3.6 %
-1,010
-0.7 %
-3,137
-2.0 %
-1.6 %
0.9 %
67.7 %
-3.3 %
813
86
ANNUAL FINANCIAL STATEMENTS Key Figures
SHARE-RELATED KEY INDICATORS
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
%
Group
-0.07
-0.07
0.58
0
0
neg.
260,080
260,702
263,040
0.94
0.67
1.20
190,968
27,594
11.1%
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
%
1.00
0.89
0.82
0.73
1.05
0.93
213,190
190,705
28
25
0.0 %
2018
2017
2016
Continuing
Operations
Group
Continuing
Operations
Group
Continuing
Operations
-0.01
-0.01
0.66
-0.07
-0.07
0.58
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 %
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 %
* 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 company did not distribute capital
redemption. In 2019 the Board of Directors proposes to the Annual General Meeting which will be held on 21 May 2019 that no
distribution would be paid in 2019.
87
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
during the period.
Distribution / Number of shares at the end of the period. In the
attached table of share related key indicators, the dividend and
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.
Distribution per share
Price to earnings
Average share price
Market capitalisation
88
ANNUAL 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 (loss) / profit
Finance Income
Finance Expense
(Loss) / profit before taxes
Income taxes
(Loss) / profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
(Loss) / profit for the year
(Loss) / profit attributable to:
Owners of the parent
Non-controlling interests
Earnings per share (counted from (loss) / profit
attributable to owners of the parent):
basic (EUR), Group total
diluted (EUR), Group total
basic (EUR), continuing operations
diluted (EUR), continuing operations
Note
1.1.-31.12.2018
1.1.-31.12.2017
1
2
3
4
4
5
13
6
6
7
8
9
194,013
198,814
4,624
-157,718
-25,589
-6,532
-6,543
-13,654
-2,693
-14,092
3,275
-7,724
-18,541
-42
-18,583
0
-18,583
-18,056
-527
-18,583
-0.07
-0.07
-0.07
-0.07
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
89
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Consolidated
Financial Statements
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME (CONT.)
EUR ‘000
(Loss) / profit for the year
Other comprehensive income
1.1.-31.12.2018
1.1.-31.12.2017
-18,583
6,711
Items that will not be reclassified to profit and loss
Remeasurements of defined benefit pension plans
-577
-196
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
-2,208
-340
-3,125
-21,708
-21,111
-597
-21,708
-2,028
-608
-2,832
3,879
3,518
361
3,879
90
ANNUAL 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
31.12.2018
31.12.2017
10
11
11
14
14
20
15
16
17
44,984
56,245
13,475
511
22,192
3,935
141,342
56,965
48,175
12,132
117,272
45,806
62,409
16,205
734
21,066
3,641
149,861
49,944
49,434
10,702
110,080
Total assets
258,614
259,941
91
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
31.12.2018
31.12.2017
18
20
14
13
22
23
21
23
21
23
14
23,642
25,740
98
231,292
-21,811
-108,485
150,476
372
150,848
3,435
2,103
16,871
20,106
2,679
8,876
54,070
27,028
105
4,232
22,331
53,696
107,766
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
Total equity and liabilities
258,614
259,941
92
ANNUAL FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
EUR ‘000
Operating activities
(Loss) / profit 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
Acquisitions of subsidiaries, net of cash acquired
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 financing activities
Change in cash and cash equivalents
1.1.-31.12.2018
1.1.-31.12.2017
-18,583
6,711
13,075
4,449
2,693
42
-227
-56
5,795
-7,860
4,669
-107
-1,088
590
340
-663
0
3,069
-1,003
-457
-7,497
141
-1,139
-9,955
0
7,787
-6,088
-239
6,518
7,978
1,092
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
0
-727
-7,601
-591
8,851
-68
-5,186
3,063
-3,818
-249
6,412
222
1,706
93
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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.-31.12.2018
1.1.-31.12.2017
10,702
338
12,132
1,092
9,651
-655
10,702
1,706
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.
94
ANNUAL FINANCIAL STATEMENTS Consolidated
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
EUR ‘000
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 31.12.2016
A
B
C
D
E
F
G
H
I
23,642
25,740
235,242
-16,787
-95,963
160
172,034
4,151
176,185
Impact of the adoption of IFRS 15
Total impact of the adoption of
new IFRS standards
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
0
0
0
0
0
0
0
0
-2,547
-2,547
779
-5,186
0
0
6,261
-196
6,065
6
271
3
0
0
-29
0
0
6,261
-2,743
3,518
785
-5,186
271
-26
0
0
450
-89
361
0
0
6,711
-2,832
3,879
785
-5,186
-3,543
-3,272
-26
Equity at 31.12.2017
23,642
25,740
230,835
-19,334
-89,618
131
171,396
969
172,365
Impact of the adoption of IFRS 9
Total impact of the adoption of
new IFRS standards
Loss for the period 1-12/2018
Other comprehensive income
Total comprehensive income
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-18,056
-18,056
-527
-18,583
-2,477
-577
-2,477
-18,633
-3,054
-21,110
-70
-3,124
-597
-21,707
Share-based payments
Other changes in equity
457
- 234
223
- 33
- 33
223
- 33
Equity at 31.12.2018
23,642
25,740
231,292
- 21,811 - 108,485
98
150,476
372
150,848
95
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
1. Notes to the Consolidated
Financial Statements
1.1 COMPANY INFORMATION
Afarak Group is a chrome mining and minerals producer focused on delivering sustainable growth with a speciality
alloys business in southern Europe and a ferro alloys business in southern Africa. The Group’s parent company is
Afarak Group Plc (business ID: 0618181-8). The parent company is domiciled in Helsinki, and its registered address is
Kaisaniemenkatu 4, 00100 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 2018. 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 2019 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.
96
ANNUAL 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.
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.
97
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
The Group applies IFRS 15 Revenue from Contracts with customers standard. Income from the sale of goods is
recognised once the control of goods have been transferred to the buyer. Control is transferred either over time or at a
point in time. The transfer of control depends on terms of delivery (Incoterms), and some of which have transfer of risk
to the customer before material is delivered to the final customer. The freight in conjunction with these delivery terms
may be regarded as a separate performance obligation, however as they are limited in number, the Group does not
consider the freight as being separate from the sale.
The most often used term are FCA, CIF 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.
Generally, the Group receives short-term advances or cash against documents (CAD) from its customers. The payment
terms are usually up to 60 days from end of month or after consignment report for customers with consignment
agreement. The transaction price is based on official publications with premiums or discounts, while spot business is
done based on negotiations. Performance obligations are satisfied at delivery of the goods and revenue is recognised
based on the incoterms transfer of risk.
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
98
ANNUAL FINANCIAL STATEMENTS 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).
BROAD BASED BLACK ECONOMIC EMPOWERMENT (BEE) TRANSACTIONS
The purpose of 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 2018 financial year, testing took place on 31 December
2018. 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
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ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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.
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.
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ANNUAL FINANCIAL STATEMENTS 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
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
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ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
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:
Trademarks:
5-15 years
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
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss in accordance with IFRS 9: Financial Instruments.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for managing them. With the exception of trade receivables that do
not contain a significant financing component or for which the Group has applied the practical expedient, the Group
initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs.
Trade receivables that do not contain a significant financing component or for which the Group has applied the practical
expedient are measured at the transaction price determined under IFRS 15: Revenue from Contracts with Customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give
rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This
assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to
generate cash flows. The business model determines whether cash flows will result from collecting contractual cash
flows, selling the financial assets, or both.
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ANNUAL FINANCIAL STATEMENTS Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group
commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
1. Financial assets at amortised cost (debt instruments);
2. Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);
3. Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon
derecognition (equity instruments); and
4. Financial assets at fair value through profit or loss.
1. Financial assets at amortised cost (debt instruments)
This category financial assets are measured at amortised cost if both of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses
or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets
measured at amortised cost.
The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change
recognised in OCI is recycled to profit or loss.
The Group held loans receivable which were classified as being financial assets at amortised cost.
2. Financial assets at fair value through OCI (debt instruments)
This category of debt instruments are measured at fair value through OCI if both of the following conditions are met:
• The financial asset is held within a business model with the objective of both holding to collect contractual cash
flows and selling; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses
or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets
measured at amortised cost. The remaining fair value changes are recognised in OCI.
Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Group did not hold any debt instruments classified as being financial assets at fair value through OCI.
3. Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments:
Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income
in the statement of profit or loss when the right of payment has been established, except when the Group benefits
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ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in
OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Group elected to classify irrevocably its non-listed equity investments under this category.
4. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured
at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or
repurchasing in the near term.
Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated
as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest
are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding
the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above,
debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or
significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with
net changes in fair value recognised in the statement of profit or loss.
The Group did not hold any debt instruments classified as being financial assets at fair value through profit or loss.
Derecognition
A financial asset is primarily derecognised when:
• The rights to receive cash flows from the asset have expired; or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and
either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has
neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred
control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
• Disclosures for significant assumptions
• Debt instruments at fair value through OCI
• Trade receivables, including contract assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value
through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with
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ANNUAL FINANCIAL STATEMENTS
the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original
effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit
risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within
the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the
exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the
Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each
reporting date. The Group has established a provision matrix that is based on its historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic environment.
For debt instruments at fair value through OCI, the Group applies the low credit risk simplification. At every reporting
date, the Group evaluates whether the debt instrument is considered to have low credit risk using all reasonable and
supportable information that is available without undue cost or effort. In making that evaluation, the Group reassesses
the internal credit rating of the debt instrument. In addition, the Group considers that there has been a significant
increase in credit risk when contractual payments are more than 30 days past due.
The Group considers a financial asset in default when contractual payments are 120 days past due. However, in certain
cases, the Group may also consider a financial asset to be in default when internal or external information indicates
that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit
enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering
the contractual cash flows.
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.
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ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The company’s financial liabilities include trade and other payables and loans and borrowings including bank overdrafts.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. Financial liabilities designated
upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the
criteria in IFRS 9 are satisfied. The company has not designated any financial liability as at fair value through profit or loss.
Loans and borrowings
This is the category most relevant to the company. After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when
the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
This category generally applies to interest-bearing loans and borrowings. For more information, refer to
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition
of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is
recognised in the statement of profit or loss.
OFFSETTING OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
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
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ANNUAL FINANCIAL STATEMENTS 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
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
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ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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 amendments to the standards, which are effective for annual periods
beginning on or after 1 January 2018. The Group has not early adopted any standards, interpretations or amendments
that have been issued but are not yet effective.
Several other amendments apply for the first time in 2018. 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 2018, 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.
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. IFRS 9 introduced a model for the classification
and valuation of financial instruments, an expected credit loss model, and a revised approach to hedge accounting.
Classification and valuation under IFRS 9 are based on the business model that a company applies for its financial
assets and on the contractual cash flows from the financial assets. Applying IFRS 9 did not have significant impact on
the classification or valuation of financial asset in the group.
108
ANNUAL FINANCIAL STATEMENTS Afarak has performed an analysis based on historical data and also assessed the trade receivable individually for credit
risk. Based on this analysis management has concluded that a loss reserve shall not be reported for trade receivables
as historically the Group did not have material recoverability issues. With respect to other financial assets Afarak
applies the general approach. This general approach requires that the company determines the probability, default
rate and assesses if there is an increase in credit risk at reporting date. IFRS 9 has no material effect on the provision
and the classification of Afarak’s financial instruments.
IFRS 9 requires the Group to now use an expected credit loss model for its trade receivables measured at amortised
cost. The Group applies the simplified approach and record lifetime expected losses on all trade receivables measured
at amortised cost. Given the short term nature of these receivables, these changes will not have a significant impact.
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.
IFRS 15 Revenues from Contracts with Customers replaces existing standard regarding revenues. The standard
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. Afarak adopted the new standard as from 1st January 2018
using the full retrospective method. Afarak has conducted an assessment of contracts with customers to determine
the effects on revenue recognition. Revenue is recognised when the Group transfers the control to customer either over
time or at the point of time. The transfer of control depends on terms of delivery (incoterms), and some of which have
transfer of risk to the customer before material is delivered to the final destination. In these cases, Afarak concluded
that the freight in conjunction with these delivery terms may be regarded as a separate performance obligation
but as they are limited in number, such freight will not be recognised separately from the sale. The conclusion of the
assessment is that the adoption of IFRS 15 had no material impact on the timing of the revenue recognition.
• 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.
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.
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
109
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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.
Transition to IFRS 16
The Group plans to adopt IFRS 16 retrospectively to each prior reporting period presented. The Group will elect to apply
the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. The Group will therefore
not apply the standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4.
The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends
within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.
The Group has leases of certain office equipment (i.e., personal computers, printing and photocopying machines) that
are considered of low value.
The Group assessed the impact of IFRS 16 and plans to adopt the new standard on the required effective date. The
expected impact on assets and liabilities is of EUR 300 thousand.
Due to the adoption of IFRS 16, the Group’s operating profit will improve, while its interest expense will increase. This is
due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.
1.3 BUSINESS COMBINATIONS AND ACQUISTION OF
NON-CONTROLLING INTERESTS
1.3.1 FINANCIAL YEAR 2018
During the third quarter, Afarak has concluded the acquisition of Magnohrom, a sinter magnesite refractory material
company, with ore mines and production facilities in Kraljevo, Serbia, for an acquisition price of EUR 1.0 million. The
acquisition of Magnohrom was accounted for in accordance with IAS 16 Property, Pland and Equipment and IAS 38
Intangible Assets.
1.3.2 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.
110
ANNUAL FINANCIAL STATEMENTS 1.4 IMPAIRMENT TESTINGS
GENERAL PRINCIPLES OF IMPAIRMENT TESTING
Afarak Group has carried out impairment testing on goodwill and other assets as of 31 December 2018. 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. At the end of 2018, no impairment was recognised at the Speciality Alloys business, while an
impairment of EUR 6.5 million was recognised at the South African minerals processing business.
At the end of 2018, there were no indications of impairment of any other assets, such as shares in associated companies.
The joint venture Synergy Africa owns and operates mines in South Africa. These have been tested for impairment at
the joint venture level. This is further explained in note 13.
CHANGES IN GOODWILL DURING 2018
During the financial year 2018, the total goodwill of the Group decreased by EUR 6.2 million to a total of EUR 56.2
million. The decrease was attributable mainly to the impairment write-down related to Mogale Business of EUR6.5
million and an exchange rate movement of EUR 0.4 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 allocated to
Speciality Alloys segment. Afarak Trading contribution is divided to both segments to reflect the nature of serving the
whole Group. It is 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 1.1.2018
Impairment
Exchange rate movement
Goodwill 31.12.2018
Speciality Alloys Business
FerroAlloys Business
Group Total
41,895
0
2,969
44,864
20,514
-6,543
-2,590
11,381
62,409
-6,543
379
56,245
The changes in goodwill during 2017 are presented 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
111
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
Goodwill as a ratio of the Group’s equity on 31 December 2018 and 31 December 2017 was as follows:
EUR ‘000
Goodwill
Equity
Goodwill/Equity, %
31.12.2018
31.12.2017
56,245
150,848
37%
62,409
172,365
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:
5.5%, and for electicity 8%). 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.
The weighted average cost of capital (WACC) has been calculated separately for each cash generating unit and assets
being tested, taking into account each business’s typical capital structures, investors’ average required rate of return for
similar investments and company size and operational location related factors, as well as risk-free interest rates and margins
for debt 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 2018.
The information used in the 31 December 2018 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 for the Speciality Alloys segment; while for the
FerroAlloys segment, due to high volatility of the benchmark prices ranging between US$0.69/lb and US$1.65/lb over
the last 10 years, an average benchmark price of $1.26/lb was used to determine prices in the model. 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 2018 impairment testing were the following:
CASH GENERATING UNIT
PRE-TAX DISCOUNT RATE
Speciality Alloys
South African minerals processing
2018
16.8%
24.2%
2017
13.2%
25.5%
The key reasons for the changes in the discount rates compared to 2017 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%
112
Impairment
Slightly above
Clearly above
Significantly above
ANNUAL FINANCIAL STATEMENTS TEST RESULTS 31 DECEMBER 2018
The impairment test results were as follows:
CASH GENERATING UNIT
Speciality Alloys
South African minerals processing
Goodwill (MEUR),
pre-testing
Goodwill
(MEUR),
post-testing
Carrying amount
(MEUR),
pre-testing
42.6
18.5
42.6
12.2
61.1
46.6
Conclusion
Clearly above
Impairment
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
South African minerals processing
FeCr:
30,000 t/a
Cr ore:
6,000 t/a
Metal alloys:
102,000 t/a
Foundry sand:
23,000 t/a
Recoveredmetal
6,000 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
Forecast based on 10 year
price average adjusted for
inflation
Raw material costs
generally change in line
with sales price; Electrictiy
cost was assumed to be
higher than inflation, while
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 14.5.
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 2018 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)
4.6% - points
-% - points
Change in free cash
flow (annual average)
Change in CGU’s average
EBITDA margin
-23.1%
-%
-2.6% - points
-% - points
113
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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.
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 2018
Year ended 31.12.2018
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
96,148
96,148
634
843
96,202
97,046
0
843
192,350
193,193
634
96,782
97,046
193,827
375
445
819
2,499
3,318
Items related to joint ventures (core)
0
-2,693
-2,693
0
Segment EBITDA
12,605
-8,114
4,491
-5,508
Depreciation and amortisation
Impairment
-1,834
0
-4,666
-6,543
-6,500
-6,543
-32
0
Segment operating
profit / (loss)
114
10,771
-19,323
-8,552
-5,540
0
0
0
-3,133 1
-3,133
0
0
0
0
1,218
192,795
194,013
0
194,013
-2,693
-1,017
-6,532
-6,543
-14,092
ANNUAL FINANCIAL STATEMENTS
Finance income
Finance cost
Income taxes
Loss for the period from continuing operations
Profit for the period from discontinued operations
Loss for the period
3,275
-7,724
-42
-18,583
0
-18,583
Segment’s assets 2
156,874
118,706
275,580
16,480
-33,446
258,614
Segment’s liabilities 2
69,731
65,832
135,563
5,853
-33,650
107,766
Other disclosures
Capital expenditure 3
Investment in joint ventures 4
Provisions 4
4,539
1,523
3,777
-16,871
7,448
8,316
-16,871
8,971
1,430
0
0
0
0
9
9,746
-16,871
8,981
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. Investments consist of increases in tangible and intangible assets whose life is longer than one financial year.
4. Balance sheet values.
OPERATING SEGMENT INFORMATION 2017
Speciality
Alloys
Ferro-
alloys
Segments
total
Unallocated
items
Eliminations
Consolidated
Group
Year ended 31.12.2017
EUR ‘000
External revenue
Rendering of services
Sale of goods
Total external revenue
Inter-segment revenue
Total revenue
0
1,015
89,419
89,419
621
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
-2,658 1
-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
Segment operating
profit / (loss)
-1,518
0
-4,491
-554
-6,009
-554
-8
0
11,054
6,378
17,432
-6,033
0
0
0
0
0
1,091
197,723
198,814
0
198,814
3,068
17,970
-6,017
-554
11,399
115
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
Finance income
Finance cost
Income taxes
Profit for the period from continuing operations
Profit for the period from discontinued operations
Profit for the period
3,728
-10,886
951
5,192
1,519
6,711
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
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. Balance sheet values.
GEOGRAPHICAL INFORMATION
Revenues from external customers
2018
91,463
44,167
124
17,082
5,934
35,243
2017
97,174
34,793
316
12,491
6,368
47,672
194,013
198,814
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 4.9%
(7.1%) of the Group’s revenue in
2018. In the Speciality Alloys business
segment the largest customer
represents 3.5% (3.9%) of the
Group’s revenue in 2018.
EUR ‘000
Other EU countries
United States
China
Africa
Finland
Other countries
Total revenue
116
ANNUAL FINANCIAL STATEMENTS Non-current assets
EUR ‘000
Africa
Other EU countries
Finland
Other countries
Total
2018
42,756
7,515
0
8,187
58,459
2017
48,724
6,582
0
6,705
62,011
In presenting geographical
information, assets are based on the
location of the assets. Non-current
assets consist of property, plant and
equipment, intangible assets and
investments in associates.
1.6 NOTES TO THE 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
2018
192,659
1,354
194,013
2018
126
251
4,247
4,624
2018
-22,936
-231
-750
-1,672
-25,589
2017
197,723
1,091
198,814
2017
12
275
4,056
4,343
2017
-20,705
-785
-130
-2,288
-23,908
During 2017 the Company introduced a bonus incentive scheme for senior management. A provision of EUR 0.7 million
has been provided for in 2017 and paid in 2018. For 2018, senior management decided not to pay an incentive bonus
and no provision was made.
AVERAGE PERSONNEL DURING THE ACCOUNTING PERIOD
Speciality Alloys business
FerroAlloys business
Group Management
Other operations*
Total
2018
511
340
11
70
932
2017
444
316
11
67
838
117
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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.
Employees in joint venture are disclosed in Note 13.
EUR ‘000
Depreciation / amortisation by asset category
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
Impairment write-down on goodwill
Total
5. OTHER OPERATING EXPENSES
EUR ‘000
Salaries and wages
Share-based payments
Pensions costs
Other employee related costs
Total
2018
526
324
11
81
942
2017
483
345
11
89
928
2018
2017
-1,579
-232
-1,811
-514
-3,181
-1,025
-4,720
0
-6,543
-6,543
2018
-364
-4,165
-1,101
-8,024
-13,654
-1,640
-90
-1,730
-592
-2,984
-711
-4,287
-554
0
-554
2017
-401
-2,975
-962
-6,837
-11,175
1. Audit fees paid to EY totalled EUR 504 (2017: 348) thousand in the financial year. The fees for non-audit services
totalled EUR 36 (2017: 4) thousand.
2. Other operating expenses include costs incurred during shutdown period of EUR 2,827 (2017: 3,031) 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
118
2018
1,080
2,482
-287
3,275
2017
1,018
2,656
54
3,728
ANNUAL FINANCIAL STATEMENTS 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
7. INCOME TAXES
EUR '000
Income tax for the period
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 from JV and associates
Impairment losses
Tax losses not recognised as deferred tax assets
Non-tax deductible expenses
Previously unrecognised tax losses now recognised
Total adjustments
Income tax recognised
-1,158
-5,731
-600
-235
-7,724
-4,449
2018
-1,045
1,003
-42
2018
-18,541
3,708
-1,880
3,584
2,744
-539
-1,309
-3,196
-3,256
102
-3,750
-42
-1,680
-8,507
-677
-22
-10,886
-7,158
2017
368
583
951
2017
5,760
-1,152
-2,207
3,089
3,635
614
-52
-3,195
219
2,103
951
On 31 December 2018 the Group companies had unused tax losses totalling EUR 44.1 (2017: 35.3) million for which the
Group has not recognised deferred tax assets.
8. DISCONTINUED OPERATIONS
The discontinued operation items in 2017 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 2017 profit by EUR 1.5
million that includes a release of EUR 0.6 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
2018
0
0
0
0
2017
620
-1
900
1,519
119
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 9. EARNINGS PER SHARE
2018
2017
Continuing
operations
Discontinued
operations
Total
Continuing
operations
Discontinued
operations
(Loss) / profit attributable to owners of
-18,056
0.00
-18,056
4,742
1,519
Total
6,261
the parent company (EUR '000)
Weighted average number of shares,
basic (1,000)
Basic earnings per share (EUR)
total
(Loss) / profit attributable to owners of
the parent company (EUR ‘000)
Weighted average number of shares,
basic (1,000)
Effect of share based payments on
issue (1,000)
Weighted average number of shares,
diluted (1,000)
Diluted earnings per share
(EUR) total
260,080
260,080
260,080
259,329
259,329
259,329
-0.07
0.00
-0.07
0.02
-18,056
0.00
-18,056
4,742
0.01
1,519
0.02
6,261
260,080
260,080
260,080
259,329
259,329
259,329
622
622
622
1,388
1,388
1,388
260,702
260,702
260,702
260,718
260,718
260,718
-0.07
0.00
-0.07
0.02
0.01
0.02
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 1.1.2018
Additions
Business combinations
Disposals
Reclass between items
Effect of movements in exchange rates
Balance at 31.12.2018
Land and
water
property
Buildings and
constructions
Machinery
and
equipment
Mines and
mineral
assets
2,251
134
-166
2,219
7,868
460
382
-1,041
7,669
60,796
7,509
86
-2,262
195
-6,318
60,006
8,997
1,200
-2,184
8,013
Other
tangible
assets
4,308
178
446
-283
4,649
Total
84,220
9,347
602
-2,262
641
-9,992
82,556
120
ANNUAL FINANCIAL STATEMENTS Accumulated depreciation and
impairment 1.1.2018
Depreciation
Disposals
Effect of movements in exchange rates
Accumulated depreciation and
impairment at 31.12.2018
Carrying amount at 1.1.2018
Carrying amount at 31.12.2018
Balance at 1.1.2017
Additions
Disposals
Reclass between items
Effect of movements in exchange rates
Balance at 31.12.2017
Accumulated depreciation and
impairment 1.1.2017
Depreciation
Impairment
Disposals
Reclass between items
-3,969
-25,701
-6,525
-2,219
-38,414
-514
542
-3,181
252
2,860
-772
-254
1,673
236
-4,721
252
5,311
0
-3,941
-25,770
-5,624
-2,237
-37,572
2,251
2,219
2,292
-41
2,251
3,899
3,728
8,083
421
-636
7,868
35,095
34,236
57,173
5,616
-197
139
-1,935
60,796
-3,682
-23,106
-592
-2,984
-563
72
2,472
2,389
9,725
998
-1,726
8,997
-7,509
-444
2,089
2,412
4,149
377
-157
-61
4,308
-1,994
-267
1
42
45,806
44,984
81,422
7,412
-197
-18
-4,399
84,220
-36,291
-4,287
-563
72
1
2,655
Effect of movements in exchange rates
305
880
1,428
Accumulated depreciation and
impairment at 31.12.2017
Carrying amount at 1.1.2017
Carrying amount at 31.12.2017
0
2,292
2,251
-3,969
4,401
-25,701
34,067
-6,525
2,216
-2,219
2,155
-38,414
45,131
3,899
35,095
2,472
2,089
45,806
Machinery and equipment include the prepayments made for them.
11. INTANGIBLE ASSETS
EUR '000
Goodwill
Intangible assets
identified in
acquisitions
Other intangible
assets
Exploration and
evaluation assets
Balance at 1.1.2018
107,625
107,316
Additions
Disposals
Business combinations
Effect of movements in exchange rates
Balance at 31.12.2018
-4,009
103,616
-3,731
103,585
4,213
380
-1
398
-582
4,407
1,690
62
-193
1,561
Total
220,844
442
-1
398
-8,515
213,169
121
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Accumulated amortisation and
impairment at 1.1.2018
Amortisation
Impairment
Reclass between items
-45,216
-6,543
-95,245
-1,579
Effect of movements in exchange rates
4,388
2,599
-1,735
-173
-195
338
Accumulated amortisation and
impairment at 31.12.2018
-47,371
-94,225
-1,765
Carrying amount at 1.1.2018
Carrying amount at 31.12.2018
62,409
56,245
12,071
9,360
Balance at 1.1.2017
109,968
108,158
Additions
Disposals
Reclass between items
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
-1,735
Carrying amount at 1.1.2017
Carrying amount at 31.12.2017
63,780
62,409
14,068
12,071
2,625
2,478
2,478
2,642
4,569
145
-2
-139
-360
4,213
-1,944
-80
289
-34
-56
2
-88
1,656
1,473
1,642
115
-67
1,690
-24
-10
0
-34
1,618
1,656
-142,230
-1,808
-6,543
-195
7,327
-143,449
78,614
69,720
224,337
260
-2
-139
-3,612
220,844
-142,246
-1,730
1,746
-142,230
82,091
78,614
Other intangible assets include the prepayments made for them. Exploration and evaluation assets consist of mine
projects in variours mining projects in Turkey and South Africa.
12. INVESTMENTS IN ASSOCIATES
EUR '000
Domicile
2018
Non-core associates
Valtimo Components Oyj *
Finland
EUR '000
Domicile
2017
Non-core associates
Valtimo Components Oyj *
Finland
Value at
reporting
date
Ownership
(%)
Reporting
date
Assets
Liabilities
Revenue
Profit
0
0
8.99
Value at
reporting
date
Ownership
(%)
Reporting
date
0
0
8.99
Assets
Liabilities
Revenue
Profit
* Valtimo Components Oyj are in a corporate restructuring process.
122
ANNUAL FINANCIAL STATEMENTS
During 2018 Valtimo has made a share issue which as a result diluted Afarak share holding to 8.99% (2017: 8.99%).
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 2018, Afarak did not acquire or
EUR ‘000
1.1.2018
MOVEMENTS IN 2018
dispose holdings in associates.
During the financial year 2017, Afarak did not acquire or
dispose holdings in associates.
Share of profit
Exchange rate differences
Proceeds from disposal
MOVEMENTS IN 2017
EUR ‘000
Share of profit
Exchange rate differences
Proceeds from disposal
31.12.2018
1.1.2017
31.12.2017
0
0
0
0
0
0
0
0
0
0
13. INVESTMENTS IN JOINT VENTURES
At the end of the financial year 2018, 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.
123
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Summarised financial statement information (100% share) of the joint venture, based on its IFRS financial statements,
and 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
Operating (loss) / profit
Finance income
Finance expense
(Loss) / profit before taxes
Income taxes
(Loss) / profit for the year
Group’s share of (loss)/profit for the year
(Loss) / 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
124
2018
29,000
711
-19,134
-2,451
-1,440
-9,772
-3,086
38
-2,223
-5,271
-10
-5,281
-2,693
-2,148
-545
-2,693
2018
2,375
25,530
5,461
566
33,932
2017
32,881
361
-18,544
-1,998
-1,978
-4,929
5,793
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
ANNUAL FINANCIAL STATEMENTS Current assets
Inventories
Trade and other receivables
Trade and other receivables from JV owners
Cash and cash equivalents
Current assets total
Total assets
Non-current liabilities
Interest-bearing debt
Interest-bearing debt to JV owners
Provisions
Deferred tax liability
Other non-current liabilities to JV owners
Non-current liabilities total
Current liabilities
Trade and other payables
Trade and other payables to JV owners
Current liabilities total
Total liabilities
Net Liability
1,728
973
1,105
670
4,476
1,944
1,053
3,518
529
7,044
38,408
44,704
19,348
18,990
6,431
7,904
2,177
54,850
4,362
12,276
16,638
71,488
19,472
26,252
5,194
9,128
1,742
61,788
4,832
5,099
9,931
71,719
-33,080
-27,015
Proportion of Group's Ownership
51 %
51 %
Carrying amount of Joint venture
-16,871
-13,777
At the end of 2018, Synergy Africa Group had 119 (2017: 89) employees. The average number of employees in full year
2018 was 104 (2017: 87).
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 2018.
The statement of financial position of Synergy Africa has been assessed to determine 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 2018. Similarly to 2017, Synergy Group assessed whether there is any
indication of impairment and consequently the assets of the business were tested for impairment.
125
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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 5.5% 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 2018.
The information used in the 31 December 2018 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 3 year average price adjusted for inflation. The cash flow models have been
prepared at constant foreign exchange rates. The underground production in the models does not solely come from
reserves, as some come from resources that are not yet converted to reserves. This increases the risk that some of the
grades may differ, and tonnes could possibly not be economically extractable. There is also the risk that costs could be
different than anticipated even though due care was taken in the cost evaluation.
The pre-tax discount rates applied in 2018 impairment testing was 26.39% for Mecklenburg mine and 27.58% 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. The Stellite mine model has a life of mine of 11 years and the Mecklenburg
model has a life of mine of 10 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 2018
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 14.5.
126
ANNUAL FINANCIAL STATEMENTS 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
Mecklenburg mine
Concentrate:
Opencast mining
averaging 436,000t/a as
from 2019 till 2030
Lumpy:
Average of 73,000 t/a
from 2019 till 2029
ROM:
Average of 36,000 t/a
from 2019 to 2030
ROM:
Opencast mining of
60,000t in 2019;
Underground of 53,000t
in 2020; 254,000t in
2021; and is planned to
increase to an average of
555,000t/a as from 2022
till 2028
SA Concentrate & SA
Lumpy prices are based
on 3 year average price
adjusted for inflation
SA Concentrate & SA
Lumpy prices are based
on 3 year average price
adjusted for inflation
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 772 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 793 per
saleable ton of chrome.
Synergy Africa has analysed the sensitivity of the impairment test results by estimating how the essential assumptions
should change in order for the recoverable amount to be equal to the carrying amount. The results of this sensitivity
analysis as of 31 December 2018 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
25.1% - points
12.9% - points
-58.9%
-65.4%
6.9%
5.1%
-18.8%
-27.0%
127
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 14. FINANCIAL ASSETS AND LIABILITIES
31.12.2018, 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
At fair value
through profit
and loss
At fair value
through other
comprehensive
income At amortised cost
Carrying value
Fair value
19,198
1,025
15,890
34,774
909
12,132
19,198
1,025
15,890
34,774
909
12,132
19,198
1,025
15,890
34,774
909
12,132
Total financial assets
83,928
83,928
83,928
2,103
2,680
22,331
21,198
2,103
2,680
22,331
21,198
2,103
2,680
22,331
21,198
48,312
48,312
48,312
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial liabilities
Current interest-bearing liabilities
Trade and other payables *
Total financial liabilities
128
ANNUAL FINANCIAL STATEMENTS
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
At fair value
through profit and
loss
At fair value
through other
comprehensive
income
At amortised cost
Carrying value
Fair value
18,855
637
11,437
28,186
476
10,702
18,855
18,855
637
637
11,437
28,186
476
10,702
11,437
28,186
476
10,702
Total financial assets
70,293
70,293
70,293
Non-current financial
liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
Current financial assets
Current interest-bearing receivables
Trade and other receivables *
2,548
3,168
9,393
17,416
2,548
3,168
9,393
17,416
2,548
3,168
9,393
17,416
Total financial liabilities
32,525
32,525
32,525
129
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
The table below sets out the classification and carrying amounts of the Group’s financial assets and liabilities as well as
changes thereto as at the date of initial application IFRS 9, 1 January 2018:
Carrying amount as at January 1, 2018
IAS 39
classifciation
IFRS 9
classifciation
IAS 39
IFRS 9
Change
Non-current financial assets
Non-current interest-bearing
receivables
Assets held-to maturity
Loans and other receivables
Trade and other receivables *
Non-current financial assets
Current interest-bearing receivables
Trade and other receivables *
Other financial assets
Cash and cash equivalents
Total financial assets
Assets held-to
maturity
Loans and other
receivables
Loans and other
receivables
Loans and other
receivables
Loans and other
receivables
Loans and other
receivables
Loans and other
receivables
At amortised cost
At amortised cost
At amortised cost
At amortised cost
Non-current financial liabilities
Non-current interest-bearing
liabilities
Other non-current liabilities
measured at
amortised cost
measured at
amortised cost
At amortised cost
At amortised cost
At amortised cost
168
0
At amortised cost
18,687
18,855
At amortised cost
637
637
11,437
28,186
476
10,702
70,293
2,548
3,168
11,437
28,186
476
10,702
70,293
2,548
3,168
Current financial liabilities
Current interest-bearing liabilities
Trade and other payables *
Total financial liabilities
measured at
amortised cost
measured at
amortised cost
At amortised cost
9,393
9,393
At amortised cost
17,416
32,525
17,416
32,525
* Non-financial assets and liabilities are not included in the figures.
130
168
-168
0
0
0
0
0
0
0
0
0
0
0
ANNUAL FINANCIAL STATEMENTS
FAIR VALUE HIERARCHY
31.12.2018, 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
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
31.12.2018, EUR ‘000
Level 3 reconciliation
Acquisition cost at 1.1.2018
Acquisition cost at 31.12.2018
Accumulated impairment losses at 1.1.2018
Accumulated impairment losses at 31.12.2018
Carrying amount at 31.12.2018
40
40
-40
-40
0
131
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
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
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
Other interest-bearing liabilities
Total
EUR '000
Finance lease liabilities, minimum lease payments
No later than 1 year
Later than 1 year and not later than 5 years
Finance lease liabilities, present value of minimum lease payments
No later than 1 year
Later than 1 year and not later than 5 years
132
40
40
-40
-40
0
2017
2,517
31
2,548
1,895
109
7,389
0
9,393
2017
109
31
140
109
31
140
2018
2,027
75
2,102
7,526
196
9,128
5,481
22,331
2018
196
75
271
196
75
271
ANNUAL FINANCIAL STATEMENTS
Changes in liabilities arising from financing activities
EUR ‘000
1 January 2018
Cash flows
Acquisition
Non-current borrowings
2,517
-457
-
Current borrowings
9,284
8,674
-
Lease liabilities
140
-239
416
Foreign
exchange
movement
-230
-1,304
-46
Other 31 December 2018
197
2,027
5,481
22,135
-
271
Total liabilities from
financing activities
11,941
7,978
416
-1,580
5,678
24,433
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
The ‘Other’ column includes the effect on unwinding interest on the acquisition of non-controlling interest in non-
current borrowings, and current borrowings include a sale and buy back transaction that happened in December which
was classified as financing liability.
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 2018
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 2018 closing date:
The Group’s financial assets at the end of the reporting period increased 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 2018, the cash and cash equivalents were invested mainly in interest-bearing EUR, ZAR and USD
denominated bank accounts. 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 2016 to ZAR 150 million as at the end of 2017. The South African subsidiary utilised ZAR 135.4 (2017: 106.0) million
as at the end of the reporting period and the Group has given a corporate guarantee amounting to ZAR 75.0 (2017:
75.0) million as collateral.
One of the Group’s Maltese subsidiaries has been granted a trade finance loan facility amounting to US$ 5.0 million during
2016. In 2017, the trade finance loan facaility remained active and a new factoring line of US$ 5.0 million was granted. The
Maltese subsidiary utilized US$ 4.7 (0.6) million as at the end of the reporting period and has given a corporate guarantee
amounting to US$ 10.0 (5.0) million, and receivables and inventory up to the value outstanding as collateral.
133
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 One of the Group’s Turkish subsidiaries has been granted various short term loans in 2018. The loans amount as at end
of 2018 was of EUR 2.6 (0.7) million.
Interest-bearing debt 31 December 2018
- Floating rate loans from financial institutions total EUR 15.8 (2017: 8.7) million. Fixed rate loans total EUR 0.9 (2017:
0.6) million.
- The interest rate of the South African loans is tied to the market rate of JIBAR. The interest rate on 31 December
2018, based on market interest rates at that date, was 7.15% (2017: 6.11%). The interest rate margin for floating rate
notes was 2.25% (2017: 2.25%) p.a.
- The interest rate of the Maltese trade finance loan facility is tied to the market rate of 3 month LIBOR. The interest
rate on 31 December 2018, based on market interest rates at that date, was 2.81% (2017: 1.69%). The interest rate
margin for floating rate notes was 3.5% (2017: 3.5%) p.a.
- The interest rate of the Maltese factoring facility is tied to the market rate of 1 month LIBOR. The interest rate on
31 December 2018, based on market interest rates at that date, was 2.50% (2017: N/A). The interest rate margin for
floating rate notes was 3.3% (2017: N/A) 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 2018, based on market interest rates at that date, was 1.57% (2017: 1.47%). The interest rate marginfor the
fixed rate notes was 0.40% (2017: 0.40%) 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 58.3% (2017: 66.3%).
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.
134
ANNUAL FINANCIAL STATEMENTS
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:
31.12.2018, EUR ‘000
Financial liabilities
Secured bank loans
Finance lease liabilities
Trade and other payables
Bank overdraft
Acquisition of NCI liability
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
13,007
271
23,879
9,128
2,027
-13,381
-13,254
-271
-98
-23,879
-21,199
-9,128
-2,027
-9,128
-145
Total
48,312
-48,686
-43,823
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
1-2
years
-85
-75
-2,680
0
-290
-3,130
1-2
years
-80
-30
-3,168
0
-360
-3,638
2-5
years
More than
5 years
0
0
0
0
-869
-869
0
0
0
0
-579
-579
2-5
years
More than
5 years
0
0
0
0
-1,079
-1,079
0
0
0
0
-719
-719
-42
-98
0
0
-144
-285
-106
-55
0
0
-360
-521
(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.
135
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018
31.12.2018, EUR ‘000
EUR exchange rate
1
1.1450
0.8945
6.0588
16.4594
117.8360
Cash and cash equivalents (EUR)
EUR
1,831
USD
8,796
GBP
14
Trade and other receivables (EUR)
4,980
20,867
Loans and other financial assets (EUR)
20
0
21,167
TRY
894
71
237
ZAR
576
2,663
975
Trade and other current payables (EUR)
Loans and other liabilities (EUR)
-2,901
-1,958
-4,371
-9,222
-803
-11,854
0
-2,849
-13,084
RSD
21
16
-163
0
Currency exposure, net (EUR)
1,971
16,070
21,181
-2,449
-20,724
-126
Currency exposure, net in currency ('000)
1,971
18,400
18,947
-14,841
-341,107
-14,813
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
The effect on the 31 December 2018 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 2018
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
136
USD
4,017
2,836
1,786
846
GBP
5,295
3,738
2,353
1,115
TRY
-612
-432
-272
-129
ZAR
-5,181
-3,657
-2,303
-1,091
RSD
-31
-22
-14
-7
ANNUAL FINANCIAL STATEMENTS
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
31 December 2017
20% strengthening
15% strengthening
10% strengthening
5 % strengthening
0% no change
-5% weakening
-10% weakening
-15% weakening
-20% weakening
0
-765
-1,461
-2,096
-2,678
0
-1,009
-1,926
-2,763
-3,530
USD
6,723
4,746
2,988
1,415
0
-1,281
-2,445
-3,508
-4,482
0
117
223
319
408
GBP
5,132
3,623
2,281
1,081
0
-978
-1,866
-2,678
-3,422
0
987
1,884
2,703
3,454
TRY
-348
-246
-155
-73
0
66
127
182
232
0
6
11
16
21
ZAR
-5,156
-3,640
-2,292
-1,086
0
982
1,875
2,690
3,438
Derivatives
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating
activities (when revenue or expense is denominated in a foreign currency).
Operative foreign currency derivatives that are valued at fair value on the reporting date cause timing differences
between the changes in the derivative’s fair values and hedged operative transactions. Changes in fair values for
derivatives designated to hedge future cash flow but are not accounted for according to the principles of hedge
accounting impact the Group’s operating profit for the financial year. The underlying foreign currency transactions will
realise in future periods.
(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 2018, 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.
137
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 The split of interest-bearing debt and receivables, also classified into fixed rate and floating rate instruments on 31
December 2018 and 31 December 2017 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
31.12.2018
31.12.2017
3,500
-9,128
-5,628
31,588
-13,202
18,385
3,500
-7,389
-3,889
26,792
-2,004
24,788
Interest-bearing net debt
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 2018, and if there were no changes in
exchange rates.
12,757
20,899
31 December 2018
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%
-632
-474
-316
-158
0
158
316
474
632
264
198
132
66
0
-66
-132
-198
-264
Net
effect
-368
-276
-184
-92
0
92
184
276
368
138
ANNUAL 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
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.
In 2018, the Group recognised a provision of EUR 0.5 million on other receivables, however, no provision was recognised for
trade receivables as historically the Group did not have material recoverability issues and due to the credit insurance.
Other financial assets are mainly loans receivable from the joint venture, these loans are not yet due and Afarak
expects that these loans will be repaid over time when funds become available after Mecklenburg mine goes under
ground. The discounted cash flows done in connection to the joint venture assets confirm that the joint venture will be
able to repay it loans and there is no increase in credit risk, hence a provision was not provided.
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.
139
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 During the financial year, credit losses booked through the profit and loss were EUR 0.2 (2017: 0.7) million. The
maximum credit risk is equal to the carrying value of the receivables as of 31 December, and is split as follows:
Category
Interest-bearing
Cash and cash equivalents
Receivables from related parties
Trade and other receivables from associates
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
EUR ‘000
31.12.2018
EUR ‘000
31.12.2017
12,132
22,490
12,382
216
10,702
22,187
7,929
176
47,220
40,995
22,335
22,193
2,753
10,594
3,410
39,092
2,102
4,367
2,547
31,209
86,312
72,203
(v) Commodity risks
The Group is exposed to price risks on various output and input products, materials and commodities. Also, securing
the availability of raw materials without any serious disruptions is vital to its businesses.
The price risks on input materials and commodities are managed by pricing policies so that changes in input materials
and commodities can be moved into sales prices. This, however, is not always possible or there may be delays as a
result of contractual or competitive reasons.
The Group’s units that have production operations are exposed to availability, quality and price fluctuations in raw
materials and commodities. To diminish these risks, the Group’s business units seek to enter into long-term agreements
with known counterparties; although this is not always possible due to the tradition and practice of the business.
For the most part, because it is not possible or economically feasible to hedge commodity price risks in the Group’s
business sectors with derivative contracts, the Group did not have any commodity derivative contracts in place as of 31
December 2018.
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 2018 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 is of 36,000 t/a, and for simulation
purposes is set at 2018 production of 30,927 t/a. 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 move in the same direction as the sales prices, although the
140
ANNUAL FINANCIAL STATEMENTS
correlation is not perfect and the timing may differ. In practice, therefore the net effect on the Group’s profitability
most probably would be lower than shown below. Electricity usage is also substantial, and hence changes in electricity
prices have a significant effect on profitability; electricity prices do not correlate with changes in commodity prices.
Financial year 2018
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
2.50
2.39
2.29
2.18
2.08
1.98
1.87
1.77
1.66
Financial year 2017
Change in Sales price
(USD / lb Cr)
2.82
2.70
2.59
2.47
2.35
2.23
2.12
2.00
1.88
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
17,340
13,005
8,670
4,335
0
-4,335
-8,670
-13,005
-17,340
16,473
12,355
8,237
4,118
0
-4,118
-8,237
-12,355
-16,473
Change in
Operating Profit
Change in
Group's Equity
EUR ‘000
EUR ‘000
17,630
13,223
8,815
4,408
0
-4,408
-8,815
-13,223
-17,630
16,749
12,561
8,374
4,187
0
-4,187
-8,374
-12,561
-16,749
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, Mogale production in 2018 of 71,193 metric
t/a, and the average 2018 sales price 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, chrome ore prices, 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.
141
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Chrome ore is the main raw material used in the charge chrome production, and the purchase prices typically move 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.
Financial year 2018
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
1.26
1.20
1.15
1.10
1.05
1.00
0.94
0.89
0.84
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
14,650
10,987
7,325
3,662
0
-3,662
-7,325
-10,987
-14,650
10,548
7,911
5,274
2,637
0
-2,637
-5,274
-7,911
-10,548
Financial Year 2017
Change in Sales price
(USD / lb Cr)
Change in
Operating Profit
Change in
Group's Equity
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
14,938
11,204
7,469
3,735
0
-3,735
-7,469
-11,204
-14,938
10,756
8,067
5,378
2,689
0
-2,689
-5,378
8,067
-10,756
2018
16,602
586
39,777
56,965
2017
14,252
151
35,541
49,944
1.22
1.17
1.12
1.07
1.02
0.96
0.91
0.86
0.81
15. INVENTORIES
EUR '000
Goods and supplies
Unfinished products
Finished products
Total
142
ANNUAL 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
2018
22,335
909
3,508
3,644
3,552
14,227
48,175
2017
22,193
476
11,437
6,502
2,833
5,993
49,434
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 ageing 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
2018
13,753
7,836
588
2
156
22,335
2017
16,469
5,629
-298
43
350
22,193
EUR '000
2018
2017
Cash and bank balances
12,008
10,500
Pledged deposits
0
3
143
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Cash and cash equivalents in the consolidated cash flow statement:
EUR ‘000
Cash and bank balances
Short-term money market investments
Total
18. NOTES TO EQUITY
2018
12,008
124
12,132
2017
10,500
202
10,702
Number of
registered shares
Number
of shares
on issue
Share
capital,
EUR '000
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
Subscriptions based on share based payment
0
966,667
0
31.12.2018
263,040,695
260,653,201
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 2,387,494 (2017: 3,354,161) of its own shares, which was equivalent
to 0.91 (2017: 1.27) % of all registered shares. The total number of shares outstanding, excluding the treasury shares
held by the Company on 31 December 2018 was 260,653,201 (2017: 259,686,534).
The Company’s subsidiaries do not hold any of Afarak Group Plc’s shares.
144
ANNUAL 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.
Furthermore, based on the resolution at the EGM on 12 November 2018, the Board is authorised to decide on the
acquisition of a maximum of 31,500,000 own shares by a voluntary takeover bid made to Afarak’s shareholders at a
price of EUR 1.015 per share. This authorisation is valid until 31 May 2019. The Company did not carry out any share buy-
backs during 2018.
19. SHARE-BASED PAYMENTS
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 granted the new CEO, Guy Konsbruck 1,000,000 shares in the Company. These have been
awarded in two tranches and vested based on completed year of service. The first 500,000 Company shares have
effectively been received on 11 May 2018. The second 500,000 Company shares were received by the employee on 12
February 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 219,143.84 (2017: EUR 582,534.25).
In the fourth quarter of 2018, the Group extended for another two years the CEO contract and granted another
1,000,000 shares in the Company. These will be awarded in two tranches and vested based on completed year of
service. The first 500,000 Company shares shall be received once the first vesting period has lapsed, on 15 January
2020. The second 500,000 Company shares shall be received by the employee on 15 January 2021. These shares have
a lock-up period of two years form subscription date. The fair value of the granted shares is determined based on the
market price of Afarak Group share at the grant date which was EUR 0.83 per share. The value at year end was EUR 0
as the effective date of service is 15 January 2019.
In July 2017 the Group has granted Alistair Ruiters 400,000 Incentive shares in the company pa on each completed
year of service commencing on the effective date. In December 2018, 466,667 company shares have effectively been
received on 20 December 2018. The value at year end was EUR 237,919.91 (2017: EUR 170,586.30). Following a revision in
the contract, no additional share transfers to Alistair Ruiters are envisaged.
145
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
Conditions
Execution
Expected volatility
Expected option life at grant date (years)
Risk free rate, Euribor 12 months
Expected dividend yield
Expected personnel reductions
Fair value at grant date (EUR)
Valuation model
Changes in share options issued and in weighted average exercise prices:
Weighted average exercise price (with
dividend and capital redemption
adjustment)
EUR/share
0.26
0.26
0.00
At the beginning of 2017
Forfeited options
At the end of 2017
At the beginning of 2018
Forfeited options
At the end of 2018
Exercisable at the end of 2018
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
Employment until the vesting date and target share price
In shares
45 %
5.3 years
2.24%
0.00%
0
0.14 - 0.46
Up and in Call
Number of options
6,191,998
-6,191,998
0
The exercise prices of existing share options and their years of forfeiting are 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.
146
ANNUAL FINANCIAL STATEMENTS 20. DEFERRED TAX ASSETS AND LIABILITIES
Movements in deferred taxes in 2018
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
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
21. PROVISIONS
EUR ‘000
Balance at 1.1.2018
Additions
Releases and reversals
Unwinding of discount
Exchange differences
Balance at 31.12.2018
31.12.2017
Exchange rate
differences
Recognised
in income
statement
31.12.2018
2,421
677
-69
612
3,641
4,034
426
4,460
-32
-26
-58
-372
-2
-374
625
-219
-54
352
-648
-3
-651
3,014
459
-69
532
3,935
3,014
421
3,435
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
Environmental and
rehabilitation provisions
Other provisions
8,308
380
-148
520
-963
8,097
981
379
-326
0
-150
884
2,421
677
-69
612
3,641
4,034
426
4,460
Total
9,289
759
-474
520
-1,113
8,981
147
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 EUR ‘000
Long-term provisions
Short-term provisions
Total
2018
8,876
105
8,981
2017
9,180
109
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 (2017: 0.7)
million has been recognised on the 2018 statement of comprehensive income. In addition, the Group’s German subsidiary
has defined benefit plans. The amount of defined benefit obligations of the plan is based on actuarial calculations made by
authorized actuaries. 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 20.1 (2017: 19.9) million on 31 December 2018. 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 assets of the pension plans are kept separate from the Group’s assets.
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.
148
2018
26,569
-6,463
20,106
2018
26,007
-915
362
452
663
2017
26,007
-6,071
19,936
2017
25,896
-836
389
446
112
26,569
26,007
ANNUAL FINANCIAL STATEMENTS 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.
2018
6,071
109
-185
86
383
6,464
The benefits of the defined benefit plan are insured with an insurance company. The corresponding assets are the
responsibility of the insurance company and a part of the insurance company’s investment assets. The distribution in
categories is not possible to provide.
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 – demographic assumptions
Actuarial (gains)/losses – financial assumptions
Actual return on plan assets totalled EUR 0.09 (2017: -0.08) million in 2018.
PRINCIPAL ACTUARIAL ASSUMPTIONS
Discount rate
Expected retirement age
Expected rate of salary increase
Inflation
2018
-362
-343
-705
2018
576
-85
86
0
577
2018
1.77%
65
3.00%
2.25%
2017
5,799
103
-154
-83
406
6,071
2017
-389
-342
-731
2017
198
83
0
-85
196
2017
1.77 %
65
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.
149
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
2018, the employee severance indemnity recognised in accordance with IAS 19 totalled EUR 0.8 (2017: 0.6) million.
23. TRADE PAYABLES AND OTHER INTEREST-FREE LIABILITIES
2018
4,708
4,708
6
19,420
1,105
5,830
4,232
667
31,260
2017
3,168
3,168
5
16,402
655
4,652
2,934
356
25,004
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
100.00
100.00
100.00
100.00
100.00
93.40
0.00
0.00
0.00
99.99
0.00
0.00
EUR ‘000
Non-current
Other liabilities
Total non-current
Current
Current liabilities to related parties
Trade payables
Payables to associated companies
Accrued expenses and deferred income
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 (Pty) Ltd
Afarak Mogale (Pty) Ltd
150
ANNUAL FINANCIAL STATEMENTS Afarak Services Sagl
Afarak South Africa (Pty) Ltd
Afarak Trading Ltd
Afarak Participations Ltd
Magnohrom doo Kraljevo
Auburn Avenue Trading 88 (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
Rekylator Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
ZCM Holdco One (Pty) Ltd
Zeerust Chrome Mine Ltd
Joint ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
Afarak Processing Technologies (Pty) Ltd
Afarak Processing Technologies 2 (Pty) Ltd
Afarak Platiunum (Pty) Ltd
Switzerland
South Africa
Malta
Malta
Serbia
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Finland
Finland
Turkey
South Africa
South Africa
United Kingdom
United Kingdom
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
100.00
100.00
100.00
100.00
100.00
74.00
100.00
100.00
74.00
100.00
99.00
100.00
100.00
100.00
98.75
51.00
51.00
51.00
51.00
37.74
41.05
44.24
51.00
51.00
51.00
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
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 11 (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
151
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 Related party transactions with persons belonging to the Group’s Board and management
Finnish accounting legislation, KPA 2:8 § 4 paragraph disclosure requirement
EUR ‘000
2018
2017
Salaries
Fees
Share-
based
remuneration
Salaries
Fees
Share-
based
remuneration
CEO
Ruiters Alistair
Konsbruck Guy
Board Members
Abrahamsen
Thorstein
Board member 8.5.2015 - 23.5.2017,
CEO 21.5.2015 - 15.1.2017
0
Board member 05.2.2018 onwards,
CEO 15.1.2017 onwards
Board member 23.5.2017 onwards
Djakov Milan
Board member 12.5.2016 - 23.5.2017
Hoyer Thomas
Jakovcic Ivan
Board member 23.5.2017 -
05.2.2018
Board member 8.5.2015 - 31.07.2018,
Chairman 12.5.2016 - 05.2.2018
Kankaala Markku
Board member 30.6.2003 -17.3.2017
Manojlovic Jelena
Board member 11.7.2008 onwards,
Chairman 23.5.2017 onwards
Rourke Barry
Board member 8.5.2015 onwards
360
60
0
6
34
0
72
85
14
0
219
145
583
415
36
24
36
65
15
67
85
Total
0
617
219
14
743
728
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 2018, the Company paid the CEO EUR 360,000 for his service. On 11 May 2018 he received 500,000 Company Shares as an
incentive for the first year of service acting as the Chief Executive Officer. The second 500,000 Company shares received on
12 February 2019.
In the fourth quarter of 2018, the Group extended for another two years the CEO contract and granted another 1,000,000
shares in the Company. These will be awarded in two tranches and vested based on completed year of service. The first 500,000
Company shares shall be received once the first vesting period has lapsed, on 15 January 2020. The second 500,000 Company
shares shall be received by the employee on 15 January 2021.
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 400,000 Incentive shares in the company pa on each completed year of service
commencing on the effective date. Following a revision in the contract, 466,667 company shares have effectively been received
on 20 December 2018. No additional share transfers to Alistair Ruiters are envisaged.
Management remuneration
EUR ‘000
Fixed salaries and fees
Provision for variable performance related compensation
Total
152
2018
564
0
564
2017
482
195
677
ANNUAL FINANCIAL STATEMENTS 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 who will 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 26.2 (2017: 18.7) million loan receivable and EUR 7.3 (2017: 14.0) 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 1.1 (2017: 0.7) million. Interest income from a joint venture company totalled EUR 1.0 (2017: 0.9) million during the
financial year 2018.
The Group had on 31 December 2018 a EUR 3.5 (2017: 3.5) million receivable from LNS Resources Ltd.
OTHER RELATED PARTY TRANSACTIONS
The Group has rendered services to joint ventures for a total value of EUR 1.3 (2017: 1.1) million and to other related parties
for the value of EUR 0.3 (0.5) million. The Group has also made raw material purchases from a joint venture amounting to
EUR 18.3 (2017: 19.2) million.
Dividends received from associated companies totalled EUR 0.0 (2017: 0.0) million.
On 31 December 2018 the Group’s parent company had short-term loan receivables from the members of the Board
amounting to EUR 0.0 (2017: 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. The company
sold its shareholding in business partner LL Resouces during Q3 2018 and it is therefore no longer a related party.
1.9 COMMITMENTS AND CONTINGENT LIABILITIES
1.9.1 MORTGAGES AND GUARANTEES PLEDGED AS SECURITY
On 31 December 2018 the Group had loans from financial institutions totalling EUR 16.7 (2017: 9.3) million. The Group has
provided real estate mortgages and other assets as collaterals for total carrying value of EUR 6.2 (2017: 1.8) million.
Moreover, the Group companies have given cash deposits totalling EUR 0.4 (2017: 0.3) million as security for their
commitments. The value of other collaterals totalled EUR 17.1 (2017: 9.2) million as at 31 December 2018.
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 and the
Group’s South African subsidiary, Mogale Alloys also had bank facilities with local banks. The Group’s loans from financial
institutions included 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 0.3 (2017: 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
153
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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 2018.
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. 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.The indebtedness subject to these
guarantees was fully paid on 15 April 2018.
1.10 EVENTS AFTER THE REPORTING PERIOD
On 11 January 2019, the Board of Directors announced that Mr Pedrag Kovacevic, Chief Financial Official resigned on January
10th 2019, and that Mr Melvin Grima was appointed as the Group’s Chief Financial Officer.
On 12 January 2019, the Company announced that it had completed a share-based compensation to Guy Konsbruck as part
of the CEO’s contract.
On 20 February 2019, the Board of Directors issued a profit warning due to an impairment writedown of EUR 6.5 million on
the goodwill of the Mogale business.
On 1 March 2019, the Company announced that decision from the administrative court of Helsinki was received on the
matter that is related to the decision rendered by FIN-FSA on October 7, 2018. This decision was related to Mr. Danko Koncar
and according to the decision he was obliged to make a public tender on all shares of Afarak Group Plc.
The Administrative Court took the view that Koncar was the party that needs to make the offer. Consequently, the Financial
Supervisory Authority has been authorised to oblige the appellant to fulfill the obligations imposed by the threat of fines.
In addition, by its judgment delivered today, the Administrative Court rejected Koncar’s request to annul the Financial
Supervisory Authority’s subsequent decision to order Koncar to pay a fine of EUR 40,000,000 as the principal obligation
imposed by the imposition of a penalty payment was not respected. However, the Administrative Court held that the
additional amount of the fine of EUR 10,000,000 had not yet accrued at the time of the contested decision and annulled the
FSA’s decision on the additional tranche.
The Company is not a party to the proceedings and/or the judgement. The Company was also informed that Dr Koncar will
immediately appeal against the decision of the Helsinki Administrative Court in front of the Supreme Administrative Court
of Finland. The Company will provide the full decision(s) and translations thereto at later stage
On 28 March 2019, the Company announced an update on the repurchase of Afarak’s own shares. Since the EGM the Board
and management of Afarak have been working on these issues. Afarak has received a legally valid preliminary ruling from
tax authorities. The preparations of funding are in the final stages. The Board anticipates that the Financial Supervisory
body will approve the offer document in due course.
After the buy-back, the Company will be looking at options to execute these steps.
• any actions in relation to the potential changes in domicile; and
• potentially a delisting from Nasdaq Helsinki stock exchange.
In practice, this would mean that the offer period could start approximately in late May 2019 (after the result for the first
quarter of 2019 is published and the offer documentation is accepted by FIN-FSA). This would mean that the offer period
would end mid-June 2019 if the minimum offer time of three weeks (allowed by Securities Markets Act) is followed. The
timings should be regarded as approximate only. The Board of Afarak has decided, that the Annual General Meeting will be
held on June 25, 2019. At that point of time it is expected that the Takeover bid is fully executed.
154
ANNUAL FINANCIAL STATEMENTS
Parent Company’s
Financial Statements (FAS)
NCOME 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
1.1.2018 - 31.12.2018
1.1.2017 - 31.12.2017
1
2
3
4
5
2,881
2,116
-1.247
-1,922
-4
-2
-6
-1.253
0
0
-2,870
-1,242
0
798
64
-51
-39
-900
128
-1,370
1
-1
0
-1,922
-1
-1
-2,011
-1,818
800
1,123
50
-51
-59
-5,111
-3,248
-5,066
0
0
-1,370
-5,066
155
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
156
Note
31.12.2018
31.12.2017
6
7
8
0
0
250,931
2,004
252,935
252,935
1,785
1,785
1
12,826
851
8
58
165
13,909
184
15,878
0
0
215,931
2,904
218,835
218,835
38,782
38,782
1
11,212
477
8
13
17
11,728
40
50,550
268,813
269,385
ANNUAL FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION (FAS) (CONT.)
EUR '000
Note
31.12.2018
31.12.2017
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
-19,206
-1,370
264,360
1,248
1,248
1,262
410
1,359
25
149
3,205
4,453
23,642
25,223
241,257
-14,140
-5,066
265,730
1,248
1,248
1,212
35
155
38
967
2,407
3,655
Total equity and liabilities
268,813
269,385
157
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 STATEMENT OF CASH FLOWS (FAS)
EUR '000
1.1.-31.12.2018
1.1.-31.12.2017
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 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
158
-1,370
0
900
-24
-748
-1,242
-2,168
704
-2,706
1,470
85
-17
0
-5,066
1
5,111
17
-1,081
-1,018
-835
358
-1,495
443
53
-60
0
-1,168
-1,059
0
0
1,320
0
-8
0
0
1,312
144
40
184
144
0
0
5,000
-11
1,000
5
-5,186
808
-251
291
40
-251
ANNUAL FINANCIAL STATEMENTS 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
TRANSLATIONS OF FOREIGN CURRENCY ITEMS
Depreciation Method & Period
5 years straight line
2 years straight line
5 years straight line
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.
159
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 2.2 NOTES TO THE INCOME STATEMENT
1. REVENUE
EUR '000
By business line:
Services
Total
By geography:
Finland
EU countries
Other countries
Total
2018
2,881
2,881
7
1,209
1,665
2,881
2017
2,116
2,116
3
1,147
966
2,116
2. DEPRECIATION, AMORTISATION AND IMPAIRMENT
EUR '000
2018
2017
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
160
0
0
2018
0
-11
-28
-291
-2,477
-61
-2,870
2018
0
798
64
-51
-1
-1
2017
0
-11
-33
-175
-1,727
-63
-2,011
2017
800
1,123
50
-51
ANNUAL FINANCIAL STATEMENTS To others
Impairment of intra-group receivables
Total
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 ASSET
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.
-39
-900
-128
2018
-1,370
0
-1,370
0
0
0
0
0
0
-59
-5,111
-3,248
2017
-5,066
4,316
-750
0
0
0
0
0
0
2018
2017
275
0
275
275
0
275
0
275
0
275
274
1
275
0
161
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 7. INVESTMENTS
Acquisition cost 1.1.2018
Additions in investment
Acquisition cost 31.12.2018
Accumulated depreciation and
impairment 1.1.2018
Impairment charge
Accumulated depreciation and
impairment 31.12.2018
Book value 31.12.2018
Shares in Group
companies
Shares in associated
companies
Receivables from
Group companies
285,979
35,000
320,979
-70,048
0
-70,048
250,931
8,153
0
8,153
-8,153
0
-8,153
0
19,618
0
19,618
-16,714
-900
-17,614
2,004
Total
313,750
35,000
348,750
-94,915
-900
-95,815
252,935
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 Services Sagl
Afarak South Africa (Pty) Ltd
Afarak Trading Ltd
Afarak Participations Ltd
Magnohrom doo Kraljevo
Auburn Avenue Trading 88 (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
Rekylator Oy
Rekylator Yhtiöt Oy
Türk Maadin Sirketi A.S.
ZCM Holdco One (Pty) Ltd
Zeerust Chrome Mine Ltd
162
Malta
Serbia
Malta
Malta
South Africa
South Africa
Switzerland
South Africa
Malta
Malta
Serbia
South Africa
South Africa
South Africa
South Africa
Germany
Turkey
Finland
Finland
Finland
Turkey
South Africa
South Africa
100.00
100.00
100.00
100.00
100.00
93.40
100.00
100.00
100.00
100.00
100.00
74.00
100.00
100.00
74.00
100.00
99.00
100.00
100.00
100.00
98.75
51.00
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
100.00
100.00
98.75
0.00
0.00
ANNUAL FINANCIAL STATEMENTS Joint Ventures
Synergy Africa Ltd
Chromex Mining Ltd
Chromex Mining Company (Pty) Ltd
Ilitha Mining (Pty) Ltd
Mkhombi Stellite (Pty) Ltd
Afarak Processing Technologies (Pty) Ltd
Afarak Processing Technologies 2 (Pty) Ltd
Afarak Platiunum (Pty) Ltd
United Kingdom
United Kingdom
South Africa
South Africa
United Kingdom
South Africa
South Africa
South Africa
51.00
51.00
37.74
41.05
51.00
37.74
41.05
51.00
0.00
0.00
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 11 (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.
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
2018
2017
1,785
1,785
7,304
4,675
13
834
12,826
2018
8
30
38
38,782
38,782
7,304
3,073
8
827
11,212
2017
8
10
18
163
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
2.4 NOTES TO EQUITY AND 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.
164
2018
2017
1
851
27
879
2018
1
164
165
2018
23,643
23,642
2017
25,223
25,223
2018
236,071
0
236,071
2018
-14,140
-5,066
-19,206
1
477
3
481
2017
1
16
17
2017
23,642
23,642
2016
25,223
25,223
2017
241,257
-5,186
236,071
2017
-13,954
-186
-14,140
ANNUAL FINANCIAL STATEMENTS 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.
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
-1,370
264,360
2018
-19,206
-470
-19,676
236,071
216,395
2018
1,248
1,248
2018
50
50
2018
410
1,359
25
1,212
148
3,154
-5,066
265,730
2017
-14,140
-5,066
-19,206
236,071
216,865
2017
1,248
1,248
2017
50
50
2017
35
155
38
1,162
967
2,357
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.
165
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 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
31.12.2018
31.12.2017
17.1
0.0
17.1
9.2
0.2
9.2
PENSION LIABILITIES
The Company’s pension liabilities are directly in accordance with the statutory TyEL-system.
2.6 OTHER NOTES
RELATED PARTY LOANS
The Company has short-term loan receivables from the members and past members of the Board amounting to EUR 8
(13) thousand.
Information on the personnel
Personnel, annual average
(all employees)
Employees
Management remuneration
Chief Executive Officer
Board members
2018
5
2018
360
257
2017
5
2017
429
328
During 2018, the Company paid the CEO EUR 360,000 for his service. On 11 May 2018 he received 500,000 Company
Shares as an incentive for the first year of service acting as the Chief Executive Officer. The second 500,000 Company
shares have effectively been received on 12 February 2019.
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 400,000 Incentive shares in the company pa on each completed
year of service commencing on the effective date. Following a revision in the contract, 466,667 company shares have
effectively been received on 20 December 2018. No additional share transfers to Alistair Ruiters are envisaged.
In the fourth quarter of 2018, the Group extended for another two years the CEO contract and granted another
1,000,000 shares in the Company. These will be awarded in two tranches and vested based on completed year of
service. The first 500,000 Company shares shall be received once the first vesting period has lapsed, on 15 January
2020. The second 500,000 Company shares shall be received by the employee on 15 January 2021.
166
ANNUAL FINANCIAL STATEMENTS INFORMATION ON SHARES AND SHAREHOLDERS
Changes in the number of shares and share capital
On 31 December 2018, the registered number of Afarak Group Plc shares was 263,040,695 (2017: 263,040,695) and the share
capital was EUR 23,642,049.60 (2017: 23,642,049.60).
On 31 December 2018, the Company had 2,387,494 (2017: 3,354,161) own shares in treasury, which was equivalent to 0.91%
(2017: 1.28%) of the issued share capital. The total amount of shares outstanding, excluding the treasury shares held by the
Company on 31 December 2018, was 260,653,201 (2017: 259,686,534).
In December 2017, Afarak transfered 335,000 ordinary shares (the “Shares”) from the treasury to the outgoing CEO, Dr
Alistair Ruiters. 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.
On 15 January 2018, the company transferred 500,000 Company Shares from the treasury to Guy Konsbruck, CEO. In
December 2018, 466,667 company shares have effectively been received on 20 December 2018. Following a revision in the
contract, no additional share transfers to Alistair Ruiters are envisaged.
More information on shares, share capital and shareholders has been presented in the notes to the consolidated
financial statements.
Information obligated to a Group 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 800,000 (2017: 325,000) Afarak Group Plc
shares on 31 December 2018 when including shares owned either directly, through persons closely associated with them
or through controlled companies. This corresponds to 0.3% (2017: 0.1%) of all outstanding shares that were registered in
the Trade Register on 31 December 2018.
31.12.2018
Board and CEO total:
Barry Rourke
Non-Executive Director
Jelena Manojlovic
Chairman & Dependent Non-Executive
Director
Thorstein Abrahamsen
Non-Executive Director
Guy Konsbruck
Chief Executive Officer & Executive Director
Board and CEO total
All shares outstanding
Proportion of all shares
Shares
150,000
150,000
0
500,000
800,000
Options
0
0
0
0
0
263,040,695
263,040,695
0.3 %
0.0 %
167
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 On 31 December 2018 the total number of registered shares was 263,040,695 and the Board and CEO’s ownership
corresponded to 0.3% of the total number of registered shares.
Auditor’s fees
EUR ‘000
Ernst & Young Oy
Audit
Other services
Total
2018
185
36
221
2017
184
4
188
BOARD’S DIVIDEND PROPOSAL
The Board of Directors proposes to the Annual General Meeting which will be held on 21 May 2019 that no distribution would
be paid in 2019.
168
ANNUAL FINANCIAL STATEMENTS Signatures to the Board
of Directors and the
Financial Statements
HELSINKI 29 MARCH 2019
JELENA MANOJLOVIC
Chairman
GUY KONSBRUCK
CEO
BARRY ROURKE
Member of the Board
THORSTEIN ABRAHAMSEN
Member of the Board
170
ANNUAL FINANCIAL STATEMENTS The Auditor’s Note
Our auditor’s report has been issued today.
HELSINKI 29 MARCH 2019
ERNST & YOUNG OY
ERKKA TALVINKO
Authorised Public Accountant
171
ANNUAL FINANCIAL STATEMENTSAFARAK ANNUAL REPORT 2018 172
ANNUAL FINANCIAL STATEMENTS