Afarak Group
Annual Report 2023

Plain-text annual report

AFARAK GROUP SE (previously Afarak Group plc) The Board of Directors Report 2023 and the Annual Financial Statements 1 January-31 December 2023 Domicile: Helsinki Company number: 0618181-8 1 Contents THE BOARD OF DIRECTORS REPORT .................................................................................. 4 OUR COMMITMENT ......................................................................................................... 4 SUSTAINABILITY, HEALTH AND SAFETY AT AFARAK GROUP ............................................... 4 1. Health and Safety ................................................................................................................. 4 2. Environmental protection, including water management, waste management, land rehabilitation and emissions reduction. .................................................................................... 5 3. Community engagement and support ................................................................................... 5 ESG GOVERNANCE ............................................................................................................ 5 BUSINESS ETHICS .............................................................................................................. 6 DIVERSITY AND INCLUSION ............................................................................................... 6 CLIMATE REPORTING ........................................................................................................ 7 THE FERROCHROME AND CHROME ORE MARKET ........................................................... 14 GROUP OPERATIONAL REVIEW ............................................................................................... 14 GROUP FINANCIAL PERFORMANCE ......................................................................................... 15 SEGMENTS REVIEW ........................................................................................................ 16 SPECIALITY ALLOYS SEGMENT ..................................................................................................... 16 FERROALLOYS SEGMENT ............................................................................................................. 17 RISK MANAGEMENT .............................................................................................................. 17 SHARE INFORMATION .................................................................................................... 18 KEY FIGURES ................................................................................................................... 22 SHARE-RELATED KEY INDICATORS ................................................................................... 23 EVENTS AFTER THE REPORTING PERIOD .......................................................................... 25 ANNUAL FINANCIAL STATEMENTS .................................................................................. 26 CONSOLIDATED FINANCIAL STATEMENTS, IFRS ............................................................... 27 CONSOLIDATED INCOME STATEMENT .................................................................................... 27 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .................................................... 28 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................ 29 CONSOLIDATED STATEMENT OF CASH FLOWS ........................................................................ 31 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY, ............................................................ 32 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................................ 33 1.1 COMPANY INFORMATION ................................................................................................ 33 1.2 ACCOUNTING PRINCIPLES ................................................................................................. 33 1.3 GOING CONCERN .............................................................................................................. 46 1.4 BUSINESS COMBINATIONS AND ACQUISTION OF NON-CONTROLLING INTERESTS .............. 46 1.5 IMPAIRMENT TESTING ...................................................................................................... 46 1.6 OPERATING SEGMENTS .................................................................................................... 49 1.7 NOTES TO THE CONSOLIDATED INCOME STATEMENT ........................................................ 53 1.8 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................ 57 1.9 RELATED PARTY DISCLOSURES .......................................................................................... 75 1.10 COMMITMENTS AND CONTINGENT LIABILITIES ............................................................... 76 EVENTS AFTER THE REPORTING PERIOD...................................................................... 77 1.11 2 PARENT COMPANY’S FINANCIAL STATEMENTS (FAS) ...................................................... 79 INCOME STATEMENT (FAS)..................................................................................................... 79 STATEMENT OF FINANCIAL POSITION (FAS) ............................................................................ 80 STATEMENT OF CASH FLOWS (FAS) ......................................................................................... 82 2. NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY (FAS) .................. 83 2.1 Accounting Policies ........................................................................................................... 83 2.2 Notes to the income statement ........................................................................................ 84 2.3 Notes to assets ................................................................................................................. 85 2.4 Notes to equity and liabilities ........................................................................................... 87 2.5 Pledges and contingent liabilities ...................................................................................... 89 2.6 Other notes ...................................................................................................................... 89 SIGNATURES TO THE BOARD OF DIRECTORS REPORT AND THE FINANCIAL STATEMENTS . 91 THE AUDITOR’S NOTE ..................................................................................................... 92 3 THE BOARD OF DIRECTORS REPORT Dear Shareholders, After absolute record results in 2022, AFARAK has produced in 2023 another good performance, even though the second half year 2023 was characterized by very sluggish markets and serious pressure on prices by the Russian imported material as well as the strong pressure of other imported materials from India and China. It took until the very end of 2023 for the EU, to put imports of Russian ferroalloys on the sanction list. Our margins were also impacted by high interest rates and freight cost. Nevertheless, we continued to be profitable and cash positive. As expected, the ferro-alloys segment continued to perform well and improved the group’s profitability. We expect further positive developments in this segment for 2024. We have been driving forward the drilling and exploration work in our Magnochrome deposits and expect a complete and updated feasibility study by end of May 2024. With all above in mind, we are still presenting in 2023 one of the best results in AFARAK’s history, which is largely an achievement of my ever so committed colleagues and EMT members. I wish to thank each and every one for their great work. Guy Konsbruck CEO OUR COMMITMENT Afarak vows 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. SUSTAINABILITY, HEALTH AND SAFETY AT AFARAK GROUP Afarak Group extracts, processes, markets and trades specialised metals and is trusted by a highly diversified customer base that covers the aviation, nuclear, oil & gas and automotive industries. Our customers are leaders in their sectors and look to their suppliers to uphold their high standards for ethical conduct, health and safety and environmental protection. The communities in the regions where we operate also look to us to support their economic development. Our sustainability commitments and our work to date is designed to provide all our stakeholders with the assurance that we are a well-managed business that respects people and the planet. Our programmes are built around three broad categories: 1. Health and Safety During 2023, the Group’s employees contributed approximately 1,267,401 working hours during which the company suffered 54 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. In our factories we continuously assess, monitor, and control the risks of our workers. Our 5-year LTI performance is set out below. As part of our efforts to continually review and improve addressing the upward LTIs over the reporting period, we are reviewing and updating our Health & Safety Policy and Procedures and look forward to reporting this more fully in our next Annual Report. 4  2,500,000 2,000,000 44 s r u o H g n k r o W i 1,500,000 1,000,000 500,000 - 30 21 21 54 60 50 40 30 20 10 0 s e i r u n j I e m T i t s o L 2019 2020 2021 2022 2023 Working Hours Lost Time Injuries We conduct routine health checks on all sites; these checks also include drug and alcohol testing. We are constantly reviewing the role of organising shifts in the mines to minimise any possible fatigue-related injuries. 2. Environmental protection, including water management, waste management, land rehabilitation and emissions reduction. We understand and recognise the critical importance of environmental protection, particularly in the extractives sector. Our subsidiaries are working hard to introduce programmes to improve the management of water and waste while also focusing on emissions reduction wherever possible. We started work to establish data collection processes that will allow us to set our benchmarks and introduce realistic long-term targets to measure our improved performance. 3. Community engagement and support Based on the five-year Social and Labour Plan, our subsidiaries in South Africa are developing their relevant activities. During 2023, the company supported employees through the payment of inflation compensation aids. We have provided social support to all our local communities and to communities affected by the earthquake in February 2023 affecting large areas of Turkey. In addition we have also facilitated travel into the affected areas for TMS workers, who chose to volunteer to help the local population. ESG GOVERNANCE We recognise the importance of robust governance to ensure Afarak manages its ESG-related risks and its environmental and social impacts. The Board and Executive Committee takes a leading role, overseeing our sustainability strategies and ensuring alignment with our corporate objectives. We have established clear roles and responsibilities, to ensure we manage our ESG risks, deliver against our health and safety, environmental and community goals, and improve our overall sustainability performance. Afarak operates in highly differentiated national markets with differing national laws, preferences and cultures. As a result, operational direction and management of sustainability lie primarily with national business managers, who are best placed to ensure compliance with national legislation and market expectations. The Executive Committee, which reports to the Board, therefore takes a holistic approach to overseeing the sustainability initiatives implemented at a national level and take responsibility for ensuring that such initiatives are in line with investor expectations. 5 BUSINESS ETHICS Ensuring Afarak operates to the highest ethical standards is critical to our stakeholders including our employees, customers, investors and regulators. Our Code of Ethics and policies ensure that standards are upheld by Afarak and its suppliers. The Code of Ethics state the Group's commitment to ensuring an equitable, diverse and inclusive workplace. Additionally, to maintain strong business ethics, the Group has adopted and maintains policies on Human Rights, Anti-Bribery and Anti-Corruption. Our ESG policy is in development and will be established within the next 12 months. The whistleblowing procedure also lays down the process for making complaints on discrimination in the workplace. The whistleblowing policy, as well as the contacts are available on the Group’s website (https://afarak.com/) DIVERSITY AND INCLUSION Afarak seeks to build a working environment that enables full and active participation and embraces and encourages diversity of thought and experience in order to maximise business performance. The Board is very cognisant of the ongoing desire from stakeholders for greater diversity in senior management and boards. The UK FCA Listing Rules require companies to disclose, on a comply or explain basis, whether they meet specific diversity targets, being: at least 40% of the board are women 1 out of 3 Directors is a woman, corresponding to 33.3.% at least one of the senior board positions is a woman at least one member of the board is from a minority ethnic background Dr. Jelena Manojlovic is the Senior Non-Executive Director None of the Directors are classified as White British* * Note: The Law Society advise that the terms ‘ethnic minority’, ‘minority ethnic’ or ‘minoritised ethnic’ usually refer to racial and ethnic groups that are in a minority in the population. In the UK, they usually cover all ethnic groups except White British. We believe the small size of our Board assists in its collegiality and sense of purpose. Therefore, while we will miss the gender diversity target by 6.7% we will continue with a small Board that is efficient. The Board continues to seek to achieve greater diversity in the senior management of the Group and throughout the organisation and continuing assessment of the Group’s diversity and inclusion approach in relevant areas. Currently, the Group has not adopted a Diversity and Inclusion Policy but will have accomplished this during the current financial year. The following tables set out information on the diversity of the individuals on the Company’s Board and in its Executive Management as required by the UK FCA Listing Rule 14.3.3.33.R. 6 No. of Board Members % of the Board No. of Senior Positions on the Board No. in Executive Management % of Executive Management Gender Identity Men Female Ethic Background White British or other White (including minority white groups) Mixed/Multiple Ethnic Groups Asian/Asian British Black/African/Caribbean/ – Black British Other ethnic group, including – Arab Not specified/prefer not to say* 2 1 - - - - - 66.7% 33.3% - - - - - 2 1 - - - - - 3 100% 3 3 1 - - - - - 4 75 25 - - - - - 100% Notes: *: None of the Group’s Board, Executive Management and staff are British nationals, although Dr. Jelena Manojlovic is resident in the United Kingdom. During the reporting period, the Group employed [601] people representing in excess of [8] different nationalities with multiple and diverse ethnic groups represented especially in our operations in South Africa and Turkey. **: In accordance with UK Listing Rule 9.8.6 R(9)(a) includes the Chairman, Chief Executive Officer and the Senior Independent Director. ***: In accordance with UK Listing Rule 9.8.6 R(10), executive management for these purposes are our Chief Executive Officer , Chief Financial Officer, and members of our key management personnel Chief Compliance Officer, Company Secretary and Chief Technical Officer). CLIMATE REPORTING Introduction The Afarak Group is committed to assessing both its current and potential impact on climate change, as well as the implications of the climate crisis on its activities. As we undertake this evaluation, we recognise the importance of sharing our commitments, plans and progress with stakeholders to collectively direct efforts and increase transparency in combating the climate change. While reducing our carbon footprint has been a priority for our business for the last decade, we acknowledge that we are at the beginning of our journey towards making climate- related public disclosures. In the table below, we have detailed our current compliance with the Taskforce on Climate-Related Financial Disclosures (TCFD) and our plans to achieve full compliance. Taskforce on Climate-Related Financial Disclosures (TCFD) The Company supports the initiatives and recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) and has taken steps to develop climate-related financial disclosures that it considers are consistent and appropriate with both the recommended disclosures of the TCFD and the current position of the Company. 7 The TCFD recommended disclosure framework comprises four broad categories of disclosure: governance, strategy, risk management and metrics and targets. Within each category of recommended disclosure, the TCFD has identified further specific disclosures that the Company should report on. The Company has reported on this basis below. The Company has considered the appropriate level of detail to be included within the various disclosures having regard to the nature and size of the Company’s current operations and the planned future operations. TCFD recommendations Governance a) Describe the board’s oversight of climate-related risks and opportunities b) Describe management’s role in assessing and managing climate- related risks and opportunities Strategy a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term b) Describe the impact of climate related risks and opportunities on the organization’s businesses, strategy, Compliance status Full compliance timeline Compliant Compliant Afarak Group disclosures The Board of Directors of the Group holds ultimate accountability for climate related and ESG (Environmental, Social, governance) management, as well as the relevant disclosures, in line with the CSR Corporate Sustainability Reporting Directive, which will be implemented in 2025 for the 2024 annual reporting cycle. Additionally, the Board is responsible for the identifying and evaluating the climate related risks and opportunities (CRRO). All managing Directors and Board Members of all the subsidiary companies are also held responsible toward the Afarak Group Board for the implementation of activities related to the CRRO. The Board oversees the ESG and climate-related issues through the ESG Team, which reports directly to the Board. The team is composed of the following key positions: • Chief Compliance Officer, Afarak Group • ESG team leader, Afarak Group • Internal ESG officer, Afarak Group Beginning in 2024, internal reports to the Board occur on a half-yearly basis and encompass ESG and key climate-related elements. including the assessment and approval of construction and operational ESG KPIs and targets. Please, refer to the table “Main climate risks for the Afarak Group”. Partially compliant FY2027 Please, refer to the table “Main climate risks for the Afarak Group”. Partially compliant FY2027 While the Group has identified climate-related risks and their potential impact on operations, we are currently in the process of analysing 8 Compliance status Full compliance timeline Non- compliant FY2027 The Company has not provided the climate- related time horizons for the scenarios provided because it has not yet completed the LCA required to determine key inputs. Partially compliant FY2027 Non- compliant FY2027 TCFD recommendations and financial planning. c) Describe the resilience of the organization’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario Afarak Group disclosures additional opportunities. Additionally, we are planning to conduct a deep-dive analysis of how CRRO (Climate-Related Risk and Opportunities) is impacting financial indicators. The Afarak Group has not yet completed the Life Cycle Assessment (LCA) assessment to determine the key climate-related inputs for its mining operations in Turkey and South Africa. Consequently, the company is unable to provide results of testing various climate-related scenarios in the current reporting period. The Group will disclose its business model resilience testing, including climate-related time horizons for different scenarios that impact the strategic plan, once the necessary assessments are completed. Risk management Describe the organization’s processes for identifying and assessing climate- related risks. Describe the organization’s processes for managing climate- related risks. The ESG Team has developed a checklist covering various points encompassing all ESG aspects and related risks, including Climate Change, Pollution, Water and Marine Resources, Biodiversity and Ecosystems, Circular Economy, Our Workforce, Workers in the Value Chain, Affected Communities, Consumers and End Users, and Business Conduct. Based on this checklist, all subsidiary companies are reviewing their present status and preparing specific strategic plans in anticipation of CSRD reporting and full compliance with the TCFD. This serves as the basis for developing the ESG management and disclosure system for the Group. Afarak is developing the ESG Group System which includes corporate policies and controls, and social management plans and action plans. The Board and the EMT , the Executive Management Team whose members are the Group CEO,CFO, Chief Technical Officer and Chief Compliance officer, are committed to developing the entire system also in harmony with the local environment and communities taking all the appropriate steps in the process to meet the requirements of TCFD and CSRD reporting and disclosures. . 9 TCFD recommendations Describe how processes for identifying, assessing, and managing climate- related risks are integrated into the organization’s overall risk management. Metrics and Targets a) Disclose the metrics used by the organization to assess climate related risks and opportunities in line with its strategy and risk management process. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Compliance status Non- compliant Full compliance timeline 2027 Afarak Group disclosures The ESG Group System is in the development phase in close collaboration with the feasibility studies for the projects. That means that the environmental, social and governance aspects will be integrated in the overall design with the scope to avoid any potential adverse impact but, instead, creating opportunities also for the local communities. The company use such metrics as direct and indirect emissions and its intensity, energy consumption and intensity per kg of production to assess its carbon footprint. Partially compliant 2026 The company has also conducted a Life Cycle Assessment study on LC FeCr, which was carried out in accordance with the requirements of ISO 14040 and ISO 14044. The LCA assessment for the mines in Turkey and South Africa will be conducted during 2024. The full dataset will map all energy and manufacturing inputs, as well as the relevant associated emissions, throughout the product life cycle. We have focused our first LCA on our principal smelting business, EWW based in Germany. This has been the priority as it is the most energy intensive business unit and potentially the most impactful in terms of GHG. The LCA calculated GHG emissions (see chart below) [Partially compliant] 2026 Scope 1: [0,35 Kg CO2 eq/Kg Cr in FeCr] Scope 2: [1,78 Kg CO2 eq/Kg Cr in FeCr] Scope 3: [9,75 Kg CO2 eq/Kg Cr in FeCr] 10 TCFD recommendations Afarak Group disclosures Compliance status Full compliance timeline The Scope 3 emissions within smelting are coming from the burnt lime ( CaCO3 + E -> CaO + CO2 ) We have commissioned a LCA for our mining business units and will report GHG for those activities in the next Annual Report We recognise that the Group must set long-term decarbonization targets across all scopes. These must be ambitious but also realistic and achievable. To do this we must first establish our benchmark emissions through accurate and reliable data. We are aiming to establish the processes necessary for the regular collection of accurate scope 1, 2 and 3 emissions within the next year, with a view to setting and publishing our benchmarks within two years. Once established, we will develop our long-term emissions reduction targets. c) Describe the targets used by the organization to manage climate- related risks and opportunities and performance against targets. Non- compliant 2027 Countries of Operation & Net Zero Pledges – influences on Afarak’s strategy and actions in relation to climate change We recognise the Net Zero ambitions of the countries in which we operate and conduct our activities. We develop our strategy and actions in relation to climate change to support and align with these larger national Net Zero objectives. Country Activities Finland United Kingdom South Africa Turkey Germany Malta Country of Incorporation & Listing on Helsinki Nasdaq Listing on London Stock Exchange Mining & Mineral Processing Mining & Mineral Processing Mineral Processing Commodity Trading Net Zero Target Date 2035 Legal Status In Law 2050 2050 2053 2045 2050 In Law Declaration / Pledge In Policy Document In Law In Policy Document Source: Net Zero Tracker Key climate risks and opportunities Risk category Physical Risk Extreme weather events Description of impact on the Group The Group is operating in regions which may be exposed to extreme weather events bringing the risk of damage to the structures and the Mitigation measures Horizon None of the mines are in flood risk areas and, where we are not allowed to mine natural water courses, there are risks of Long term (5- 10 years) 11 Risk category Risk Energy Contribution to greenhouse gas Technology Regulatory and reporting Equipment might need to be acquired for the generation of renewable energy and the added value transformation of the unavoidable waste. Renewal of licences, mining permitting Description of impact on the Group infrastructure, equipment, and disruption to operations due to increased frequency and intensity of extreme weather events. Increases in temperature could adversely impact workforce (through dehydration, heat stroke etc.) and could cause plant and machinery to overhead. The main sources of greenhouse gas (“GHG”) emissions associated with the Project relate to fuel combustion and electricity usage. Some of transitional risks are also present during the development of the technology and the design of the renewable energy plants, in particular the production of energy through the biomass gas generation, and the opportunity to valorise the unavoidable waste by transforming it in an added value additive. Mitigation measures Horizon water shortages, but the mines have multiple sources (mainly boreholes) and all water is captured, reused and recycled also in those areas where we can mine natural water. Development and continual revision of working practices including health and safety. Upgrading of energy intensive machinery during the operational phase is expected to improve efficiency and reduce CO2 emissions compared to plant which will be removed. Further energy efficiency opportunities will also be investigated Long term (5- 10 years) The company is actively working to the own generation of renewable energy, and the waste as a business opportunity Use of government grants and find strategic partners with technologies available and ability to finance Medium term (3-5 years) The specific regulations in each country may change with additional administrative costs and impacts on the operations Use internal and external human resources to fulfil the activities Short term (1-3 years) 12 Risk category Risk Description of impact on the Group Mitigation measures Horizon Reputational processes and increased reporting requirements Intensive energy user exposed to availability and spikes in costs The nature of the smelting operations is of an intensive energy user Own production of renewable energy with recovery of the heat generated Medium term (3-5 years) Opportunities The main climate-related opportunity the Company has identified is the increased use of chromium as a result of the transition to a lower-carbon world economy. Chromium is often labelled as a critical mineral for the adoption of clean energy technologies. Source: International Energy Agency Ferrochrome (FeCr) is a ferroalloy which includes iron and chromium. Depending on the application, ferrochrome contains between 50 and 70% chromium. It comes from the reduction of chromite, a mineral composed mainly of chrome oxide and iron oxide and mined as chrome ore. Ferrochromium is made using metallurgical grade chrome ore and can be divided into three categories, depending on the level of carbon in the alloy. The three types of ferrochrome alloys are: • High-carbon (HC) ferrochrome (carbon content between 4% and 9%) • Low- and medium-carbon (LC & MC) ferrochrome (carbon content less than 0.5% for LC and between 0.5% and 4% for MC) • Ferrochrome-silico-chrome (FeSiCr) Afarak is specialist producer of Low carbon ferrochrome (LC FeCr), with a carbon content below 0.10%. It is a ferroalloy used to regulate the ratio of chromium in steel production without adding carbon and other unwanted ingredients. It is also used by the superalloys industries. Afarak is the only Western producer of low carbon ferrochrome which has applications in CO2 reduction. Looking ahead Afarak will remain committed to upholding and raising the value of sustainability in its operations. Health and safety remain a key priority for the Board and a review of safety policies & procedures is a constant focus. With 13 the goal of improving safety at all plants. Environmental investments are important to Afarak and initiatives will continue throughout 2023 to further minimise the impact of our operations on nature. Also, community investments will be maintained. THE FERROCHROME AND CHROME ORE MARKET Afarak Group operates primarily in the chrome market. Globally, most of the chrome ore is used in metallurgical applications. However, chrome ore is also used, though to a much lesser extent, in refractories, as foundry sands and as a chemical grade as shown below. Afarak produces ferrochrome which is the main type of chrome used in metallurgical applications, in turn mainly driven by the demand for stainless steel. Therefore, chrome ore and ferrochrome are very much correlated to the developments of the stainless-steel industry. 2023 Market overview Low carbon ferrochrome prices for standard grade are expected to stabilize going forward, but they are on the low side. We have a sizeable and long-term customer base for these grades. We do not expect increasing the output for these standard grades, unless the leading stainless-steel groups improve their activity and/or start showing more interest in sustainable and responsible supply chains. The special grade market, on the other side, continues to grow and show upside. Afarak is expecting solid results for 2024, as our focus resides in this special grade segment. The tense geopolitical situation combined with the money market uncertainties may have a major negative impact on these generally positive expectations. Market sentiment for 2024 The Indian and Chinese in-flows seem to be reducing, due to high logistics cost, and somewhat stronger internal demands. Hence, we foresee a slightly more friendly market outlook, starting Q2/2024. The interest rates should also reduce over 2024, although this now seems to be delayed towards the end of the year. Afarak has been for many years now the only Western producer of special grade low carbon ferro-chrome, a critical ingredient for the production of high-quality components for the Aerospace, Automotive, Green energies, Defense and various other industries. The output of these special grades is regulated by their limited usage world-wide. We have to reduce our output for regular standard grades, as we cannot always produce and sell those in an economically responsible way, the pressure of imported lower grade material being too high. We continue to improve our productivity and efficiency, so as to cope better and better with this low-quality competition. We expect the margin pressure to continue, at least through H1/2024, due to the weak state of the stainless-steel industry, mostly in Europe. GROUP OPERATIONAL REVIEW Operationally, 2023 presented lower sales and higher production for the Group which the latter was mainly driven by resumed operations in the Mecklenburg mine. Sales The Group sales of processed material decreased by 20.6% and stood at 20,709 (2022: 26,085) tonnes due to higher demand. Group mining Group mining activity increased by 154.3% to 336,601(2022: 132,362) tonnes during the year under review. Annual mining levels in the Speciality Alloys segment increased by 7.5% to 65,655 (2022: 61,092) tonnes. Production within the FerroAlloys segment increased significantly as the output increased in South African mines on account of the favourable market conditions to 270,946 (2022: 71,271) tonnes. 14 Group processing Group processing for 2023 decreased by 20.5% to 21,179 (2022: 26,642) tonnes on account of higher demand. Human resources At the end of the year 2023, Afarak had 596 (600) employees. The average number of employees during the year 2023 was 599 (545). GROUP FINANCIAL PERFORMANCE 2023 performance The Group revenue was lower compared to prior year EUR 153.7 (198.7) million mainly to a decline in prices. Speciality Alloys Processed material sold decreased by 20.6%, to 20,709 (FY/2022: 26,085) tonnes. The mining operation increased by 154.3%, to 336,601 (FY/2022: 132,362) tonnes. Profit for the year totalled EUR 10.0 (FY/2022: 47.6) million and EBITDA during the year decreased to EUR 16.6 (FY/2022: 53.7) million. EBIT stood at EUR 15.0 (FY/2022: 52.3) million; EUR million Revenue EBITDA EBIT Profit from continuing operations Profit from discontinued operations Profit for the period EBITDA margin EBIT margin Balance Sheet, Cash Flow and Financing H1 2023 95.4 15.1 14.4 10.5 - 10.5 15.8% 15.1% H2 2023 58.3 1.5 0.6 -0.5 - -0.5 2.5% 1.2% FY 2023 153.7 16.6 15.0 10.0 - 10.0 10.8% 9.8% FY 2022 198.7 53.7 52.3 44.7 2.9 47.6 27.1% 26.3% The Group’s total assets on 31 December 2023 stood at EUR 162.2 (2022:159.8) million and net assets totalled EUR 105.8 (2022:104.8) million. During the second half, the translation differences on conversion of foreign denominated subsidiaries was adjusted by EUR 1.6 million. The Group’s cash and cash equivalents, as at 31 December 2023, totalled EUR 18.0 (2022:12.4) million. Operating cash flow was positive, standing at EUR 1.3 (2022:31.2) million. The equity ratio stood at 65.1% (2022:65.6%). Afarak’s gearing at the end of the year was - 14.1% (2022: -9.8%), as the company kept low interest-bearing debt of EUR 3.1 (2022:2.2) million. Investments, Acquisitions and Divestments Capital expenditure for the full year of 2023 totalled EUR 3 (2.1) million. Capital Expenditure was mainly incurred to sustain Group operations. 15 SEGMENTS REVIEW SPECIALITY ALLOYS SEGMENT 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. 2023 in Review Revenue for the year under review decreased by 26.8% to EUR 140.3 (2022:191.7) million, driven by a substantially weaker market environment whereas the preceding year demonstrated exceptional strength. The decrease in demand led to a decrease in processing levels by 20.5% when compared to last year. The decrease in revenue and processing resulted in a lower EBITDA for the year to EUR 17.5 (2022:56.2) million, and EBIT of EUR 16.3 (2022:55.4) million. Revenue €140.3mln (2022: €191.7mln) Mining production 65,655mt (2022: 61092mt) Production EBITDA €17.5mln (2022: €56.2mln) Processing production 21,179mt (2022: 26,642mt) Personnel 468 (2022: 488) EBIT €16.3mln (2022: €55.4mln) Sales of processed material 20,709mt (2022: 26,085mt) Total production levels during 2023 decreased by 1% to 86,834 (2022: 87,734) tonnes. The mining operations at TMS remained consistent, leading to a slight 2.4% increase compared to same period last year. Processing levels at the EWW plant in Germany was lower than same period last year by 23.5% as it carried out a longer term planned maintenance shutdown during the fourth quarter of 2023. Sales Speciality Alloys Processed material sold declined by 20.6%, to 20,709 (2022: 26,085) tonnes. Financial performance The declining sales resulted in a lower EBITDA for the year to EUR 17.5 (2022:56.2) million, and EBIT of EUR 16.3 (2022:55.4) million. EUR million Revenue EBITDA EBIT EBITDA margin EBIT margin Looking ahead H1 2023 H2 2023 FY 2023 FY 2022 89.6 15.4 14.8 17.2% 16.5% 50.7 2.1 1.5 4.1% 2.8% 140.3 17.5 16.3 12.4% 11.6% 191.7 56.2 55.4 29.3% 28.9% Stability is expected in the Low carbon ferrochrome prices for standard grade going forward, although they persist at notably low levels. We do not expect increasing the output for these grades, unless the stainless mills improve 16 their activity. The special grade market continues to grow and show some upside. Overall, Afarak is expecting solid results for 2024. However, the tense geopolitical landscape coupled with uncertainties in the money market could potentially cast a significant negative influence on these expectations. FERROALLOYS SEGMENT The FerroAlloys business consists of the Vlakpoort mine, Stellite mine, Mecklenburg mine and Zeerust mine in South Africa. The business produces chrome ore for sale to global markets. 2023 in Review The Ferro Alloys segment showed a steady increase both from the revenue and mining aspects. This is manifested in the EBITDA of EUR 3 (2022:0.5) million. Revenue €13.2mln (2022: €5.3mln) Mining production 270,946mt (2022: 71,271mt) Production EBITDA €3 mln (2022: €0.5mln) Processing production 0mt (2022: 0mt) Personnel 111 (2022: 94) EBIT €2.7mln (2022: €0.2mln) Sales of processed material 26mt (2022: 0mt) Operationally, the segment registered almost trebled total production by to 270,946 (2022: 71,271) tonnes. Production within the FerroAlloys segment increased significantly as the output increased in South African mines on account of the favourable market conditions. Opencast mining was resumed at the Mecklenburg mine. Sales The sales of mining material from the FerroAlloys segment increased by149% in 2023 to EUR 13.2 million when compared to 2022 (EUR 5.3) million. Financial performance EUR million Revenue EBITDA EBIT EBITDA margin EBIT margin H1/23 5.7 1.7 1.6 30.6% 27.9% H2/23 7.5 1.3 1.2 17.1% 15% FY23 13.2 3.0 2.7 22.9% 20.6% FY22 5.3 0.5 0.2 9.3% 4.4% Production within the FerroAlloys segment increased significantly as the output increased. The aforementioned factors, resulted in a positive EBITDA increase to EUR 3.0 (2022: 0.5) million during the reporting period. Looking ahead Afarak continued with its mining activity in South Africa and plans to increase its output during 2024. 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 17 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. 2023 Developments Afarak’s processing operations in Germany and South African mines are intensive users of energy, primarily electricity. Fuel and energy prices globally have been characterised by volatility and cost inflation. In South Africa the majority of the electricity supply, price and availability are controlled by one entity, Eskom. Increased electricity prices and/or reduced, or uncertain electricity supply, or allocation may negatively impact Afarak’s current operations, which could have an impact on the Group’s financial performance. Management continued to work closely with the Units to provide continuous monitoring and oversight in accordance with the Group’s risk management policy. Health & safety and the stated aim of ‘Zero-Harm’ will continue to be a central pillar of the Company’s risk management strategy. SHARE INFORMATION On 31 December 2023, the registered number of Afarak Group SE shares was 267,041,814 (267,041,814) and the share capital was EUR 23,642,049.60 (23,642,049.60). On 31 December 2023, the Company had 6,541,514 (7,041,514) own shares in treasury, which was equivalent to 2.45% (2.64%) of the issued shares. The total number of shares outstanding, excluding the treasury shares held by the Company on 31 December 2023, was 260,500,300 (260,000,300). Flagging notifications On 27 February 2023, Afarak published that on 27 February 2023 it received from Aida Djakov and the company Atkey Limited (“Atkey”), in which Aida Djakov has a controlling interest, a flagging notification pursuant to Chapter 9, Section 5 of the Finnish Securities Markets Act. According to the notification, Aida Djakov holds 61,926,701 Afarak shares as a result of a transaction carried out on 27 February 2023, which is equivalent to approximately 23.19 per cent of the shares and votes of Afarak. On 06 October 2023, Afarak Group SE published a notification pursuant to chapter 9, section 10 of the Finnish securities market act. According to the flagging notification as a result of an intragroup merger in which LNS Resources Ltd (previous direct shareholder in Afarak Group SE) has been merged into its sister company LNS International Ltd, LNS International Ltd is as of 3 October 2023 the direct shareholder in Afarak Group SE. Trading information Afarak Group SE’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 At the beginning of the period under review as at December 2022, the Company’s share price was EUR 0.35 on NASDAQ Helsinki and GBP 0.20 on the London Stock Exchange. At the end of the review period as at December 2023, the share price was EUR 0.40 and GBP 0.20 respectively. During the second half of 2023, the Company’s share price on NASDAQ Helsinki ranged from EUR 0.36 to 0.50 per share and the market capitalisation, as at 31 December 2023, was EUR 107.88 (1 January 2023: 94.27) million. For the same period on the London Stock Exchange, the share remained at GBP 0.20 per share and the market capitalisation was GBP 53.41 (1 January 2023: 50.41) million, as at 31 December 2023. Shareholders On 31 December 2023, the Company had a total of 8,387 shareholders (8,387 shareholders on 31 December 2022), of which nine were nominee-registered. The registered number of shares on 31 December 2022 was (2022: 267,041,814). LARGEST SHAREHOLDERS ON 31 DECEMBER 2023 18 1 2 3 4 5 6 7 8 9 10 Shareholder Skandinaviska Enskilda Banken AB Hino Resources Co. Ltd Hanwa Company Limited Afarak Group SE Joensuun Kauppa ja Kone Oy 4capes Oy Nieminen Jorma Juhani Osuusasunnot Oy PM Ruukki Oy Hukkanen Esa Veikko Total Other Shareholders Total shares registered Shares % 153,553,387 57.50 36,991,903 13.85 9,000,000 3.37 2.45 6,541,514 1.93 5,160,683 4,105,000 1.54 3,000,000 1.12 0.97 2,590,000 0.86 2,299,934 0.62 1,650,381 84.21 224,892,802 42,149,012 15.79 267,041,814 100.00 Afarak Group SE’s Board members and Chief Executive Officer owned in total 1,950,000 (2022: 2,4 50,000) Afarak Group SE shares on 31 December 2023, including shares owned either directly, through persons closely associated with them or through controlled companies. This corresponds to 0.7% (2022: 0.9 %) of the total number of registered shares on 31 December 2023. SHAREHOLDERS BY CATEGORY 31 DECEMBER 2023 Number of shares 1 - 100 101 - 1000 1001 - 10000 10001 - 100000 100001 - 1000000 1000001 - 1000000 10000001 & above Total of which nominee-registered Total outstanding Number of shareholders 2,420 3,326 2,433 628 60 8 2 8,877 10 % share of shareholder 27.23 37.43 27.38 7.07 0.68 0.09 0.02 100% 0.11% Number of shares held 102,543 1,576,997 8,788,675 17,378,737 14,302,060 34,347,512 190,545,290 267,041,814 157,727,945 260,500,300 % of shares held 0.04 0.59 3.29 6.51 5.36 12.86 71.35 100.00 57.94 97.55 SHAREHOLDERS BY SHAREHOLDER TYPE ON 31 DECEMBER 2023 Finnish shareholders of which: Non-financial corporations and housing corporations Financial and insurance corporations Households Non-profit institutions serving households Foreign shareholders Total of which nominee-registered % of share 24.57 7.03 2.82 14.72 0.00 75.43 100.00 57.94 19 RESOLUTIONS OF THE ANNUAL GENERAL MEETING Afarak Group SE’s Annual General Meeting was held in Helsinki on 21 June 2023. 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 2022. The AGM resolved that no dividend would be paid for 2022. The AGM also adopted the Remuneration Report for the Company’s governing bodies. THE BOARD OF DIRECTORS The AGM resolved that the Board of Directors would comprise of three (3) members: Dr Jelena Manojlovic (UK citizen), Mr Thorstein Abrahamsen (Norwegian citizen) and Mr Guy Konsbruck (Luxembourg citizen) were re-elected as Board members. The AGM resolved that the Non-executive Board Members shall be paid EUR 5,000 per month and the Chairman of the board shall be paid an additional EUR 1,500 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. Board Members shall be compensated for travel and accommodation expenses as well as other costs directly related to Board and Committee work in accordance with the company's travel rules. THE AUDITOR The AGM resolved that the Company will pay the fee to the auditor against an invoice that is inspected by the Company and that according to the recommendation by the Audit Committee, the Authorised Public Accountant Tietotili Audit Oy was re-elected as the Auditor of the Company. Tietotili Audit Oy has informed the Company that the individual with the principal responsibility at Tietotili Audit Oy, is Authorised Public Accountant Urpo Salo. ONE-OFF RETROACTIVE ADDITIONAL COMPENSATION TO NON-EXECUTIVE BOARD MEMBERS The AGM resolved that the Non-Executive Board Members Thorstein Abrahamsen and Dr Jelena Manojlovic shall be paid EUR 50,000 each as a one-off retroactive additional compensation for during the last couple of years having taken on substantial more work on a 24/7 availability basis, to facilitate operating through difficult times with reduced income during the pandemic and with a lot of changes in the Company (divestment of assets, downsizing, further development), and through recovery and significant improved performance of the Company to its’ best ever financial result in 2022. CHANGE OF THE ARTICLES OF ASSOCIATION The AGM resolved that the Articles of Association of the Company are amended by changing the Article 8 (Call to the General Meeting) so that the general meeting can be held completely without a meeting venue as a so-called remote meeting. Following the changes, the above-mentioned Article 8 of the Articles of Association reads as follows: “8 Call to the General Meeting The call to the General Meeting shall be published on the company's website and as a stock exchange release no earlier than two (2) months and no later than twenty-one (21) days before the meeting, however, in any event nine (9) days before the record date of the General Meeting. The Board of Directors may, at its discretion, also publish the call to the General Meeting in one or two national newspapers or by sending the call to the meeting to the shareholders to their addresses recorded in the share register by registered mail or other verifiable means. Aside from the location of the registered office, the General Meeting may also be held in Espoo, Oulu, Oulunsalo or Vantaa. The Board of Directors may also decide that the General Meeting will be held without a meeting venue so that the shareholders will exercise their decision-making power full-on and on an up-to-date basis by means of a telecommunications connection and a technical device during the meeting.” ACQUISITION OF LL-RESOURCES GMBH The AGM approved the Transaction, as detailed in the Circular dated 31 May 2023, and authorized the Board of Directors to take all such steps as may be necessary or acceptable in relation thereto and to carry the same into effect with such modifications, variations, revisions or amendments (providing such modifications, variations, revisions or amendments are not of a material nature) as they shall deem necessary or desirable. In relation to the Transaction, the AGM authorized the Board of Directors to issue ordinary shares. By virtue of the authorization shares could be issued up to a maximum of 140,000,000 new shares. This equates approximately 52.43 % of the Company’s current registered shares. The Board of Directors 10 will be entitled to decide on the directed share issue related to the implementation of the Transaction in such a way that the payment of the whole subscription price will be made with contribution in kind (the entire share capital of LL-resources GmbH). The authorization does not replace the previous authorizations and it is valid two (2) years as from the decision of the General Meeting. 20 AUTHORIZATION TO THE BOARD OF DIRECTORS TO DECIDE UPON SHARE ISSUE AND UPON ISSUING OTHER SPECIAL RIGHTS THAT ENTITLE TO SHARES The AGM resolved to authorize the Board of Directors to issue shares and stock options and other special rights that entitle to shares in one or more tranches up to a maximum of 250,000,000 new shares or shares owned by the Company. This equates to approximately 93.62 % of the Company's currently registered shares. The authorization may be used among other things to raise additional finance and enabling corporate and business acquisitions or other arrangements and investments of business activity or for employee incentive and commitment schemes. By virtue of the authorization, the Board of Directors can decide both on share issues against payment and on share issues without payment. The payment of the subscription price can also be made with consideration other than money. The authorization contains the right to decide on derogating from shareholders' pre-emptive right to share subscriptions provided that the conditions set in the Finnish Companies' Act are fulfilled. The authorization replaces all previous authorizations granted in the Annual General Meeting in 2022 and is valid two (2) years from the decision of the Annual General Meeting. 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 1 2 4 5 6 7 8 9 10 11 12 13 14 Interest capitalised Publication of unaudited financial information Details of long-term incentive schemes Waiver of emoluments by a director Waiver of future emoluments by a director Non pre-emptive issues of equity for cash Item (7) in relation to major subsidiary undertakings Parent participation in a placing by a listed subsidiary Contracts of significance Provision of services by a controlling shareholder Shareholder waivers of dividends Shareholder waivers of future dividends Agreements with controlling shareholders Location 1.8. Notes to the statement of financial position, 10. Property, plant and equipment. Not applicable 1.8. Notes to the statement of financial position, 18. Share- based payments Not applicable Not applicable Not applicable Not applicable Not applicable 1.8. Notes to the statement of financial position, 1.9.2 Related party transactions Not applicable Not applicable Not applicable Not applicable All the information cross-referenced above is hereby incorporated by reference into this Board of Directors report. 21 KEY FIGURES FINANCIAL INDICATORS Continuing operations 2023 2022 2021 Revenue EUR '000 153,655 198,691 80,256 EBITDA % of revenue Operating profit (EBIT) % of revenue Profit before taxes % of revenue Return on equity Return on capital employed Equity ratio Gearing EUR '000 16,594 10.8% EUR '000 EUR '000 % % % % 15,032 9.8% 11,965 7.8% 9.5% 18.8% 65.1% -14.1% 53,747 27.1% 52,293 26.3% 49,187 24.8% 60.3% 59.9% 65.6% -9.8% 5,940 7.4 % 6,822 8.5 % 2,878 3.6 % 1.7% 16.8% 29.7% 74.2% Personnel at the end of the accounting period 595 600 503 22 SHARE-RELATED KEY INDICATORS 2023 2022 2021 Earnings per share, basic EUR Group 0.04 Continuing operations 0.04 Group 0.19 Continuing operations 0.18 Group 0.04 Continuing operations 0.00 Earnings per share, diluted EUR 0.04 0.04 0.19 0.18 0.04 0.00 Equity per share Price to earnings EUR EUR 11.02 Average number of shares 1,000 260,478 1.84 251,310 3.74 244,484 0.41 0.41 0.41 0.41 0.18 0.18 Average number of shares, diluted Number of shares at the end of the period Share price information (NASDAQ Helsinki) Average share price Lowest share price Highest share price Market capitalisation Share turnover Share turnover Share price information (London Stock Exchange) Average share price Lowest share price Highest share price Market capitalisation Share turnover Share turnover Share turnover 1,000 260,978 251,846 245,747 1,000 267,042 267,042 252,042 EUR EUR EUR EUR '000 EUR '000 % 0.52 0.35 0.69 107,885 42,513 30.7 EUR GBP EUR GBP EUR GBP EUR '000 GBP '000 EUR '000 GBP '000 % 0.23 0.20 0.00 0.00 0.23 0.20 61,456 53,408 34 29 0.02 0.42 0.12 0.98 94,266 62,146 55.9 0.23 0.19 0.23 0.20 0.23 0.20 60,217 53,408 2,125 1,812 2.30 0.19 0.13 0.32 34,278 6,582 13.6 0.23 0.20 0.06 0.05 0.29 0.25 59,990 50,408 368 317 0.9 From the financial year 2023 and 2022 the company did not distribute capital redemption. In 2024, The Board of Directors will propose a new dividend policy to the Annual General Meeting. The Group will in future review its distributions to shareholders either through a capital redemption or dividend. The target dividend payout ratio in respect to each financial year shall be minimum 10% (ten percent) of the Afarak Group's EBITDA per full year. This new policy will allow the board to take prudent decisions based on market conditions whilst continuing to share its positive results with shareholders. 23 FORMULAS FOR CALCULATION OF INDICATORS Financial indicators Return on equity Return on capital employed Equity ratio Gearing EBITDA Operating (loss) / profit Share-related key indicators Earnings per share, basic Earnings per share, diluted Equity per share Distribution per share Price to earnings Average share price (Loss) / profit for the period / Total equity (average for the period) * 100 ((Loss) / 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 (loss) / profit + depreciation + amortisation + impairment losses Operating (loss) / 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. (Loss) / profit attributable to owners of the parent company / Average number of shares during the period. (Loss) / profit attributable to owners of the parent company / Average number of shares during the period, diluted. Equity attributable to owners of the parent / Average number of shares during the period. Distribution / Number of shares at the end of the period. In the attached table of share related key indicators, the dividend and 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. Market capitalisation Number of shares * Share price at the end of the period. 24 EVENTS AFTER THE REPORTING PERIOD Stock Exchange Releases On 22 January 2024, pursuant to the share issue authorization granted by the Company's Annual General Meeting held on June 21, 2023, the Board of Directors has resolved on a directed share issue without payment. Based on the share issue 500,000 of the Company's treasury shares (“Shares”) have now been transferred to CEO Guy Konsbruck. The Shares form a part of the remuneration package under the CEO agreement. After the execution of the share issue 6,041,514 treasury shares shall remain in the possession of Afarak, representing approximately 2.26 per cent of the total shares and votes of the Company. On 14 February 2024, Afarak’s Board of Directors has decided, to direct a share issuance without payment to the Company itself, by virtue of the authority granted by the General Annual Meeting of 21 June 2023 and according to chapter 9, section 20 of the Companies' Act. The share issuance consists of 10,000,000 new shares. The shares are of the same share series than the existing shares of the Company and they have the same share rights as of their registration than the Company´s existing shares. The shares which will be held by the Company may be used among other things to raise additional finance and enabling corporate and business acquisitions or other arrangements and investments of business activity or for employee incentive and commitment schemes. The new shares will be registered into the Trade Register without undue delay after which the Company will apply for the shares to be publicly traded on Nasdaq Helsinki Oy. On 29 February 2024, a total of 10,000,000 new shares issued on the basis of the directed share issuance without payment to the Company itself was decided by Afarak’s Board of Directors on February 14, 2024 based on the authorization granted by Afarak’s Annual General Meeting on June 21, 2023 have been registered in the Trade Register today. The new shares are of the same share series than the existing shares of the Company. The new shares will be applied for public trading on Nasdaq Helsinki Oy from on or about March 1, 2024. As a result of the registration of the new shares, the number of Afarak Group SE’s shares is 277,041,814, of which 16,041,514 are treasury shares. On 25 March 2024, Afarak published a notice regarding an Extraordinary General Meeting in connection with the Report of the Special Audit. Flagging notification after the reporting period Afarak Group SE has on 29 February 2024 made a flagging notification to FIN-FSA pursuant to Chapter 9, Section 5 of the Finnish Securities Markets Act. According to the flagging notification Afarak’s portion of the Company’s shares has exceeded the threshold of 5 per cent. According to the notification, Afarak holds 16,041,514 treasury shares in Afarak, which corresponds to approximately 5.79 % of the total shares in Afarak. This is based on the fact that a total of 10,000,000 new shares issued on the basis of the directed share issuance without payment to the Company itself decided by Afarak’s Board of Directors on February 14, 2024 based on the authorization granted by Afarak’s Annual General Meeting on June 21, 2023 have been registered in the Trade Register on 29 February 2024. 25 ANNUAL FINANCIAL STATEMENTS 1 January-31 December 2023 26 CONSOLIDATED FINANCIAL STATEMENTS, IFRS CONSOLIDATED INCOME STATEMENT 1.1.-31.12.2023 1.1.-31.12.2022 Note EUR '000 Revenue Other operating income Materials and supplies Employee benefits expense Depreciation and amortisation Impairment Other operating expenses Operating profit Finance income Finance expense Profit before taxes Income taxes Profit from continuing operations Profit on discontinued operations Profit for the year Profit attributable to: Owners of the parent Non-controlling interests Earnings per share (counted from profit attributable to owners of the parent): 9 basic (EUR), Group total diluted (EUR), Group total basic (EUR), continuing operations diluted (EUR), continuing operations 1 2 3 4 4 5 6 6 7 8 153,655 5,722 -110,170 -22,272 -1,562 0 -10,341 15,032 5,267 -8,334 11,965 -1,966 9,999 0 9,999 9,450 549 9,999 0.04 0.04 0.04 0.04 198,691 2,641 -120,850 -18,416 -1,297 -157 -8,319 52,293 4,279 -7,385 49,187 -4,475 44,712 2,885 47,597 47,716 -119 47,597 0.19 0.19 0.18 0.18 27 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EUR '000 Profit for the year Other comprehensive income/(loss) Items that will not be reclassified to profit and loss Remeasurements of defined benefit pension plans Items that may be reclassified to profit and loss Exchange differences on translation of foreign operations - Group Other comprehensive income/(loss), net of tax Total comprehensive income for the year Total comprehensive income attributable to: Owners of the parent Non-controlling interests 1.1.-31.12.2023 1.1.-31.12.2022 Note 9,999 47,597 -1,241 8,101 -6,394 -7,635 2,365 1,751 614 2,365 2,069 10,170 57,767 57,885 -118 57,767 28 CONSOLIDATED STATEMENT OF FINANCIAL POSITION EUR '000 Note 31.12.2023 31.12.2022 ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Other financial assets Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents 10 11 11 13 19 14 15 16 37,497 46,997 4,643 1,201 1,044 91,382 29,583 23,345 18,032 70,960 38,976 48,720 5,239 961 654 94,550 24,734 28,056 12,418 65,208 Total assets 162,342 159,758 29 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONT.) EUR '000 Note 31.12.2023 31.12.2022 EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Share premium reserve Legal Reserve Paid-up unrestricted equity fund Translation reserve Retained Earnings Non-controlling interests Total equity Non-current liabilities Deferred tax liabilities Interest-bearing debt Pension liabilities Other non-current debt Provisions Current liabilities Trade and other payables Provisions Tax liabilities Interest-bearing debt Total liabilities 17 19 13 21 22 20 22 20 22 13 23,642 25,223 18 215,359 -42,683 -115,512 106,047 -306 105,741 8,051 321 12,838 22 11,400 32,632 16,670 96 4,437 2,766 23,969 56,601 23,642 25,223 31 215,116 -36,224 -122,081 105,707 -920 104,787 9,111 404 11,988 23 12,207 33,733 15,420 274 3,754 1,790 21,238 54,971 Total equity and liabilities 162,342 159,758 30 CONSOLIDATED STATEMENT OF CASH FLOWS EUR '000 Notes 1.1.-31.12.2023 1.1.-31.12.2022 9,999 44,712 4 6 7 18 8 Operating activities (Loss) / profit from continuing operation Adjustments to net profit: Non-cash items Depreciation, amortisation and impairment Finance income and cost 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 Interests paid Interests received Other financing items Income taxes paid Discontinued operations Net cash from operating activities Investing activities 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 Proceeds from borrowings Repayments of borrowings Payment of principal portion of lease liabilities Movement in short term financing activities Net cash used in financing activities Change in cash and cash equivalents Cash at beginning of period Exchange rate differences Cash at end of period Change in the statement of financial position 16 1,562 3,250 1,966 242 -1,098 2,191 -6,717 2,103 427 -1,266 653 -2,100 -1,633 0 9,579 -3,216 -19 -200 -3,435 61 -20 -95 1,122 1,068 7,212 12,418 -1,598 18,032 7,212 Discontinued operations’ cash flows are described in more detail in the Note 8. 1,454 3,106 4,475 -67 -347 -1,891 -11,169 -5,276 398 -1,739 -14 102 -3,625 1,089 31,209 -1,682 84 0 -1,598 2,183 -27,103 -81 1,555 -23,446 6,165 6,287 -33 12,418 6,165 31 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 Notes A B C D E F G H I Equity at 31.12.2021 23,642 25,223 209,798 -38,292 -176,170 39 44,240 -801 43,439 Profit for the period 1- 12/2022 + comprehensive income Other Comprehensive Income Total comprehensive income Share-based payments Issue of shares in exchange for settlement of liability Provision for withholding tax from previous financial periods Other changes in equity Equity at 31.12.2022 Profit for the period 1- 12/2023 + comprehensive income Other Comprehensive Income Total comprehensive income Share-based payments Other changes in equity Equity at 31.12.2023 47,716 47,716 -119 47,597 2,068 8,101 2,068 55,817 67 5,252 10,169 1 10,170 57,885 67 -118 57,767 67 5,252 5,252 23,642 25,223 215,116 -36,224 -122,080 -9 30 -9 105,707 -9 104,787 -920 -1,728 -1,728 -1,728 9,450 9,450 549 9,999 -6,459 -1,241 -7,700 65 -7,635 -6,459 8,209 242 1,750 242 614 2,364 242 23,642 25,223 215,359 -42,683 -1,641 -115,512 -12 18 -1,653 106,047 -1,653 105,741 -306 32 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1.1 COMPANY INFORMATION Afarak Group is a public limited company in Finland. 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 SE (business ID: 0618181-8) (previously Afarak Group plc). The parent company is domiciled in Helsinki, Finland, and its registered address is Kaisaniemenkatu 4, 00100 Helsinki, Finland. Copies of the consolidated financial statements are available at Afarak Group SE’s head office or at the Company’s website: www.afarak.com. Afarak Group SE 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). For the purpose of reporting according to ESEF regulations: the company changed name from Afarak Group plc to Afarak Group SE during 2022. Afarak Group SE is the ultimate parent of the Group and its principal place of business is Helsinki, Finland. The ESEF financial statements are unaudited. 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 2023. 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 values are rounded to the nearest thousand (€ 000), unless otherwise explicitly stated. Afarak Group SE’s Board of Directors resolved on 26 March 2024 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 SE, 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. 33 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. 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 SE. 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. 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. 34 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 has 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 terms 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 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 (BBBEE) 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 35 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 recognised in the statement of financial position as a right-of-use asset and a corresponding lease liability at the date at which the lease asset is available for the use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is recognised in the income statement over the lease period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. 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 2023 financial year, testing took place on 30 June 2023for the Speciality Alloys business and the South African minerals processing business and on 31 December 2023 for all cash generating units. Impairment testing and the methods used are discussed in more detail in section 1.5 in the ‘Impairment testing’. Financial income and expense Interest income and expense is recognised using the effective interest method, and dividends are recognised when the right to dividends is established. Unrealised changes in value of items measured at fair value are recognised in the statement of comprehensive income. These items relate to currency forward contracts. Exchange rate gains or losses that arise from intercompany loans that are considered as part of the net investment in the foreign entity are included, net of any deferred tax effects, in the translation reserve within the equity. These exchange differences are recognised in other comprehensive income while accumulated exchange differences are presented in the translation reserves in the equity. 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. 36 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 by applying the nominal income tax rate which is 35%. Six sevenths of this tax is credited to the shareholder. The Maltese companies forms a fiscal unit and consequently the effective tax rate is 5%. 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 incurred. 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 Mines and mineral assets 15–50 years 3–15 years 5–10 years Units-of-production method The residual value of assets and their useful life are reviewed in connection with each financial statement and, if necessary, they will be adjusted to reflect the changes that have occurred in the expected financial benefit. The sales gains or losses arising from the decommissioning or divestment of tangible assets are included in other operating income or expenses. Mines and mineral assets Measurement of mineral resources and ore reserves in business combinations Mineral resources and ore reserves acquired in business combinations are recognised as separate assets. In the recognition and measurement of mineral resources and ore reserves the Group utilises available third party reports of the quantities, mineral content, estimated production costs and exploitation potential of the resource. The probability of the ore reserve is also an essential factor. In the mining and minerals business, the probability is commonly described 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. 37 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. Assets are written off when it is determined that the costs will not lead to economic benefits or expensed when incurred if the outcome is uncertain. Exploration and evaluation assets are assessed for impairment if and when facts and circumstances suggest that the carrying amount exceeds its recoverable amount. In particular, the impairment tests are carried out if the period for which the Group has right to explore the specific area expires or will expire in the near future and future exploration and evaluation activities are not planned for the area. Exploration and evaluation assets acquired in conjunction with business combinations are accounted for at fair value in accordance with the principles of IFRS 3. Mine establishment costs Mine establishment costs are capitalised as part of the mine’s acquisition cost and depreciated using the units-of- production method when the production of the mine begins. The costs arising from changes in mining plan after the production has begun are expensed as incurred. Impairment The value of mineral resources and ore reserves acquired in business combinations is tested for impairment if there are indications of deterioration in the long-term ability to utilise the asset economically. In the test the cash flows generated by the asset are assessed based on most recent information on the technical and economic utilisation of the asset. Goodwill and intangible assets identified at acquisition Goodwill represents the portion of acquisition cost that exceeds the Group’s share of the fair value at the time of acquisition of the net assets of the acquired company. Instead of regular amortisation, goodwill is tested annually for potential impairment. For this purpose, goodwill has been allocated to cash-generating units or, in the case of an associated company, is included in the acquisition cost of the associate in question. Goodwill is measured at original acquisition cost less impairment losses. Changes in purchase considerations, for example due to earn-out arrangements, relating to acquisitions carried out before 2010 have been recognised against goodwill in accordance with the earlier IFRS 3. The net assets of an entity acquired in a business combination are measured at fair value at the date of acquisition. In connection with business combinations, the Group also identifies intangible assets that are not necessarily recorded on 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 on a straight-line basis. The amortisation periods for these intangible assets are as follows: Customer relationships: 2-5 years depending on contractual circumstances Technology: 5-15 years Trademarks: 1 year Research and development costs Research costs are always recognised as expenses. Mine development costs are capitalised as part of mining assets and depreciated on a unit of production basis. The development costs, which primarily relate to the development of existing products, are expensed as incurred. 38 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 on a straight-line basis. 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, and 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. See note 13, in section 1.8. Notes to the Statement Of Financial Position, for tabular presentation of financial instruments. 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. 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. There have been no transfers of financial assets between fair value categories during the financial period. Afarak has not changed its recognition or fair valuation methods during the financial period. 39 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 and trade receivables 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 is 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 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. 40 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 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 should the Group have any 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 41 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 did not have currency hedged at year end. 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. 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. 42 This category generally applies to interest-bearing loans and borrowings. For more information, refer to note 13, in 1.8 Notes to the Consolidated Statement of Financial Position. 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 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. Discontinued operation is a component of the entity with operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes, from the rest of the entity, that is either held for sale or already disposed of; and • • • represents a major line of business or geographical area of operations, is part of a single-coordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of control. 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 SE, its subsidiaries, joint ventures and associated companies. Subsidiaries refer to companies in which the Group has control. The Group 43 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. 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 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. 44 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 2023. 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 2023. 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 2023, 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. In 2023, the Group has adopted the following amended standards issued by the IASB. -Amendments to IAS 1 Presentation of financial statements, IFRS Practice Statement 2 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Disclosure of Accounting Policies and Definition of Accounting Estimates: The amendments distinguish changes in accounting estimates from changes in accounting policies and aim to improve accounting policy disclosures. -Amendments to IAS 12 Income taxes – Deferred Tax related to Assets and Liabilities arising from single transaction: The amendment clarifies the application of the recognition exemption of deferred taxes on a single transaction. - Amendments to IAS 12 - International Tax Reform, Pillar Two Model Rules: The amendments to IAS 12 have been introduced in response to the OECD’s BEPS Pillar Two rules and include: A mandatory temporary exception to the recognition and disclosure of deferred taxes arising from the jurisdictional implementation of the Pillar Two model rules; and disclosure requirements for affected entities to help users of the financial statements better understand an entity’s exposure to Pillar Two income taxes arising from that legislation, particularly before its effective date. The above changes did not have an impact on the 2023 consolidated financial statements. 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 Sustainability Disclosure Standards S1 and S2 -IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information. Its objective requires an entity to disclose information about its sustainability-related risks and opportunities, that is useful to the primary users of general purpose financial reports in making decisions relating to providing resources to the entity. -IFRS S2: Climate-related Disclosures. This standard sets the requirements for identifying, measuring and disclosing information about climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. Other Standards -Amendments to IFRS 7: Financial Instruments- Disclosures regarding supplier finance arrangements and amendments to IAS 7: Statements of Cash Flows concerning supplier finance arrangements. Sufficient information has to be disclosed so that users of financial statements can firstly, assess how supplier finance arrangements affect an entity’s liabilities and cashflows and secondly, to understand the effect of supplier finance 45 arrangements on an entity’s exposure to liquidity risk and how the entity might be affected if the arrangements were no longer available to it. -Amendments to IFRS 16: Lease Liability in a Sale and Leaseback. The amendment clarifies how a seller-lessee subsequently measures sale and leaseback transactions. The amendment clarifies how a seller-lessee subsequently measures sale and leaseback transactions that satisfy the requirements in IFRS 15 to be accounted for as a sale. -Amendments to IAS 1: Classification of Liabilities as Current or Non-current. The amendments to IAS 1 to specify the requirements for classifying liabilities as current or non-current. -Amendments to IAS 1: Presentation of Financial Statements regarding the classification of debts with covenants. The amendment clarifies how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. 1.3 GOING CONCERN The company is in sound condition and presents a healthy balance sheet. 1.4 BUSINESS COMBINATIONS AND ACQUISTION OF NON-CONTROLLING INTERESTS 1.4.1 Financial Year 2023 Afarak did not carry out any acquisitions during the financial year 2023. 1.4.2 Financial Year 2022 Afarak did not carry out any acquisitions during the financial year 2022. 1.5 IMPAIRMENT TESTING General principles of impairment testing Afarak Group has carried out impairment testing on goodwill and other assets as of 31 December 2023. 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; South African mining business (Mecklenburg, Valkpoort and Zeerust); 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. The South African mining business did not have any goodwill at the end of the financial year 2023. During 2023, there were no indication of impairment at both the Speciality Alloys business and the South African mining business. The Vlakpoort mine and Zeerust mine were not tested for impairment as there were no indication of impairment. Changes in goodwill during 2023 During the financial year 2023, the total goodwill of the Group decreased by EUR 1.7 million to a total of EUR 47 million. The increase was attributable to an exchange rate movement of EUR 1.7 million related to Goodwill. 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 46 on their relative revenue, reflecting the volume of Afarak Trading related benefits enjoyed by the CGU. The changes are described below: EUR '000 Goodwill 1.1.2023 Exchange rate movement Goodwill 31.12.2023 Speciality Alloys Business FerroAlloys Business Group Total 48,720 -1,724 46,996 0 0 0 48,720 -1,724 46,996 The changes in goodwill during 2022 are presented below: EUR '000 Goodwill 1.1.2022 Exchange rate movement Goodwill 31.12.2022 Speciality Alloys Business FerroAlloys Business Group Total 46,029 2,691 48,720 0 0 0 46,029 2,691 48,720 Goodwill as a ratio of the Group’s equity on 31 December 2023 and 31 December 2022 was as follows: EUR '000 Goodwill Equity Goodwill/Equity, % Impairment on long term assets 31.12.2023 31.12.2022 46,996 105,741 44.4% 48,720 104,787 46.4% In 2023, there were no impairment write down on other long- term assets. 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 for the Speciality Alloys minerals processing have been projected for a five-year period, after which a growth rate equaling projected long-term inflation has been applied (Speciality Alloys: 2%). 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. Future cash flows for the South African mining business have been projected for the life of mine with a 6.9% growth rate equaling projected long-term inflation has been applied. 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 2023. The information used in the 31 December 2023 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 forecasted prices for all cash generating units. 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. 47 The underground production in the models of the South African mining business 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. These pre-tax discount rates applied in 2023 impairment testing were the following: Cash Generating Unit Speciality Alloys South African mine - Mecklenburg mine Pre-tax discount rate 2022 18.2% 18.8% 2023 16.4% 24.3% The key reasons for the changes in the discount rates compared to 2023 were the changes in risk-free interest rates in both cash-generating units. The cash flows in the Mecklenburg mine impairment test review includes both opencast and underground operation. 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 based on the following judgment rules: Recoverable amount divided by the carrying amount: < 100% 101-120% 121-150% > 150% Conclusion: Impairment Slightly above Clearly above Significantly above Test results 31 December 2023 The impairment test results were as follows: Cash generating unit Goodwill (MEUR), pre-testing Goodwill (MEUR), post- testing Speciality Alloys 46.1 46.1 Carrying amount (MEUR), pre- testing 70.8 Conclusion Clearly above South African Mines - Mecklenburg 0.0 0.0 13.6 Significantly above 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 mining business: Mecklenburg mine FeCr: 25,000 t/a; and is planned to increase gradually to 28,000 t/a to 2028 Cr Ore: 40,000 t/a t/a ROM: Underground mining of 20,000t in 2024; 177,000t LC/ULC ferrochrome with average Cr content of 70 %, based on forecasted prices Raw material costs generally change in line with sales price; other costs growing at inflation rate SA Concentrate & SA Lumpy prices are based on forecasted prices The costs for underground are based on past experiences of our mining team in underground 48 om 2025; and is planned to increase to an average of 539,000t/a as from 2026 to 2033 operations adjusted for inflation rate. The cost over the life of mine excluding inflation is estimated to be ZAR 747 per saleable ton of chrome. Moreover, the USD/ZAR foreign exchange rate affects significantly the testing of the South African mining business. The foreign exchange rate used in the test was 18.77 for the year 2023. 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 2022 are given below: Cash generating unit Speciality Alloys South African mining business: Change in pre-tax discount rate (compared to the level used in testing) 2.9% - points Change in free cash flow (annual average) Change in CGU’s average EBITDA margin -19.1% -1.5% - points - Mecklenburg mine -58.4% - points -82.7% -51% - points 1.6 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 Vlakpoort mine, Zeerust mine and Mecklenburg mine in South Africa. The business produces chrome ore for sale to global markets. The Speciality Alloys business consists of Türk Maadin Şirketi A.S (“TMS”), the mining and beneficiation operation in Turkey, and Elektrowerk Weisweiler GmbH (“EWW”), the chromite concentrate processing plant in Germany. TMS supplies EWW with high quality chromite concentrate which produces speciality products including specialised low carbon and ultra low carbon ferrochrome. Chrome ore from TMS that is not utilised for the production of specialised low carbon ferrochrome is sold to the market. The revenue and costs of the Group’s sales and marketing arm Afarak Trading Ltd (“ATL”) 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. 49 Operating segment information 2023 Year ended 31.12.2023 EUR '000 Speciality Alloys Ferro Alloys Segments total Unallocated items Eliminations Consolidated Group External revenue Rendering of services Sale of goods 140,308 1,371 11,795 1,371 152,103 42 139 140,308 13,166 153,474 181 140,308 13,166 153,474 2,467 2,648 -2,467 ¹ -2,467 1,413 152,242 153,655 - 153,655 Total external revenue Inter-segment revenue Total revenue Segment EBITDA Depreciation and amortisation Impairment Segment operating profit / (loss) Finance income Finance cost Income taxes Profit for the period from continuing operations (Loss)/profit for the period from discontinued operations Profit for the period 17,464 3,018 20,482 -3,888 - 16,594 -1,213 -308 -1,521 -41 - -1,562 16,251 2,710 18,961 -3,929 - 15,032 5,267 -8,334 -1,966 9,999 0 9,999 Segment's assets 2 166,573 47,650 214,223 7,714 -59,595 162,342 Segment's liabilities 2 Other disclosures Capital expenditure 3 Provisions 4 49,635 42,407 92,042 40,798 -76,239 56,601 0 1,516 2,968 9,980 2,968 11,496 0 0 0 0 2,968 11,496 Inter-segment items are eliminated on consolidation. 1. 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. 50 Investments consist of increases in tangible and intangible assets whose life is longer than one financial year. 3. 4. Balance sheet values. Operating segment information 2022 Year ended 31.12.2022 EUR '000 Speciality Alloys Ferro Alloys Segments total Unallocated items Eliminations Consolidated Group External revenue Rendering of services Sale of goods Total external revenue Inter-segment revenue Total revenue Segment EBITDA Depreciation and amortisation Impairment Segment operating profit / (loss) Finance income Finance cost Income taxes (Loss)/profit for the period from continuing operations (Loss)/profit for the period from discontinued operations (Loss)/profit for the period 0 191,736 563 4,696 563 196,432 26 1,669 191,736 5,259 196,995 1,696 0 0 0 391 192,127 0 5,259 391 197,386 2,333 4,029 -2,724 ¹ -2,724 589 198,101 198,691 0 198,691 56,228 490 56,718 -2,972 0 53,747 -847 0 -261 0 -1,108 0 -189 -157 0 0 -1,297 -157 55,381 229 55,611 -3,318 0 52,293 4,279 -7,386 -4,475 44,712 2,885 47,597 Segment's assets 2 160,747 49,331 210,078 7,639 -57,959 159,758 Segment's liabilities 2 Other disclosures Capital expenditure 3 48,184 42,461 90,645 39,036 -74,710 54,971 1,566 85 1,651 473 0 2,123 51 Provisions 4 1,837 10,643 12,480 0 0 12,480 Inter-segment items are eliminated on consolidation. 1. 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. Investments consist of increases in tangible and intangible assets whose life is longer than one financial year. 3. 4. Balance sheet values. Geographical information Revenues from external customers EUR '000 2023 2022 Other EU countries United States China Africa Finland Other countries Total revenue 60,562 64,876 4,867 8,068 0 15,282 153,655 82,008 78,068 1,666 3,647 0 33,302 198,691 Revenue figures are based on the location of the customers. The largest customer of the Group is in the Speciality Alloys business segment and represents approximately 7.27% (12.4%) of the Group’s revenue in 2023. Non-current assets EUR '000 Africa Other EU countries Other countries Total 2023 2022 29,154 9,969 3,017 42,140 32,767 8,502 2,946 44,214 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 exclude Goodwill. 52 1.7 NOTES TO THE CONSOLIDATED INCOME STATEMENT 1. Revenue EUR '000 Sale of goods Rendering of services Total 2. Other operating income 2023 2022 152,242 198,101 1,413 589 153,655 198,691 EUR '000 2023 2022 Gain/(loss) 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 104 229 5,389 5,722 -8 184 2,465 2,641 2023 2022 -19,152 -242 -821 -2,057 -22,272 -16,024 -67 -518 -1,808 -18,416 Average personnel during the accounting period 2023 2022 Speciality Alloys business FerroAlloys business Group Management Other operations * Total 475 107 2 15 599 471 57 2 15 545 Personnel at the end of the accounting period 2023 2022 Speciality Alloys business FerroAlloys business Group Management Other operations * Total 468 111 3 14 596 488 94 2 16 600 * Other operations mainly relate to Magnohrom, in Serbia 53 4. Depreciation, amortisation and impairment EUR '000 2023 2022 Depreciation / amortisation by asset category Intangible assets Other intangible assets Total Property, plant and equipment Buildings and constructions Machinery and equipment Other tangible assets Right-of-use assets Total Impairment by asset category Machinery and equipment Total 5. Other operating expenses -102 -102 -106 -970 -384 -90 -90 -215 -673 -319 -1,460 -1,207 0 0 -157 -157 EUR '000 2023 2022 Rental costs External services1 Travel expenses Other operating expenses Total -217 -3,792 -614 -5,676 -10,299 -207 -3,247 -427 -4,439 - 8,319 1. Audit fees paid to Tietotili totalled EUR 457 (2022: EUR 536) thousand in the financial year. The fees for non-audit services totalled EUR 29 (2022: EUR 87) thousand. 6. Financial income and expense EUR '000 2023 2022 Finance income Interest income on loans and trade receivables Foreign exchange gains Other finance income Total Finance expense Interest expense on financial liabilities measured at amortised cost Impairment losses on receivables Foreign exchange losses Unwinding of discount, provisions Other finance expenses Total 588 4,617 62 5,267 -175 25 -4,484 -668 -3,033 -8,335 146 3,961 172 4,279 -749 -40 -3,674 -1,312 -1,610 7,385 54 Net finance expense -3,068 -3,106 The interest expense on financial liabilities measured at amortised cost in 2022, include an accrual for interest on prepayment received in relation to the off-take agreement. 7. Income taxes EUR '000 Income tax for the period Income tax for previous years Deferred taxes Total EUR '000 Profit before taxes Income tax calculated at parent company income tax rate Difference between domestic and foreign tax rates Tax credit Items recognised only for taxation purposes Income tax for previous years Impairment losses Deferred tax asset write-offs Tax losses not recognised as deferred tax assets Non-tax deductible expenses Previously unrecognised tax losses now recognised Total adjustments Income tax recognised 2023 2022 -2,174 -40 248 -1,966 -3,407 1 -1,068 -4,475 2023 2022 11,965 -2,393 -4,400 5,006 202 -40 0 -2,210 -284 2,153 52,072 -10,414 -14,308 15,730 543 1 -31 0 -3,405 -819 8,229 427 5,940 -1,966 -4,475 On 31 December 2023 the Group companies had unused tax losses totalling EUR 18.3 (2022: 21.6) million for which the Group has not recognised deferred tax assets. 8. Discontinuing operation On 16th September 2020 the Business Rescue Plan which provided the plan for the disposal of the assets of Afarak Mogale (Pty) Ltd was approved. This led to Afarak Group loss of control on its subsidiary Afarak Mogale (Pty) Ltd, and as a result the Mogale business was reclassified to discontinued operation in the consolidated financial statements of Afarak Group. Afarak Group reclassified Afarak Mogale (Pty) Ltd’s previously reported income statement figures as discontinued operations in 2020. As from September 2020 Afarak Group is no longer consolidating Afarak Mogale (Pty) ltd. In the consolidated income statement, continuing and discontinued operations are presented separately. Discontinued operations are presented as their own line item and comparative information has been adjusted accordingly. Profit from discontinued operations in 2022, amounted to EUR 2.9 million arising from the transaction. There were no discontinued operation during 2023. 55 9. Earnings per share 2023 2022 Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Profit attributable to owners of the parent company (EUR '000) Weighted average number of shares, basic (1 000) Basic earnings per share (EUR) total 9,451 260,478 0.04 - - - 9,451 44,712 2,885 47,597 260,478 251,310 251,310 251,310 0.04 0.18 0.01 0.19 2023 2022 Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Profit attributable to owners of the parent company (EUR '000) Weighted average number of shares, basic (1 000) Effect of share options on issue (1 000) Weighted average number of shares, diluted (1 000) Diluted earnings per share (EUR) total 9,451 260,478 500 260,978 0.04 - - - - - 9,451 44,712 2,885 47,597 260,478 251,310 251,310 251,310 500 536 536 536 260,978 251,846 251,846 251,846 0.04 0.18 0.01 0.19 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. 56 1.8 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 10. Property, plant and equipment Land and water property Buildings and constructions Machinery and equipment Mines and mineral assets Other tangible assets EUR '000 Balance at 1.1.2023 Additions Disposals Reclass between items Effect of movements in exchange rates Balance at 31.12.2023 Accumulated depreciation and impairment 1.1.2023 Depreciation Impairment Disposals Effect of movements in exchange rates Accumulated depreciation and impairment at 31.12.2023 Carrying amount at 1.1.2023 Carrying amount at 31.12.2023 Balance at 1.1.2022 Additions Disposals Reclass between items Effect of movements in exchange rates Balance at 31.12.2022 Accumulated depreciation and impairment 1.1.2022 Depreciation Impairment Disposals Effect of movements in exchange rates Accumulated depreciation and impairment at 31.12.2022 1,962 0 0 0 -132 1,830 0 0 0 0 0 0 1,962 1,830 1,964 0 0 0 -2 1,962 0 0 0 0 0 0 3,898 50 -70 0 -318 3,560 -3,110 -106 0 69 100 12,108 2,509 -628 0 -628 13,361 -5,495 -970 519 455 52,565 415 0 0 -6,722 46,258 -25,654 -378 0 0 3,654 2,846 18 -3 689 -19 3,531 -144 -5 0 3 19 Total 73,379 2,992 -701 689 -7,819 68,540 -34,403 -1,459 0 591 4,228 -3,047 -5,491 -22,378 -127 -31,043 788 513 3,907 22 -20 209 -220 3,898 -3,033 -215 0 15 123 6,613 7,870 11,074 1,815 -765 0 -16 12,108 -4,683 -674 -157 258 -239 26,911 23,880 53,309 227 2 0 -973 52,565 -26,168 -312 0 0 826 2,702 3,404 2,242 5 -7 606 0 2,846 -142 -8 0 5 1 38,976 37,497 72,496 2,069 -790 815 -1,211 73,379 -34,026 -1,209 -157 278 711 -3,110 -5,495 -25,654 -144 -34,403 Carrying amount at 1.1.2022 Carrying amount at 31.12.2022 1,964 1,962 874 788 6,391 6,613 27,141 26,911 2,100 2,702 38,470 38,976 Machinery and equipment include the prepayments made for them. Property, plant and equipment include right of use asset EUR 0.2 (2022: 0.2) and a depreciation of EUR 0.1(2022: 0.1) million. 57 11. Intangible assets EUR '000 Goodwill Balance at 1.1.2023 Additions Disposals Reclass between items Effect of movements in exchange rates Balance at 31.12.2023 Accumulated amortisation and impairment at 1.1.2023 Amortisation Disposals Effect of movements in exchange rates Accumulated amortisation and impairment at 31.12.2023 Carrying amount at 1.1.2023 Carrying amount at 31.12.2023 Balance at 1.1.2022 Additions Disposals Reclass between items Effect of movements in exchange rates Balance at 31.12.2022 Accumulated amortisation and impairment at 1.1.2022 Amortisation Disposals Effect of movements in exchange rates Accumulated amortisation and impairment at 31.12.2022 48,721 0 0 0 -1,724 46,997 0 0 0 0 0 48,720 46,997 46,029 0 0 0 2,692 48,721 0 0 0 0 0 Intangible assets identified in acquisitions Other intangible assets Exploration and evaluation assets 77,070 0 0 0 -2,485 74,585 -77,070 0 0 2,485 6,044 104 -27 0 -713 5,408 -2,086 -95 0 301 1,482 0 -44 0 -184 1,254 -202 -6 44 24 Total 133,317 104 -71 0 -5,106 128,244 -79,358 -101 44 2,810 -74,585 -1,880 -140 -76,605 0 0 72,904 0 0 0 4,166 77,070 -72,904 0 0 -4,166 -77,070 3,959 3,528 6,597 55 -275 -209 -124 6,044 -2,361 -83 238 121 -2,085 4,236 3,959 1,280 1,114 1,507 0 0 0 -25 1,482 -198 -6 0 2 -202 53,959 51,639 127,037 55 -275 -209 6,709 133,317 -75,463 -89 238 -4,043 -79,357 1,309 1,280 51,574 53,960 Carrying amount at 1.1.2022 Carrying amount at 31.12.2022 46,029 48,721 0 0 Other intangible assets include the prepayments made for them. Exploration and evaluation assets consist of mine projects in various mining projects in Turkey and South Africa. 58 12. Investments in associates Afarak has an investment of 5.99% (2022: 8.99%) in Valtimo Components Oyj. During the financial year 2023 and 2022, Afarak did not acquire or dispose holdings in associates. 13. Financial assets and liabilities 31.12.2023, EUR '000 Non-current financial assets Non-current interest-bearing receivables Trade and other receivables * Current financial assets Trade and other receivables * Other financial assets Cash and cash equivalents At fair value through other comprehe nsive income At fair value through profit and loss At amortised cost Carrying value Fair value 78 1,124 78 1,124 78 1,124 20,060 546 18,032 20,060 546 18,032 20,060 546 18,032 Total financial assets 39,840 39,840 39,840 Non-current financial liabilities Non-current interest-bearing liabilities Other non-current liabilities Current financial liabilities Current interest-bearing liabilities Trade and other payables * 321 21 321 21 321 21 2,766 0 2,766 0 2,766 0 Total financial liabilities 3,108 3,108 3,108 * Non-financial assets and liabilities are not included in the figures. 31.12.2022, EUR '000 Non-current financial assets Non-current interest-bearing receivables Trade and other receivables * Current financial assets At fair value through other comprehe nsive income At fair value through profit and loss At amortised cost Carrying value Fair value 102 860 102 860 102 860 59 Trade and other receivables * Other financial assets Cash and cash equivalents 22,402 410 12,418 22,402 410 12,418 22,402 410 12,418 Total financial assets 36,192 36,192 36,192 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 * Non-financial assets and liabilities are not included in the figures. Interest-bearing debt EUR '000 Non-current Bank loans Acquisition of NCI liability Finance lease liabilities Other interest-bearing liabilities Total Current Bank loans Finance lease liabilities 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 Future finance charges Total minimum lease payments 404 24 404 24 404 24 1,645 134 1,645 134 1,645 134 2,207 2,207 2,207 2023 2022 1 319 320 2,766 0 0 2,766 2023 0 320 320 0 320 320 0 320 2 0 401 0 404 1,638 17 134 1,790 2022 17 401 419 17 401 419 0 419 60 * Other interest-bearing liabilities include a short-term commercial debt which has been negotiated into a longer-term arrangement after the reporting period. Changes in liabilities arising from financing activities EUR '000 Non-current borrowings Current borrowings Lease liabilities 1 January 2023 Cash flows - - 1,638 410 1,072 -85 Total liabilities from financing activities 2,019 987 Foreign exchange movement 31 December 2023 Other - 55 6 61 - - -11 -11 - 2,766 320 3,086 EUR '000 Non-current borrowings Current borrowings Lease liabilities 1 January 2022 Cash flows Foreign exchange movement 17,432 20,726 324 -16,592 -18,748 71 31 December 2022 - 1,638 410 2,049 Other -1,716 - 410 -1,709 876 -369 9 515 Total liabilities from financing activities 38,511 35,269 The 'Other' column includes the effect on unwinding interest on the acquisition of non-controlling interest in non- current borrowings. Financial risks and risk management The Board of Directors of Afarak Group SE 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 2023 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 2023 closing date: On 31 December 2023, 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 Maltese subsidiaries has been granted a trade finance loan facility amounting to $ 4.0 million during 2022 and the Group has given a corporate guarantee amounting to US$ 4.0 as collateral. The Maltese subsidiary utilized US$ 2.7 million as at the end of 2023. During 2023, an additional trade finance loan facility without recourse amounting to $ 2.0 million has been granted. The Maltese subsidiary utilized US$ 0.0 million as at the end of 2023 One of the Group’s Turkish subsidiaries has been granted various short term loans in 2023. The loans amount as at end of 2023 was EUR 0.0 (2022: 0.0 million). Interest-bearing debt 31 December 2023 - Floating rate loans from financial institutions total EUR 2.7 (2022: 1.5) million. Fixed rate loans total EUR 0.0 (2022: 0.1) million. - The interest rate of the Turkish bank loan facility is tied to the market rate of EURIBOR. The interest rate on 31 December 2023, based on market interest rates at that date, was 3.845% (2022: 1.25%). The interest rate margin for the fixed rate notes was 3.325% (2022: 0.60%) p.a. 61 - The interest rate of the Maltese bank loan facility is tied to the at the rate of 4.5% per annum margin above the Bank’s Lending Base Rate. The interest rate on 31 December 2023, based Bank’s Lending Base Rate at that date, was 5.2%. 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 65.6% (2022: 65.6%). 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 SE’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, finance leases, other long-term liabilities, cash and short-term deposits and money market investments. The main purpose of these financial instruments is to finance the Group’s acquisitions and ongoing operations. The Group also has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. (i) Liquidity risk The Group regularly assesses and monitors its investment and working capital needs and financing, so that it has enough liquidity to serve and finance its operations and pay back loans. The availability and flexibility of financing are targeted to be guaranteed by using multiple financial institutions in the financing and financial instruments, and to agree on financial limit arrangements. If the liquidity risks were to be realised, it would probably result in overdue interest expenses and damage the relations with suppliers. Consequently, the pricing and other terms for input goods and services and for financing could be affected. The maturity distribution of the Group debt at the end of the financial year was as follows: 31.12.2023, EUR '000 Financial liabilities Carrying amount Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Secured bank loans Finance lease liabilities Trade and other payables Total 2,766 319 22 3,107 -2,766 -319 -22 -3,107 -2,766 -54 0 -2,820 0 -54 0 -54 0 -46 -22 -68 0 -165 0 -165 0 0 0 0 62 31.12.2022, EUR '000 Financial liabilities Carrying amount Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than 5 years Secured bank loans Finance lease liabilities Trade and other payables Total 1,638 419 9,878 11,936 -1,641 -419 -9,878 -11,938 -1,641 -62 -9,854 -11,557 0 -62 0 -62 0 -45 -24 -69 0 -250 0 -250 0 0 0 0 (ii) Foreign exchange rate risk The Group operates internationally, including in Turkey, Malta and South Africa, and is therefore exposed to foreign exchange rate risks. The risks arise both directly from the outstanding commercial cash flows and currency positions, and indirectly from changes in competitiveness between various competitors. The foreign exchange differences arising from inter-company loans designated as net investments in foreign subsidiaries have been recognised in the translation reserve in the equity. The Group is exposed to currency-derived risks that affect its financial results, financial position and cash flows. In particular the exchange rates of US Dollar and South African Rand against the Euro have a significant impact on the Euro-denominated profitability of the Group. The cash inflows of the business are denominated in US Dollars, whereas a significant portion of the costs are denominated in the South African Rand. The fluctuation of the South African Rand has a significant impact on the Group’s profit and loss as well as on the Group’s assets and liabilities. In its risk management, the Group aims to match its cash inflows and outflows as well as receivables and liabilities in terms of the currency in which these items are denominated. The following tables present the currency composition of receivables and debt, and changes thereby relative to the previous year-end. 31.12.2023, EUR '000 Cash and cash equivalents (EUR) Trade and other receivables (EUR) Loans and other financial assets (EUR) Trade and other current payables (EUR) Loans and other liabilities (EUR) EUR exchange rate 1 1.1050 0.86905 32.6531 20.3477 0.926 116.929 EUR 3,403 USD 8,563 GBP 19 TRY 3,461 ZAR 1,614 1,101 5,491 1,520 -19 -3,119 -319 -7,310 -2,716 0 0 -8 0 119 13,894 80 -381 -702 -51 -352 -22 CHF 5 0 0 0 0 5 RSD 652 0 0 -7 0 645 Currency exposure, net (EUR) 2,586 4,010 11 2,907 14,754 Currency exposure, net in currency ('000) 2,586 4,431 9 94,928 300,210 5 75,391 31.12.2022, EUR '000 Cash and cash equivalents (EUR) EUR exchange rate 1 1.0666 0.88693 19.9649 18.0986 0.9847 117.1529 EUR 7,428 USD 3,082 GBP 29 TRY 878 ZAR 808 CHF 5 RSD 184 Trade and other receivables (EUR) 742 7,237 0 849 13,984 0 0 63 Loans and other financial assets (EUR) Trade and other current payables (EUR) Loans and other liabilities (EUR) Currency exposure, net (EUR) Currency exposure, net in currency ('000) 1,712 -19 0 107 -838 -6,323 -1,956 -23 -775 -717 -401 -1,671 3,158 6,672 0 5 -20 -24 1,039 13,213 3,158 7,116 5 20,741 239,139 0 0 0 5 5 0 -60 -102 22 2,587 The effect on the 31 December 2023 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 2023 strengthening strengthening strengthening strengthening 20% 15% 10% 5% 0% no change -5% weakening -10% weakening -15% weakening -20% weakening 31 December 2022 strengthening strengthening strengthening strengthening 20% 15% 10% 5% 0% no change -5% weakening -10% weakening -15% weakening -20% weakening Derivatives USD 1,002 708 446 211 0 -191 -365 -523 -668 USD 1,668 1,177 741 351 0 -318 -607 -870 -1,112 GBP 3 2 1 1 0 -1 -1 -1 -2 GBP 1 1 1 0 0 0 0 -1 -1 TRY 727 513 323 153 0 -138 -264 -379 -485 TRY 260 183 115 55 0 -49 -94 -136 -173 ZAR 3,689 2,604 1,639 777 0 -703 -1,341 -1,924 -2,459 ZAR 3,303 2,332 1,468 695 0 -629 -1,201 -1,723 -2,202 CHF -5 -5 -5 -5 -5 -5 -5 -5 -5 CHF -5 -5 -5 -5 -5 -5 -5 -5 -5 RSD 161 114 72 34 0 -31 -59 -84 -107 RSD 6 4 2 1 0 -1 -2 -3 -4 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. 64 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 2023, the Group’s interest-bearing debt was mainly based on floating interest rates; and there were no interest rate swaps in place. The Group aims to match the loan maturities with the businesses’ needs and to have the maturities spread over various periods so that the Group’s interest rate risks are somewhat diversified. Floating rate financing is mainly tied to the market rates of different countries (United Kingdom, South Africa), changes to which will then influence the Group’s total financing cost and cash flows. The short-term interest-bearing receivables of the Group are mainly loan receivables and receivables on past asset disposals. The Group’s interest-bearing liabilities have been discussed above. The effects of credit risks for loan receivables are explained in more detail in section 1.8. (iv) credit risk. The split of interest-bearing debt and receivables, also classified into fixed rate and floating rate instruments on 31 December 2023 and 31 December 2022 was as follows: Interest rate profile of interest-bearing financial instruments (EUR '000) Fixed rate instruments 31.12.2023 31.12.2022 Financial assets Financial liabilities Fixed rate instruments, net Variable rate instruments Financial assets Financial liabilities Variable rate instruments, net 0 0 0 78 -2,766 -2,688 0 0 0 102 -1,645 -1,543 Interest-bearing net debt -2,688 -1,543 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 2023, and if there were no changes in exchange rates. 31 December 2023 Interest rate change -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% Change in interest income -2 -1 -1 0 0 0 1 1 2 Change in interest expense Net effect 55 41 28 14 0 -14 -28 -41 -55 54 40 27 13 0 -13 -27 -40 -54 65 31 December 2022 Interest rate change -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% Change in interest income -2 -2 -1 -1 0 1 1 2 2 Change in interest expense 33 25 16 8 0 -8 -16 -25 -33 Net effect 31 23 15 8 0 -8 -15 -23 -31 (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 credit insure its trade receivables. The trade receivables and loan receivables form a major share of the assets, which are exposed to the credit risk. Afarak did not present the expected credit losses in tabular format due to minimal credit losses in the historical data and including the future credit loss expectations. Additionally, the group collect prepayments from sales from its customers. As presented in the section 1.8. note 15. The Group’s trade receivables total EUR 7.5 million for year ended 31 December 2023 (2022: 7.8). The Group did not record any loss allowance on trade receivables during 2023 and during 2022. The portion of prepaid revenues or portion under trade financing amounts to EUR 1.7 million on 31 December 2023 (2022: 1.7). The prepaid portion of the trade receivables does not include any potential losses. The loan receivables amounted to EUR 0.5 million on 31 December 2023 (2022: 0.4). The total potential credit risk for the loan receivables is higher than for the trade receivables as the potential risk of default is more concentrated with only few lenders. The group estimates the potential credit risk in relation to the loan receivables frequently and reports any changes at each reporting period and estimates the possibility for default on a per lender basis. In 2023 and in 2022, the Group did not recognise a provision on other receivables. The credit risk assessment and the method of calculation has remained the same between the financial period ending 31.12.2023 and the previous financial period. The trade receivables do not pose a credit risk due to concentration, as the sales are diversified to several customers. Further information about the expected credit loss can be found in the basis of preparation in section 1.2 Accounting Principles under “Financial Assets” and “Impairment of financial assets”. The Board of Directors of Afarak Group SE 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. 66 The maximum credit risk is equal to the carrying value of the receivables as of 31 December, and is split as follows: Category EUR 000’s Interest-bearing Cash and cash equivalents Other interest bearing receivables Interest-bearing, total Interest-free Trade receivables Other short-term receivables Long-term receivables Interest-free, total Total (v) Commodity risks 31.12.2023 31.12.2022 18,032 78 18,110 7,467 13,140 1,124 21,731 39,841 12,418 102 12,520 7,833 14,979 860 23,672 36,192 The Group is exposed to price risks on various output and input products, materials and commodities, energy costs and disruptive availability of electricity. 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 2023. 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 2023 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 2023 production of 21,179 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 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. 67 Financial year 2023 Change in Sales price (USD / lb Cr) Change in Operating Profit Change in Group's Equity 3.72 3.57 3.41 3.26 3.10 2.95 2.79 2.64 2.48 20% 15% 10% 5% 0% -5% -10% -15% -20% Financial year 2022 EUR 000’s 18,339 13,754 9,169 4,585 0 -4,585 -9,169 -13,754 -18,339 EUR 000’s 17,422 13,066 8,711 4,355 0 -4,355 -8,711 -13,066 -17,422 Change in Sales price (USD / lb Cr) Change in Operating Profit Change in Group's Equity 4.50 4.31 4.13 3.94 3.75 3.56 3.38 3.19 3.00 20% 15% 10% 5% 0% -5% -10% -15% -20% EUR 000’s 28,911 21,683 14,455 7,228 0 -7,228 -14,455 -21,683 -28,911 EUR 000’s 27,465 20,599 13,733 6,866 0 -6,866 -13,733 -20,599 -27,465 Sensitivity Analysis – Mining business As a general rule, the Group sells its concentrate production and chrome ore at market prices and normally does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance for the sale of its future production. The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mineral products it produces. Assuming, for simplicity, an average annual mining activity of 97,489 t/a, and December 2023 price level for Chrome Ore, the following table represents a rough proxy of the sales price sensitivities. It should also be taken into account that the profitability of the mining operations can be substantially impacted by changes in the USD and ZAR exchange rates, electricity prices and availability of electricity, as well as changes in market prices. In practice, therefore the net effect on the Group’s profitability most probably would be lower than shown below. Due to the high market volatility the range of change was kept at +/- 20%. 68 Financial Year 2023 Change in Sales price (USD/t) 309.00 296.13 283.25 270.38 257.50 244.63 231.75 218.88 206.00 20% 15% 10% 5% 0% -5% -10% -15% -20% Financial Year 2022 Change in Sales price (USD/t) 339.00 324.88 310.75 296.63 282.50 268.38 254.25 240.13 226.00 20% 15% 10% 5% 0% -5% -10% -15% -20% Change in Operating Profit Change in Group's Equity 5,021 3,765 2,510 1,255 0 -1,255 -2,510 -3,765 -5,021 3,615 2,711 1,807 904 0 -904 -1,807 -2,711 -3,615 Change in Operating Profit Change in Group's Equity 3,618 2,714 1,809 905 0 -905 -1,809 -2,714 -3,618 2,605 1,954 1,303 651 0 -651 -1,303 -1,954 -2,605 14. Inventories EUR '000 Goods and supplies Unfinished products Unfinished construction projects Finished products Prepayments Total 2023 2022 16,636 129 283 12,399 136 29,583 11,955 122 0 12,395 263 24,734 15. Trade and other current receivables EUR '000 2023 2022 Trade receivables Loan receivables Prepaid expenses and accrued income Income tax receivables Other receivables Total 7,467 546 2,615 123 12,594 23,345 7,833 410 4,953 291 14,569 28,056 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 in the potential case where the counterparties cannot fulfil their commitments. 69 The ageing of trade receivables at the end of the reporting period EUR '000 2023 2022 Not past due Past due 0-30 days Past due 31-60 days Past due 61-90 days Past due more than 90 days Trade receivables total 4,698 1,184 678 37 870 7,467 The expected credit losses have historically been minimal. Thus the expected credit loss is not material and no separate credit loss reserve has been recorded. 4,348 2,063 300 3 1,119 7,833 16. Cash and cash equivalents EUR '000 2023 2022 Cash and bank balances 16,252 11,768 Cash and cash equivalents in the consolidated cash flow statement: EUR '000 2023 2022 Cash and bank balances Short-term money market investments Total 16,252 1,780 18,032 11,768 650 12,418 17. Notes to equity Number of registered shares Number of shares on issue Share capital, EUR ‘000 31.12.2021 252,041,814 246,367,823 23,642 Share based payments (CEO) 500,000 Issue of shares in exchange for settlement of liability 15,000,000 13,132,477 31.12.2022 267,041,814 260,000,300 23,642 Share based payments (CEO) 31.12.2023 500,000 267,041,814 260,500,300 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. 70 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 2023, the Company had 6,541,514 (7,041,514) own shares in treasury, which was equivalent to 2.45% (2.64%) of the issued shares. The total number of shares outstanding, excluding the treasury shares held by the Company on 31 December 2023, was 260,500,300 (260,000,300). The Company’s subsidiaries do not hold any of Afarak Group SE’s shares. Share Issue Authorisations given to the Board of Directors Based on the resolution at the AGM on 21 June 2023, the Board is authorised to issue shares and stock options and other special rights that entitle to shares in one or more tranches up to a maximum of 250,000,000 new shares or shares owned by the Company. This equates to approximately 90.2% of the Company's currently registered shares. The authorization may be used among other things to raise additional finance and enabling corporate and business acquisitions or other arrangements and investments of business activity or for employee incentive and commitment schemes. By virtue of the authorization, the Board of Directors can decide both on share issues against payment and on share issues without payment. The payment of the subscription price can also be made with consideration other than money. The authorization contains the right to decide on derogating from shareholders' pre-emptive right to share subscriptions provided that the conditions set in the Finnish Companies' Act are fulfilled. The authorization replaces all previous authorizations and is valid two (2) years from the decision of the Annual General Meeting. 18. Share-based payments As part of the remuneration package under the CEO agreement, the CEO received 500,000 Company shares on 10 February 2022. On January 2023, the Group extended for another year the CEO contract and granted 500,000 shares in the Company. These shares have effectively been received after reporting period on 22 January 2024 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 0.50 per share. The expense recognized in the income statement during the year was EUR 242,397 (2022: EUR 66,849). 19. Deferred tax assets and liabilities Movements in deferred taxes in 2023 EUR '000 01.01.2023 Exchange rate differences Recognised in income statement 31.12.2023 Deferred tax assets: Unrealised expenses Pension liabilities From translation difference Group eliminations Total 197 -32 -69 558 654 4 0 0 -34 -30 356 45 0 19 420 557 13 -69 543 1,044 71 Deferred tax liabilities: Assets at fair value in acquisitions Translation difference Other timing differences Total Movements in deferred taxes in 2022 EUR '000 Deferred tax assets: Unrealised expenses Pension liabilities From translation difference Group eliminations Total Deferred tax liabilities: Assets at fair value in acquisitions Translation difference Other timing differences Total 20. Provisions EUR '000 Balance at 1.1.2023 Additions Releases and reversals Unwinding of discount Exchange differences Balance at 31.12.2023 Balance at 1.1.2022 Additions Releases and reversals Unwinding of discount Exchange differences Balance at 31.12.2022 EUR '000 Long-term provisions Short-term provisions Total 8,768 80 263 9,111 -1,005 0 -3 -1,008 -53 0 1 -52 7,710 80 261 8,051 01.01.2022 Exchange rate differences Recognised in income statement 31.12.2022 197 -32 -69 558 654 8,768 80 263 -9,110 Total 12,480 845 -1,209 1,069 -1,689 11,496 11,937 1,543 -2,062 1,261 -198 12,480 1,316 168 -69 351 1,766 8,830 80 272 9,182 5 4 9 -16 -2 -18 -1,124 -201 0 203 -1,121 -46 -7 -53 Environmental and rehabilitation provisions Other provisions 10,855 92 -657 1,069 -1,252 10,107 9,453 610 -117 989 -79 10,855 2023 11,400 96 11,496 1,625 753 -552 0 -437 1,389 2,484 933 -1,945 272 -119 1,625 2022 12,206 274 12,480 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. 72 21. 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 (2022: 0.6) million has been recognised on the 2023 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 12.8 (2022: 12) million on 31 December 2023. 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 2023 2022 21,147 -8,308 12,839 19,973 -7,985 11,988 Movements in defined benefit obligation EUR '000 2023 2022 Defined benefit obligations at 1.1. Benefits paid Current service costs Interest expense Actuarial losses / (gains) Closing balance at 31.12. Movements in the fair value of the plan assets EUR '000 Fair value of the plan assets at 1.1. Expected return 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. 19,973 -774 241 728 979 21,147 2023 7,985 306 -217 -262 496 8,308 28,116 -853 407 315 -8,013 19,973 2022 7,498 86 -200 89 513 7,985 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) 2023 -241 -422 -663 2022 -407 -229 -636 73 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 – financial assumptions 2023 -479 262 1,457 1,240 2022 -187 -89 -7,826 -8,101 Actual return on plan assets totalled EUR 0.26 (2022: 0.08) million in 2023. Principal actuarial assumptions 2023 2022 Discount rate Expected retirement age Expected rate of salary increase Inflation 3.17% 65 3.00% 2.25% 3.73% 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. 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 2023, the employee severance indemnity recognised in accordance with IAS 19 totalled EUR 1.0 (2022: 1.1) million. 22. Trade payables and other interest-free liabilities EUR '000 Non-current Other liabilities Total non-current Current Current liabilities to related parties Trade payables Accrued expenses and deferred income Current advances received Income tax liability Other liabilities Total current 2023 2022 22 22 6 10,863 5,171 4 4,437 626 21,107 23 23 6 7,352 5,566 1 3,754 2,495 19,174 Trade payables included a liability to supplier in relation to financing of material amounting to Eur 0.1 million in 2022. 74 1.9 RELATED PARTY DISCLOSURES 1.9.1 Group structure on 31 December 2023 Subsidiaries Name Country of incorporation Group's ownership and share of votes (%) Afarak Group SE's direct ownership and share of votes (%) Afarak doo Belgrade Afarak Holdings Ltd Afarak Investments Ltd Afarak Mining (Pty) Ltd Afarak Mining Investments (Pty) Ltd Afarak Platinum (Pty) Ltd Afarak Processing Technologies (Pty) Ltd Afarak Processing Technologies 2 (Pty) Ltd Afarak South Africa (Pty) Ltd Afarak Trading Ltd Auburn Avenue Trading 88 (Pty) Ltd Chromex Mining Company (Pty) Ltd Chromex Mining Ltd Destiny Spring Investments 11 (Pty) Ltd Destiny Spring Investments 12 (Pty) Ltd Duoflex (Pty) Ltd Elektrowerk Weisweiler GmbH Ilitha Mining (Pty) Ltd Intermetal Madencilik ve Ticaret A.S. Magnohrom doo Kraljevo Rekylator Oy Synergy Africa Ltd Türk Maadin Sirketi A.S. ZCM Holdco One (Pty) Ltd Zeerust Chrome Mine Ltd Serbia Malta Malta South Africa South Africa South Africa South Africa South Africa South Africa Malta South Africa South Africa United Kingdom South Africa South Africa South Africa Germany South Africa Turkey Serbia Finland United Kingdom Turkey South Africa South Africa 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 74.00 94.00 100.00 73.30 100.00 74.00 100.00 100.00 99.00 100.00 100.00 100.00 98.75 74.00 74.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0,00 0.00 0.00 0.00 0.00 100.00 0.00 98.75 23.00 0.00 In December 2023, the ownership of Afarak Investments Ltd was changed to a Single Member Company, hence one share which was previously owned by Rekylator Oy, was transferred to Afarak Group SE. 1.9.2 Related party transactions Afarak Group SE 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 SE’s and the above mentioned entities’ top management 75 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 CEO 2023 2022 Salaries Fees Share-based remuneration Salaries Fees Share-based remuneration Konsbruck Guy Board member 05.2.2018 onwards, CEO 15.1.2017 onwards 14 535 242 710 67 Board members Abrahamsen Thorstein Manojlovic Jelena Total Board member 23.5.2017 onwards, Chairman11.11.2019 onwards Board member 11.7.2008 onwards, Chairperson 23.5.2017 – 25.6.2019 137 125 75 65 14 797 242 0 850 67 As some of the Board members have also had executive management roles, both the Board fees and the salaries in relation to the executive role have been presented above. The CEO fees for his service during 2023 were EUR 360,000, a salary of EUR 14,636 and a Company bonus of EUR 175,000. As part of the remuneration package under the CEO agreement, the CEO received 500,000 Company shares on 10 February 2022. On January 2023, the Group extended for another year the CEO contract and granted 500,000 shares in the Company. These shares have effectively been received after reporting period on 22 January 2024. Management remuneration EUR '000 Fixed salaries and fees Total 2023 2022 553 553 100 100 The table includes the Executive Management Team remuneration excluding the CEO for the year 2023. The comparative period includes salary to Danko Koncar, COO amounting to Eur100,000. Danko Koncar resigned from his position as COO on 31 May 2022. The CEO and Board members compensation has been presented separately. Other related party transactions No dividends were received from associated companies during 2023 and 2022. On 18 August 2022, the company has resolved on directed share issue (“Share Issue”) to RCS Trading Corporation Ltd (“RCS”). The Share Issue is connected to an Arrangement approved by the Board of Directors on 18th August 2022 related to the purchase by Afarak of certain loan receivables that RCS Trading Corporation Ltd has from Afarak’s Group company Synergy Africa Limited. Afarak also settled the remaining loan balance before the year end 31 December 2022. 1.10 COMMITMENTS AND CONTINGENT LIABILITIES 1.10.1 Mortgages and guarantees pledged as security On 31 December 2023 the Group had loans from financial institutions totalling EUR 2.8 (2022: 1.6) million. The Group has provided real estate mortgages and other assets as collaterals for total carrying value of EUR 2.7 (2022: 76 1.6) million. Moreover, the Group companies have given cash deposits totalling EUR 0. (2022: 0.3) million as security for their commitments. The value of other collaterals totalled EUR 3.8 (2022: 3.8) million as at 31 December 2023. 1.10.2 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 2023. As at year end 2023 the balance was US$ 2.7 (EUR 1.6) million. An additional trade finance loan facility without recourse amounting to $ 2.0 million was utilised during the year. The Maltese subsidiary made use of this facility and settled in full by end of 2023.The financial covenants attached to both loans were not breached at the end of the reporting period. 1.10.3 Rental agreements Liabilities associated with rental and operating lease agreements totaled some EUR 0.2 (2022: 0.2) million for the period. Typically, the rental agreements maturity varies between two to five years, and normally there is a possibility to continue these agreements beyond the original maturity date. For these contacts, their price indexing, renewal and other terms differ contract by contract. As guarantees for these rental agreements, the Group companies have made cash deposits of approximately EUR 0.0 (0.0) million as at 31 December 2023. 1.11 EVENTS AFTER THE REPORTING PERIOD Stock Exchange Releases On 22 January 2024, pursuant to the share issue authorization granted by the Company's Annual General Meeting held on June 21, 2023, the Board of Directors has resolved on a directed share issue without payment. Based on the share issue 500,000 of the Company's treasury shares (“Shares”) have now been transferred to CEO Guy Konsbruck. The Shares form a part of the remuneration package under the CEO agreement. After the execution of the share issue 6,041,514 treasury shares shall remain in the possession of Afarak, representing approximately 2.26 per cent of the total shares and votes of the Company. On 14 February 2024, Afarak’s Board of Directors has decided, to direct a share issuance without payment to the Company itself, by virtue of the authority granted by the General Annual Meeting of 21 June 2023 and according to chapter 9, section 20 of the Companies' Act. The share issuance consists of 10,000,000 new shares. The shares are of the same share series than the existing shares of the Company and they have the same share rights as of their registration than the Company´s existing shares. The shares which will be held by the Company may be used among other things to raise additional finance and enabling corporate and business acquisitions or other arrangements and investments of business activity or for employee incentive and commitment schemes. The new shares will be registered into the Trade Register without undue delay after which the Company will apply for the shares to be publicly traded on Nasdaq Helsinki Oy. On 29 February 2024, a total of 10,000,000 new shares issued on the basis of the directed share issuance without payment to the Company itself was decided by Afarak’s Board of Directors on February 14, 2024 based on the authorization granted by Afarak’s Annual General Meeting on June 21, 2023 have been registered in the Trade Register today. The new shares are of the same share series than the existing shares of the Company. The new shares will be applied for public trading on Nasdaq Helsinki Oy from on or about March 1, 2024. As a result of the registration of the new shares, the number of Afarak Group SE’s shares is 277,041,814, of which 16,041,514 are treasury shares. On 25 March 2024, Afarak published a notice regarding an Extraordinary General Meeting in connection with the Report of the Special Audit. 77 Flagging notification after the reporting period Afarak Group SE has on 29 February 2024 made a flagging notification to FIN-FSA pursuant to Chapter 9, Section 5 of the Finnish Securities Markets Act. According to the flagging notification Afarak’s portion of the Company’s shares has exceeded the threshold of 5 per cent. According to the notification, Afarak holds 16,041,514 treasury shares in Afarak, which corresponds to approximately 5.79 % of the total shares in Afarak. This is based on the fact that a total of 10,000,000 new shares issued on the basis of the directed share issuance without payment to the Company itself decided by Afarak’s Board of Directors on February 14, 2024 based on the authorization granted by Afarak’s Annual General Meeting on June 21, 2023 have been registered in the Trade Register on 29 February 2024. 78 PARENT COMPANY’S FINANCIAL STATEMENTS (FAS) INCOME STATEMENT (FAS) EUR '000 Revenue Personnel expenses Salaries and wages Pension expenses Social security expenses total Personnel expenses total Depreciation, amortisation and impairment Impairment of investment in subsidiaries Depreciation, amortisation and impairment total Other operating expenses OPERATING LOSS Financial income and expenses: Impairment of non-current investments 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 LOSS FOR THE PERIOD 1.1.2023 1.1.2022 - 31.12.2023 - 31.12.2022 2,468 2,334 Note 1 -327 0 0 -327 0 0 -2,545 -404 0 151 1,109 -2,014 -40 0 -794 -1,198 -1,198 2 3 4 5 -240 0 0 -240 0 0 -2,569 -475 0 56 69 -1,206 -1,681 -245 -2,762 -3,482 0 -3,482 79 STATEMENT OF FINANCIAL POSITION (FAS) EUR '000 ASSETS NON-CURRENT ASSETS Investments Shares in Group companies Total investments Non-current receivables Receivables from Group companies Total non-current receivables Total non-current assets CURRENT ASSETS Current receivables Trade receivables Receivables from Group companies Other interest-bearing receivables Other non interest-bearing receivables Prepaid expenses and accrued income Total current receivables Cash and cash equivalents Total current assets TOTAL ASSETS Note 31/12/2023 31/12/2022 6 7 7 65,832 65,832 65,832 65,832 5,257 5,257 5,257 5,257 71,089 71,089 0 4,973 0 35 39 5,047 0 0 6,784 0 77 56 6,916 3 5,047 6,919 76,136 78,008 80 STATEMENT OF FINANCIAL POSITION (FAS) (CONT.) EUR '000 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 Provisions Total non-current liabilities Current liabilities Liabilities to Group companies Liabilities to others Accounts payable Accounts payable to Group companies Other liabilities Accrued expenses and deferred income Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES Note 31/12/2023 31/12/2022 8 9 23,642 25,223 219,051 -228,696 -1,198 38,022 26,464 0 26,464 220 0 167 10,591 6 666 11,650 38,114 76,136 23,642 25,223 219,051 -225,214 -3,482 39,220 27,417 0 27,417 1,710 0 329 8,311 6 1,015 11,371 38,788 78,008 81 STATEMENT OF CASH FLOWS (FAS) EUR '000 Operating activities (Loss) / profit for the period Adjustments for: Impairment, net Unrealised foreign exchange gains and losses Financial revenue and expense excluding impairment Other adjustments Cash flow before working capital changes Working capital changes: Change in current trade receivables Change in current trade payables Change in Provisions Cash flow before financing items and taxes Interests received from Group companies Interests received and other financing items Interests paid and other financing items Net cash used in operating activities Investing activities Proceeds from sale of tangible and intangible assets Net cash from investing activities Financing activities Repayments of current borrowings Non-current loans from Group companies Repayments of current loan receivables 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 1.1.-31.12.2023 1.1.-31.12.2022 -1,198 0 -1,039 1,833 87 -317 2,021 1,769 0 3,472 -1 30 -2,014 1,487 0 0 0 -3,401 1,911 -1,490 -3 3 0 -3 -3,482 245 1,611 1,150 -205 -681 -1,883 2,183 -1,450 -1,831 56 69 -1,207 -2,913 0 0 0 -512 3,425 2,913 0 3 3 0 82 2. NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY (FAS) 2.1 Accounting Policies Scope of financial statements and accounting policies The parent company has prepared its separate financial statements in accordance with Finnish Accounting Standards. Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. Consolidated financial statements are presented separately as a part of these financial statements. Information on holdings in subsidiaries and associated companies and information on their consolidation is presented in the notes to the financial statements. All figures are presented in thousand Euros, unless otherwise explicitly stated. Valuation principles and methods Investments in associated companies and debt instruments are valued at acquisition cost, less eventual impairment. Dividends received from Group companies and associates have been recorded as financial income. The value of property, plant and equipment in the statement of financial position is stated at acquisition cost, less accumulated depreciation. Other assets have been stated in the statement of financial position at the lower of acquisition cost or their likely realisable value. Debt items are valued at acquisition cost. Loan receivables from subsidiaries and Group companies have been valued at acquisition cost. Depreciation methods Acquisition costs of property, plant and equipment are depreciated over their useful lives according to plan. Depreciation plans have been defined based on practice and experience. Asset Depreciation method and period 5 years straight line Intangible rights IT equipment 2 years straight line Other machinery and equipment 5 years straight line Translations of foreign currency items Items in the statement of financial position denominated in foreign currency are translated into functional currency using the exchange rates as at the end of the reporting year. Income statement items are translated applying the exchange rates prevailing at the date of the transaction. Comparability of the reported financial year and the previous year The reported financial year and the previous year were both calendar years and are thus comparable. The Company has been actively restructuring its business, which has required various ownership and financial arrangements. The transactions have had significant non-recurring effects on the Company's income statement and statement of financial position, which make comparison of financial statements and estimating the future more difficult. 83 2.2 Notes to the income statement 1. Revenue EUR '000 By business line: Services Total By geography: Finland EU countries Other countries Total 2. Depreciation, amortisation and impairment EUR '000 Impairment Impairment on investment in subsidiaries Total 3. Other operating expenses EUR '000 Premise expenses Machinery and equipment expenses Travelling expenses Administration expenses Other operating expenses Total 4. Financial income and expense EUR '000 Other financial income From Group companies From others Other financial expense To Group companies To others Impairment on Intra-group receivables Total 2022 2022 2,468 2,468 1 1,614 853 2,468 2,334 2,334 1 1,546 787 2,334 2023 2022 0 0 0 0 2023 2022 -15 -93 -77 -1,534 -826 -2,545 -17 -42 -43 -1,446 -1,021 -2,569 2023 2022 151 1,109 -2,014 -40 0 -794 56 69 -1,206 -1,68 -245 -3,006 84 5. Income taxes EUR '000 Loss before taxes Loss for the period 2.3 Notes to assets 6. Investments 2023 2022 -1,198 -1,198 -3,237 -3,237 Shares in Group companies Shares in associated companies Receivables from Group companies Acquisition cost 1.1.2022 Addition of investment Acquisition cost 31.12.2022 324,194 0 324,194 8,153 0 8,153 17,614 0 17,614 Total 349,961 0 349,961 Accumulated depreciation and impairment 1.1.2022 Impairment of investment in subsidiaries Accumulated depreciation and impairment 31.12.2022 -258,362 -8,153 -17,614 -284,129 0 0 0 0 -258,362 -8,153 -17,614 -284,129 Book value 31.12.2022 65,832 0 0 65,832 Shares in Group companies Shares in associated companies Receivables from Group companies Total Acquisition cost 1.1.2023 Addition of investment 324,194 Acquisition cost 31.12.2023 324,194 8,153 0 8,153 17,614 349,961 17,614 349,961 Accumulated depreciation and impairment 1.1.2023 Impairment of investment in subsidiaries Accumulated depreciation and impairment 31.12.2023 -258,362 -8,153 -17,614 -284,129 0 -258,362 -8,153 -17,614 -284,129 Book value 31.12.2023 65,832 0 0 65,832 85 Holdings in Group and other companies Name Afarak doo Belgrade Afarak Holdings Ltd Afarak Investments Ltd Afarak Mining (Pty) Ltd Afarak Mining Investments (Pty) Ltd Afarak Platinum (Pty) Ltd Afarak Processing Technologies (Pty) Ltd Afarak Processing Technologies 2 (Pty) Ltd Afarak South Africa (Pty) Ltd Afarak Trading Ltd Auburn Avenue Trading 88 (Pty) Ltd Chromex Mining Company (Pty) Ltd Chromex Mining Ltd Destiny Spring Investments 11 (Pty) Ltd Destiny Spring Investments 12 (Pty) Ltd Duoflex (Pty) Ltd Elektrowerk Weisweiler GmbH Ilitha Mining (Pty) Ltd Intermetal Madencilik ve Ticaret A.S. Magnohrom doo Kraljevo Rekylator Oy Synergy Africa Ltd Türk Maadin Sirketi A.S. ZCM Holdco One (Pty) Ltd Zeerust Chrome Mine Ltd Country of incorporation Group's ownership and share of votes (%) Afarak Group SE's direct ownership and share of votes (%) Serbia Malta Malta South Africa South Africa South Africa South Africa South Africa South Africa Malta South Africa South Africa United Kingdom South Africa South Africa South Africa Germany South Africa Turkey Serbia Finland United Kingdom Turkey South Africa South Africa 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 74.00 94.00 100.00 73.30 100.00 74.00 100.00 100.00 99.00 100.00 100.00 100.00 98.75 74.00 74.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0,00 0.00 0.00 0.00 0.00 100.00 0.00 98.75 23.00 0.00 In December 2023, the ownership of Afarak Investments Ltd was changed to a Single Member Company, hence one share which was previously owned by Rekylator Oy, was transferred to Afarak Group SE. 7. Receivables EUR '000 Non-current Loan and other receivables Total Current Loan receivables Trade receivables Interest receivables Prepayments and accrued income Total 2023 2022 5,257 5,257 5,257 5,257 0 3,910 209 854 4,973 0 5,902 56 826 6,784 86 Other interest-bearing receivables EUR '000 2023 2022 Current VAT receivable Total Other interest-free receivables EUR '000 Current Trade receivables Other receivables Total Prepaid expenses and accrued income Other prepaid expenses and accrued income Total 2.4 Notes to equity and liabilities 8. 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. Issue of shares Paid-up unrestricted equity reserve 31.12. 18 18 60 60 2023 2022 0 17 17 0 17 17 2023 2022 39 39 56 56 2023 2022 23,642 23,642 23,642 23,642 2023 2022 25,223 25,223 25,223 25,223 2023 2022 219,051 213,799 0 5,252 219,051 219,051 87 Retained earnings Retained earnings 1.1. (Loss) / profit for the period Retained earnings 31.12. Loss for the period Total shareholders' equity Distributable funds Retained earnings 1.1. (Loss) / profit for the period Retained earnings 31.12. Paid-up unrestricted equity reserve Distributable funds 31.12. 9. Liabilities Non-current liabilities EUR '000 Non-current interest bearing debt Loans from Group companies Total Non-current interest-free debt Capital loans Total Current liabilities EUR '000 Current interest bearing debt Other debt to Group companies Total Current interest-free debt Accounts payable 2023 2022 -225,241 -227,565 -3,482 2,351 -228,696 -225,214 -1,198 -3,482 38,022 39,220 2023 2022 -228,696 -225,214 -1,198 -3,482 -229,894 -228,696 219,051 219,051 0 0 2023 2022 26,464 26,464 27,417 27,417 2023 2022 0 0 0 0 2023 2022 0 0 0 0 2023 2022 167 329 88 Payables to Group companies Payables to others Other debt Other debt to Group companies Accrued expenses and deferred income Total 2.5 Pledges and contingent liabilities 10,591 0 6 220 666 11,650 8,311 0 6 1,710 1,015 11,371 EUR million 31.12.2023 31.12.2022 Commitments on behalf of subsidiaries Guarantees Commitments and contingent liabilities total Pension liabilities 0 0 0 0 The Company's pension liabilities are directly in accordance with the statutory TyEL-system. 2.6 Other notes Related party loans The Company had no loan receivables from the members and past members of the Board. Information on the personnel Personnel, annual average (all employees) 2023 2022 Employees 1 0 Management remuneration (EUR ’000) 2023 2022 Chief Executive Officer Board members 535 262 710 140 The CEO fees for his service during 2023 were EUR 360,000, a salary of EUR 14,636 and a Company bonus of EUR 175,000. As part of the remuneration package under the CEO agreement, the CEO received 500,000 Company shares on 10 February 2022. On January 2023, the Group extended for another year the CEO contract and granted 500,000 shares in the Company. These shares have effectively been received after reporting period on 22 January 2024 Information on shares and shareholders Changes in the number of shares and share capital On 31 December 2023, the registered number of Afarak Group SE shares was 267,041,814 (267,041,814) and the share capital was EUR 23,642,049.60 (23,642,049.60). 89 On 31 December 2023, the Company had 6,541,514 (7,041,514) own shares in treasury, which was equivalent to 2.45% (2.64%) of the issued shares. The total number of shares outstanding, excluding the treasury shares held by the Company on 31 December 2023, was 260,500,300 (260,000,300). On 17 January 2023, the company announced changes regarding Afarak Group SE’s treasury shares, where a total of 500,000 shares were transferred to the CEO Guy Konsbruck, which form part of the remuneration package under the CEO agreement. 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 The Company is the Group’s parent company. Afarak Group SE, domicile Helsinki (address: Kaisaniemenkatu 4, 00100 Helsinki, Finland) Board members' and Chief Executive Officer's ownership Afarak Group SE’s Board members and Chief Executive Officer owned in total 1,950,000 (2022: 2,450,000) Afarak Group SE shares on 31 December 2023 when including shares owned either directly, through persons closely associated with them or through controlled companies. This corresponds to 0.7% (2022: 0.9%) of all outstanding shares that were registered in the Trade Register on 31 December 2023. 31.12.2023 Board and CEO total: Thorstein Abrahamsen Jelena Manojlovic Guy Konsbruck Board and CEO total All shares outstanding Proportion of all shares Chairman & Non-Executive Director Dependent Non-Executive Director Chief Executive Officer & Executive Director shares options 0 150,000 1,800,000 1,950,000 267,041,814 0.7% 0 0 0 0 On 31 December 2023 the total number of registered shares was 267,041,814 and the Board and CEO's ownership corresponded to 0.7% of the total number of registered shares. Auditor’s fees EUR '000 Tietotili Audit Oy audit other services Total Board’s dividend proposal 2023 2022 225 29 254 336 87 423 The Board of Directors will propose a new dividend policy to the Annual General Meeting,. The Group will in future review its distributions to shareholders either through a capital redemption or dividend. The target dividend payout ratio in respect to each financial year shall be minimum 10% (ten percent) of the Afarak Group's EBITDA per full year. This new policy will allow the board to take prudent decisions based on market conditions whilst continuing to share its positive results with shareholders. 90 SIGNATURES TO THE BOARD OF DIRECTORS REPORT AND THE FINANCIAL STATEMENTS Helsinki 26 March 2024 Thorstein Abrahamsen Chairman Guy Konsbruck Member of the Board & CEO Jelena Manojlovic Member of the Board 91 THE AUDITOR’S NOTE Our auditor’s report has been issued today. Helsinki 26 March 2024 Tietotili Audit Oy Authorised Public Accountants Urpo Salo Authorised Public Accountant 92 

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