e S T A B l I S H e D c Ap A B I l I T I e S
with a c o M p e T I T I V e e D G e
F e r r e x p o p l c
A N N U A l r e p o r T A N D A c c o U N T S
2 0 1 3
PRODUCING IRON ORE PELLETS for over 35 YEARS Ferrexpo is a Swiss headquartered iron ore
group with assets in Ukraine. It has been
mining, processing and selling high quality iron
ore pellets to the global steel industry for over
35 years.
Ferrexpo’s resource base is one of the largest
iron ore deposits in the world. The Group is
the 5th largest global supplier of pellets and
the largest exporter of pellets from the cIS.
In 2013, it produced 10.8 million tonnes of
pellets, a 12% increase compared to 2012.
The town of
Komsomolsk
pelletiser
facilities
O U R B U S I N E S S M O D E L
eS T A Bl I S He D c A p A B I l I T I eS
with a c o M p e T I T I V e e D G e
across the value chain
o p e N p I T M I N I N G with a l o N G l I F e r e SoU r c e / P A G E 0 2
p r o c e S S I N G a H I G H Q U A l I T Y p r o D U c T / P A G E 0 4
I N Te G r A Te D l o G I S T I c S and a c e N Tr A l l o c A T I o N / P A G E 0 6
A F o c U S e D S T r A Te G Y applying F I N A N c I Al D I S c I p l I N e / P A G E 0 8
A r eS p o N S I Bl e B U S I NeS S with S T r oN G G o V e rN A Nc e / P A G E 1 0
Governance
52 Board of Directors
54 Executive Committee
55 Corporate Governance Report
63 Remuneration Report
77 Directors’ Report
81 Statement of Directors’
Responsibilities
Strategic report
01 2013 Highlights
02 Our Business Model
02 Open Pit Mining
Processing
04
Integrated Logistics
06
A Focused Strategy
08
A Responsible Business
10
12 Strategy and Key Performance
Indicators
17 A Review of 2013
28 Principal Risks
32 Financial Review
36 Corporate Responsibility
Financial Statements
82
Independent Auditor’s Report to
the Members of Ferrexpo plc
84 Consolidated Income Statement
85 Consolidated Statement of
Comprehensive Income
86 Consolidated Statement of Financial Position
87 Consolidated Statement of Cash Flows
88 Consolidated Statement of Changes in Equity
89 Notes to the Consolidated Financial Statements
143 Parent Company Balance Sheet
144 Notes to the Parent Company
Financial Statements
147 Appendix 1 – Subsidiary Risks
149 Glossary
IBC Shareholder Information
2 0 1 3 H I G H L I G H T S
poltava
mine
concentrator
facilities
01
s t r a t e g i c
r e p o r t
Yeristovo
mine
tailings
dam
+12%
+20%
total production volumes
production of premium
65% Fe pellets (own ore)
+11%
sales volumes
Production of 10.8 million tonnes
(2012: 9.7 million tonnes)
Ferrexpo produced 5.0 million tonnes
of higher quality 65% Fe pellets
(2012: 4.2 million tonnes)
Sales volumes of 10.7 million tonnes
(2012: 9.7 million tonnes)
see page 32 for the full Financial review
+11%
+25%
+21%
revenue
eBitDa
Diluted eps
Group revenue increased to
US$1.6 billion
(2012: US$1.4 billion)
Group EBITDA increased to
US$506 million
(2012: US$405 million)
Diluted EPS increased to
44.69 US cents
(2012: 37.08 US cents)
Visit our new website at www.ferrexpo.com
to read more about Ferrexpo plc
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
02
s t r a t e g i c
r e p o r t
F e r r e X p o p l c
a n n u a l r e p o r t
a n D a c c o u n t s
2 0 1 3
O U R B U S I N E S S M O D E L
o p e n p i t M i n i n g
with a l o n g l i F e r e s o u r c e
BroVarsko Ye
4.0 Bt
ManuiloVskoYe
3 .4Bt
kharchenkoVskoYe
2 . 8 Bt
13.1Bt
Fsu soviet classified resources
6.7Bt
Jorc classified resources
Vasilie VskoYe
1.4Bt
Z aruDenskoYe
1. 5 Bt
g aleschinskoYe
0. 2 Bt
Bel anoVskoYe 1.7Bt
see page 23 to read more about Yeristovo Mining.
YeristoVskoYe 1. 2 Bt
Map data: Google, Image © 2014, DigitalGlobe, © 2014 Cnes/Spot Image
see page 20 to read more about poltava Mining.
gorishne-pl aVninskoYe
& l aVrikoVskoYe 3 .6 Bt
03
s t r a t e g i c
r e p o r t
Ferrexpo’s significant resource base is situated along
a single ore body, which allows for efficient expansion
through brownfield developments.
As of 1 January 2014, Ferrexpo had estimated resources
of approximately 6.7 billion tonnes classified according
to the JORC Code and a further 13.1 billion tonnes of
resources estimated under the FSU Classification.
Ferrexpo poltava Mining (‘FpM’)
FPM exploits the Gorishne-Plavninskoye and
Lavrikovskoye (‘GPL’) deposits. The FPM mine has
consistent geology and allows for a long-life production
profile. The mine is a traditional shovel and truck open
pit mining operation extracting approximately 30mtpa
of crude ore. The mine and processing complex are
adjacent to rail and port facilities on the Dnieper River.
FPM has operated successfully for over 40 years without
any significant disruptions or delays in production.
Ferrexpo Yeristovo Mining (‘FYM’)
The development of the FYM mine fully utilises known
and existing technology and infrastructure, as well as
the Group’s skill base. The FYM open pit mine is located
approximately two kilometres north of the FPM mine.
First ore was reached in the second half of 2012.
Currently, ore extracted from the FYM mine is sent to
FPM’s processing complex to be used in the production
of pellets.
Ferrexpo Belanovo Mining (‘FBM’)
The Belanovskoye deposit has total JORC resources
of 1.7 billion tonnes. Belanovo activities are focused
on development of a pre-feasibility study, licence
maintenance and the acquisition of land. Pre-stripping
work will start following full financial appraisal,
acquisition of land and the granting of appropriate
designs and permits. In 2014, the Group expects
to commence a drilling campaign to optimise the
pit and geotechnical design, establish a detailed
hydrogeological programme and to develop a
detailed processing flow chart for conversion
of ore to 67% Fe concentrate.
Jorc reserve statements
as at 1 January 2014
Deposit
Gorishne-Plavninskoye1
Lavrikovskoye1
Yeristovskoye2
total
Proved
(million
tonnes)
195
36
231
Reserves
Fe grade
(total)
Fe
(magnetite)
26
31
–
27
17
22
–
18
Probable
(million
tonnes)
485
93
624
1,202
Fe grade
(total)
Fe
(magnetite)
30
32
32
31
22
23
25
24
1 The reserves estimates for the GPL deposits are those estimated in the report by RHDHV (Former Turgis UK Consulting (Pty) Ltd.) dated 29 May
2009 less the volume of ore mined from GPL deposits in 2009, 2010, 2011, 2012 and 2013.
2 The reserves estimates for the Yeristovskoye deposits are based on a report by SRK Consulting (UK) Ltd. (‘SRK’) dated 15 June 2007 less the
volume of ore mined from the Yeristovskoye deposit in 2012 and 2013.
Jorc resource statements
as at 1 January 2014
Resources
Deposit
Measured
(million
tonnes)
Fe grade
(total)
Fe
(magnetite)
Indicated
(million
tonnes)
Fe grade
(total)
Fe
(magnetite)
Inferred
(million
tonnes)
Fe grade
(total)
Fe
(magnetite)
Gorishne-Plavninskoye1
Lavrikovskoye1
Yeristovskoye2
Belanovskoye2
Galeschinskoye 2
total
277
97
259
336
–
969
29
31
34
31
–
31
19 1,022
686
22
27
559
24 1,149
268
23 3,684
–
31
30
33
31
55
33
23 1,275
174
22
364
26
217
23
–
58
– 2,088
31
29
30
30
55
31
23
20
23
21
–
–
1 The resource estimates for the GPL deposits were calculated based on a review conducted by SRK in March 2008 less the volume of ore mined
from GPL deposits in 2008 (27.8 million tonnes), 2009 (28.6 million tonnes), 2010 (28.9 million tonnes), 2011 (29.6 million tonnes) and 2012
(29.8 million tonnes).
2 The resource estimates are based on a report by SRK dated 15 June 2007 less the volume of ore mined from the Yeristovskoye deposit in 2012
(1.2 million tonnes) and 2013 (8.5 million tonnes).
Map data: Google, Image © 2014, DigitalGlobe, © 2014 Cnes/Spot Image
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 04
s t r a t e g i c
r e p o r t
F e r r e X p o p l c
a n n u a l r e p o r t
a n D a c c o u n t s
2 0 1 3
O U R B U S I N E S S M O D E L
p r o c e s s i n g
a h i g h q u a l i t Y p r oD u c t
Ferrexpo produces iron ore pellets
which are a premium priced product
used in the steel industry.
The high quality of the Group’s products and the reliability of our
supply means we have supplied some of the world’s leading steel
producers for many decades. In particular, those who require steel
for premium applications, meaning it is critical that the final product
is produced to the highest quality. These top producers enjoy a
competitive advantage in their chosen markets, and our close ties
with these customers help us to maintain stable iron ore pellet sales
volumes across business cycles.
In addition, Ferrexpo meets the requiremements of steel
mills by having a competitive and reliable logistics system.
Pellets are uniform in size and composition. They are a high
productivity, direct charge iron ore feed to the iron making
process and therefore have a lower environmental impact
than fines (which require sintering by the steel producers).
Our magnetite product has a lower environmental impact
than competing hematite products, and it improves blast
furnace productivity in the steel production process due
to its high iron content, low levels of impurities, spherical
shape and uniform quality.
05
s t r a t e g i c
r e p o r t
All of our current output is in the form of high quality iron
ore pellets with an iron content of 62% or 65%.
Ferrexpo premium pellets (‘Fpp’): 65% Fe
Approximately half of our production is in the form of FPP
of 65% Fe. We have a capital investment project under
way to install improved processing capability to allow for
100% production of FPP in 2015. FPP are high grade
acid pellets with low levels of alumina and phosphorus
as well as high magnesium oxide content. This chemical
composition assists in the production of high value
added steel products at reduced costs.
Ferrexpo Basic pellets (‘FBp’): 62% Fe
FBP pellets provide a high performance cost-effective
feed for a blast furnace and can reduce the use of fluxes
due to elevated silica levels. After many years of use by
steel producers around the world, FBP’s performance in
the blast furnace has established a strong reputation,
particularly when combined with our after sales service.
ore from mine
primary crushing
Medium fine crushing
Open cut, hard rock iron ore mining,
using truck and shovel. Average Fe
content of 30%.
The ore is crushed and screened
to allow it to be upgraded through
separation by two crushing plants.
Input particle size: 0–1,200mm; output
particle size: 0–20mm.
Wet magnetic
separation
grinding
Dry magnetic
separation
The fine ore particles are collected to
produce 63% Fe concentrate, half of
which goes to the pelletiser to produce
62% Fe iron ore pellets.
The ore is ground to produce fine
particles of 0–0.44mm in size.
Dry magnetic separation separates waste
material from the iron resulting in output
particles of 0–20mm with a Fe content
of 40%.
Flotation tanks
pelletising
transportation
Approximately 50% of the concentrate
is upgraded to 67% Fe content, used
to create 65% Fe iron ore pellets, with
unwanted waste material removed to
the tailings storage area.
Four kiln grate units which heat and form
the materials into pellets of around 16mm.
Temperature of pelletising kiln: 1,250ºC.
Ferrexpo transports its finished
products by rail to border dispatch
points. From the border points, the
means of transportation include rail,
barges and capesize vessels.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 06
s t r a t e g i c
r e p o r t
F e r r e X p o p L c
a N N U a L r e p o r t
a N D a c c o U N t s
2 0 1 3
O U R B U S I N E S S M O D E L
i Nt e g r a t e D L o g i s t i c s
and a c e Nt r a L L o c a t i o N
Mostyska
Lviv
Kyiv
u k r a i n e
Uzhhorod
chop
Bat’ovo
poltava
Ferrexpo
Zolotnishino
Znamenka
Dnieper river
port Yuzhny
port odesa
Danube river
port reni
port izmail
port constanta
Map data: Google, SiO, nOaa, u.S. navy, nGa, GeBCO, image Landsat
railway stations
ports barges
ports marine
counties/towns
rivers
07
s t r a t e g i c
r e p o r t
Ferrexpo sells its product
to the key steel producing
regions in the world.
Sales by region
Traditional – 47%
Growth – 35%
Natural – 18%
16
sailing days
to the Middle
east
35
sailing days
to asia
Ferrexpo transports its finished products by rail
to border dispatch points, predominantly using
its own rail cars. From the border points, means of
transportation include barges and rail to customers
in eastern and central europe and capesize vessels
for seaborne cargo.
Ferrexpo owns
2,200 rail cars which
transport a high
proportion of its
pellets to border
dispatch points.
In 2013, 22 capesize
ships were loaded,
allowing the Group
to benefit from
lower freight rates
as compared to
panamax vessels.
In 2013, Ferrexpo
shipped approximately
1.5 million tonnes of
pellets to customers
in Europe via its 145
strong barge fleet.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 08
s t r a t e g i c
r e p o r t
F e r r e X p o p l c
a n n u a l r e p o r t
a n D a c c o u n t s
2 0 1 3
O U R B U S I N E S S M O D E L
a F o c u s e D s t r a t e g Y
applying F i n a n c i a l D i s c i p l i n e
09
s t r a t e g i c
r e p o r t
according to the World health organisation,
by the middle of the 21st century, the urban
population will almost double, increasing
from approximately 3.4 billion in 2009 to
6.4 billion in 2050 driven predominantly by
growth in emerging markets.
Ferrexpo’s strategy is focused on the
10 key priorities below:
• Develop its resource base
• Improve the quality of its output
• Develop its logistics capabilities
• Develop its customer portfolio
• To be a low cost producer
• Train and develop the Group’s employees
• Maintain a social licence to operate
• Evaluate relevant investment opportunities
• Maintain financial discipline
• Maintain high standards of corporate
governance
see page 12 to read about our progress
against our strategic priorities
Market context
Steel as the world’s most important engineering and
construction material is fundamental to this growth,
requiring iron ore as the key raw ingredient.
The supply of iron ore is dominated by four companies
providing approximately 70% of the world’s seaborne
iron ore, however, the share of steel production coming
from lower grade iron ores has in recent years increased.
Jefferies Bank believe the average grade of iron ore
products in the seaborne market has fallen from 63% Fe
in 2007 to below 62% Fe in 2013, while Goldman Sachs
believe the average grade from Australian producers (the
largest supplier of seaborne iron ore) will decline to below
60% Fe by 2014. In addition, steel mills are under increasing
pressure to reduce their environmental emissions.
Ferrexpo, with the largest resource base in Europe,
supplies high quality iron ore pellet of increasing quality
to the growing steel market enabling lower grade iron
ores to be blended and blast furnace emissions to be
reduced. As a long standing supplier of premium iron
ore in a concentrated market, Ferrexpo is well placed to
grow its output and to provide an alternative supply of
high quality iron ore to global steel mills.
Within this context Ferrexpo has a strategy to develop a
high quality business reducing the risk profile across all
aspects of the operations.
Financial Discipline
In order to develop the Company sustainably, it is
necessary to ensure projects are funded and adequate
liquidity is maintained, while dividend income to
shareholders is stable, balanced and appropriate. The
majority of the Group’s cash flows have been reinvested
in the business over many years to increase output and
shareholder returns. To ensure a smooth long-term
growth profile through business cycles, it is the strategy of
Ferrexpo, where possible, to maintain strong credit ratios.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 10
s t r a t e g i c
r e p o r t
O U R B U S I N E S S M O D E L
a r e s p o n s iB l e B u s i n e s s
with s t r o n g g o V e r n a n c e
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 11
s t r a t e g i c
r e p o r t
Developing and selling a product in a global
environment requires the highest standards of
governance, transparency and ethical dealings with
all stakeholders, including customers, suppliers,
creditors and shareholders. Ferrexpo strategy is
to operate to best international standards of
governance and fairness.
corporate social responsibility (‘csr’)
highlights in 2013
see page 36 for further information
regarding corporate responsibility
safety
• Most regrettably, one contractor fatality in 2013
• no employee fatalities for over three years
• Lowest lost-time frequency rate in the Group’s
history
• Brought new open pit mine into commercial
production with only one lost-time injury
environment
• no reportable incidents regarding emissions or
discharges i.e. did not exceed State permissible
environmental limits
• FBM undertook baseline audits on air and water
quality as well as a study to establish the average
health of people living in the vicinity. FBM plans to
use this data for future comparisons once mining
activity commences
• General environmental impact approved by local
council for FYM concentrator and FBM mine
In line with new requirements a CO2 emissions
statement has been included on page 45
•
• Savings in energy consumption (see table below)
energy savings in 2013
Electricity
Gas
Steam
Fuel
(th. kWt/h)
(th. m3)
(Gcal)
(t)
community initiatives
25,090
406
5,892
360
An FPM employee
• Community support donations of US$10.7 million
• Construction and commissioning of 212
apartments to be allocated to FYM and FPM
employees under the Group’s subsidised housing
and social loyalty programme
• Strong emphasis remains on developing high
educational standards in Komsomolsk to ensure
the area retains and attracts the next generation
of future employees
us$15M
Average annual community
spend over the last
three years
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
12
s t r a t e g i c
r e p o r t
s t r a t e g y and
k e y p e r f o r m a n c e i n d i c a t o r s
in accordance with its strategic
objectives ferrexpo believes it will
be able to reduce business risk
consistently, produce high quality
reliable earnings and deliver
sustainable value to all stakeholders
over the long term.
In recognition of the good results for
2013 and the success in growing output
by 30% since IPO and 12% compared to
2012, the Board is pleased to announce
a special dividend of 6.6 US cents per
Ordinary Share.
Employees in Ferrexpo
Poltava Mining’s
beneficiation plant
d e v e l o p i t s
r e s o u r c e b a s e
Ferrexpo’s 20 billion tonne resource base
is situated along a single ore body, which
enables efficient expansion through
brownfield development. It is the Group’s
strategy to increase production over the
medium term to 20 million tonnes of high
quality iron ore product.
What’s been achieved in 2013
• 6.6 million tonnes of FYM mined ore
processed
• Production of pellets increased 12%
to 10.8 million tonnes
• 2 million tonnes of pellets were
produced from FYM ore or 20% of
Group production
• Continuation of mine life extension
at FPM
• Development of pre-feasibility study
at FBM
Objectives for 2014
• Mine 9 million tonnes of ore from FYM
• Increase pellet output to an annualised
rate of 12 million tonnes
• Continuation of mine life extension
at FPM
• Continuation of drilling programme
at FBM
Crude Ore Mined (million tonnes)
28.5
28.9
29.6
30.9
39.4
1.1
FYM
FPM
29.8
9.2
FYM
FPM
30.2
09
10
11
12
13
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 13
s t r a t e g i c
r e p o r t
im p r o v e t h e q u a l i t y
o f i t s o u t p u t
de v e l o p i t s l o g i s t i c s
c a pa b i l i t i e s
de v e l o p i t s c u s t o m e r
p o r t f o l i o
As the Group sells a premium iron ore
product, it is well placed to benefit from
the growing price premium paid for
superior iron ore as traditional steel mills
are increasingly required to blend lower
grade ores with a higher grade product
in order to maintain the quality of their
final output.
Ferrexpo expects to increase the average
quality of its pellets from 63.3% Fe to 65%
Fe by the end of 2015.
What’s been achieved in 2013
• Construction of a new flotation unit
• Engineering design for the existing
flotation unit
• Part construction of an additional
flotation section for tailings
• Preliminary construction work for the
expansion and upgrade of the tailings
facilities
• Pre-feasibility study for the
construction of a new filter plant
• Record production of 65% Fe pellets in
2013 to 5 million tonnes (20% growth
versus 2012)
An integrated and cost-effective logistics
infrastructure is essential for a bulk
commodity miner as it enables customer
relationships to be developed, costs to
be reduced and supply reliability to be
enhanced, thus increasing long-term
profitability and reducing risk.
It is the Group’s strategy to develop, where
appropriate, its own logistics capabilities
adding to rail, port and shipping capability
both within and outside Ukraine. This
enables Ferrexpo to service a geographic
spread of top steel mills reducing its
reliance on any one region and,
importantly, allows the Group to establish
a reputation as a reliable global supplier
of pellets.
What’s been achieved in 2013
• 22 capesize vessels loaded (2012: 17)
• Commencement of Group’s own
transshipment vessel reduced freight
costs by US$2.3 per tonne
• Overall, 20% reduction in freight costs
per tonne to Asian markets
• Acquired 267 new rail cars
Objectives for 2014
Objectives for 2014
Ferrexpo as a single commodity producer
looks to continually reduce risk. It is the
strategy of the Company to deal under
long-term contractual arrangements with
the world’s leading steel producers who
are focused on producing high quality
steel for premium applications, and who
will themselves remain profitable through
steel price fluctuations.
Ferrexpo is a top five global exporter
of pellets. As it continues to grow its
output, develop its logistics capabilities
and increase its brand awareness, the
Group believes it can win new business
by offering quality product, reliable
supply and excellent customer service,
positioning itself as an alternative
and credible supplier of pellets to top
steel mills alongside the major iron
ore producers.
What’s been achieved in 2013
• Secured a high proportion of production
under long-term contracts with some of
the world’s best steel mills
• Diversity of customer base with 47%
of sales volumes in Europe and 53%
sales in Asia
• Increased weighting of sales to higher
• Commissioning of the flotation sections
• Commissioning of the new tailings
handling facility
• Engineering design for a new hydraulic
press filtration plant
• Increase capacity at seaborne port
margin customers
terminal
• Lower distribution costs by utilising
more cost-effective and reliable
distribution channels to customers
• Purchase rail cars to reduce further
reliance on state-owned cars
Objectives for 2014
• Finalise new long-term contracts with
premium steel mills
• Maintain a diverse customer base
between Europe and Asia
Capital Investment (US$ million)
Seaborne Freight Cost (US$/tonne)
New Markets (% of volume sold)
0.0
2.8
3.2
35
47
09
10
11
12
13
40
35
30
25
20
15
Ferrexpo Tubarao-Qingdao Equivalent
C3 Tubarao-Qingdao
47
34
47
51
53
1
H
1
0
2
H
1
0
1
H
1
1
2
H
1
1
1
H
1
2
2
H
1
2
1
H
1
3
2
H
1
3
09
10
11
12
13
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
14
s t r a t e g i c
r e p o r t
s t r a t e g y and k e y p e r f o r m a n c e i n d i c a t o r s continued
to b e a l o w c o s t
p r o d u c e r
t r a i n a n d d e v e l o p t h e
g r o u p ’ s e m p l o y e e s
m a i n ta i n a s o c i a l
l i c e n c e t o o p e r at e
To remain profitable throughout the
commodity cycle, it is necessary to be
competitively placed on the global
seaborne cost curve.
It is the Group’s strategy to improve cost
efficiency continuously by increasing
output and reducing consumption norms,
developing further best operating practice
and lowering its delivery cost to European
and Asian markets.
Circa 50% of production and distribution
costs to the Ukrainian border are in local
currency. To date in 2014, the Hryvnia has
depreciated by 16%.
What’s been achieved in 2013
• 20% reduction in freight costs to
Far Eastern markets
• Following the ramp up of FYM in
1Q 2013 production costs declined
by 10% throughout the year
• The Business Improvement
Programme (‘BIP’) has reduced the C1
cost by US$8.6 per tonne since 2006
Objectives for 2014
• To reduce costs through increased
production volumes
Ferrexpo believes it is essential to train
and develop its employees, as a skilled
and motivated labour force will underpin
innovation and business improvement,
helping it to develop its reserve base and
sustain production for decades to come.
The majority of Ferrexpo’s employees are
based in Ukraine. Mining is part of
Ukraine’s history and culture. The country
has a large, well-educated and dedicated
work force and the Group is committed to
further developing the skills of its people.
What’s been achieved in 2013
• A significant proportion of the
workforce (including contractors)
received training
Objectives for 2014
• To continue to train the workforce
• To continue to focus on employee
and contractor safety
• To continue to address high potential
hazards in the workplace
FYM employees
Cash Charge Curve
(US$/tonne – Dry, 62% Fe, CIF China) (mtpa)
Number of Employees and
Contractors Trained
In order to succeed as a large business
operating in a major town, Ferrexpo
believes it should be a major asset to
its country of operation. The town of
Komsomolsk was established in 1960
to service its operations. The Group has
been a significant contributor to local
community initiatives as well as a
consistent employer, investor and tax
payer through the commodities cycle and
through periods of political instability.
To date, Ferrexpo has not experienced
any major production disruptions in its
history. The Group’s strategy is to operate
responsibly and sensitively and to assist
the local community.
What’s been achieved in 2013
• Most regrettably there was a
contractor fatality in 2013 (2012: nil)
• Improvement in the lost-time injury
frequency rate, reaching the lowest
point in the Group’s history
• Total emission levels declined versus
2012 and were within regulated limits
• Continued to invest in the local
community, US$10.7 million of
community support donations
Objectives for 2014
• Maintain the trend towards lower
emissions per tonne while increasing
production
• Support the community through
various initiatives
• Ongoing improvements in health
and safety performance
Lost-Time Injury Frequency Rate (‘LTIFR’)
140
120
100
e
n
n
o
t
/
$
S
U
80
60
6,342
7,120
8,673
8,453
8,385
1.46
0.77
0.66
0.64
Ferrexpo
40
20
0
0
500
1,000
mtpa
1,500
2,000
09
10
11
12
13
10
11
12
13
Source: Deutsche Bank October 2013; Ferrexpo
For further information, please see footnote 1 on page 24.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 15
s t r a t e g i c
r e p o r t
e v a l u at e r e l e v a n t
i n v e s t m e n t o p p o r t u n i t i e s
ma i n ta i n f i n a n c i a l
d i s c i p l i n e
Ferrexpo will evaluate opportunities
which are potentially value accretive
to the Group and that can reduce
operating risk.
What’s been achieved in 2013
• Operation of Iron Destiny, the Group’s
transshipment vessel, which has
contributed towards lower freight
costs
• 15.5% stake acquired in Brazilian iron
ore producer, Ferrous Resources
Objectives for 2014
• To continue to evaluate relevant
investment opportunities that could
de-risk or diversify the Group’s
operations
Iron Destiny, the Group’s transshipment vessel
In order to sustainably develop the
Group, it is necessary to ensure projects
are funded and adequate liquidity is
maintained, while dividend income to
shareholders is balanced
and appropriate.
The majority of the Group’s cash flows
have been reinvested in the business
over many years to increase shareholder
returns. To ensure a smooth long-term
growth profile through business cycles,
it is the strategy of Ferrexpo to maintain,
where possible, strong credit metrics.
The pace of investment depends on
the level of cash flow after interest and
dividends as well as the availability of
fairly priced debt instruments.
The availability of debt depends, inter alia,
on the perceived risk profile of the business
and it is Ferrexpo’s aim to reduce its risk
profile through growth and investment in
its operations and development of a high
quality customer base.
What’s been achieved in 2013
• Net debt to EBITDA of 1.3x at 31
December 2013
• New US$350 million bank facility
obtained
Objectives for 2014
• To manage the debt profile of Group
through low cost and long dated
maturities
• To maintain strong credit ratios
ma i n ta i n h i g h
s ta n d a r d s o f c o r p o r at e
g o v e r n a n c e
Developing and selling a product in
a global environment, to world class
customers, requires the highest
standards of governance, transparency
and ethical dealings with all stakeholders,
including customers, suppliers, creditors
and shareholders. It is the strategy of the
Group to operate to the very highest
levels of governance and integrity whilst
ensuring an optimal operating structure
for the business.
Ferrexpo’s principal shareholder and
CEO holds 50.3% of the shares in the
Company and his interests remain fully
aligned with all shareholders. The
strategy of Ferrexpo and its principal
shareholder is to operate to best
international standards of governance,
transparency and fairness.
What’s been achieved in 2013
• Continued high standards of
corporate governance
Objectives for 2014
• The Board to continue to provide
diversity and balance in terms of
knowledge and experience, in line
with the UK Corporate Governance
Code of 2012. (See Chairman’s
Statement on Corporate Governance
on page 55.)
• To develop further the Group’s CSR
reporting
Net Debt to EBITDA (value)
number of meetings
1.9
0.2
0.1
1.1
1.3
Board1
Audit Committee
Remuneration Committee
2013
5
5
3
2012
6
4
5
1 This does not include an annual site visit.
09
10
11
12
13
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
16
s t r a t e g i c
r e p o r t
r e c e n t p o l i t i c a l
e v e n t s i n u k r a i n e
we would like to express our profound
sadness for the loss of life as a result of
the recent political turmoil in ukraine,
and extend our deepest sympathies to
the families, communities and colleagues
who have been affected.
we are hopeful of a satisfactory political
outcome reflecting democratic principles.
at the time of writing, there have been
no disruptions to ferrexpo’s operations.
Left to right:
Kostyantin Zhevago,
Chief Executive Officer,
Michael Abrahams,
CBE DL, Chairman
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 17
s t r a t e g i c
r e p o r t
a r e v i e w o f 2 0 1 3
In 2013, Ferrexpo was the fastest growing supplier by volume of
pellets to the global steel industry and a top five seaborne producer.
Total pellet production increased by 12% to 10.8 million tonnes,
compared to an average industry decline during the year of over 5%.
The Group also increased the quality of its pellet output, with a 20%
increase of higher grade 65% Fe pellets.
Overall EBITDA rose by 25% to US$506 million (2012: US$405 million)
driven by strong growth in sales volumes and higher market pricing.
The Group tax rate in 2013 was 14% compared to 18% in 2012. The
decline principally reflects the reduction in the statutory tax rate in
Ukraine.
Ferrexpo Yeristovo Mining (‘FYM’), Ferrexpo’s new open pit mine,
provided 20% of the Group’s ore in 2013 while the Group’s
beneficiating and pelletising plant was able to increase output while
simultaneously continuing a major capital refurbishment programme
to modernise its facilities.
The Group improved its logistics infrastructure during the year which
contributed to a 20% reduction in freight costs per tonne to Asian
markets. It also agreed three long-term contracts with leading steel
mills in Asia.
As a result, Ferrexpo has further reduced its risk profile in 2013
and continued to build on its reputation as a reliable supplier of
high grade iron ore to the global steel market.
The Group is pleased to announce a final ordinary dividend of
3.3 US cents per share and a special dividend of 6.6 US cents
per share reflecting the progress it has made in 2013.
results
Group revenue increased by 11% to US$1.6 billion for the 12 months
ended 31 December 2013 (2012: US$1.4 billion) primarily driven by
record sales volumes of 10.7 million tonnes (2012: 9.7 million tonnes)
and a 4% increase in industry benchmark prices to US$135 per
tonne (2012 average benchmark CFR China 62% fines price:
US$130 per tonne).
The Group’s average C1 cash cost of production for the period was
US$59.8 per tonne in line with 2012 (2012: US$59.6 per tonne). The
mining and processing of FYM ore has had a positive impact on the
Group’s overall production cost throughout the year following the
ramp up of its production in 1Q 2013, where Group costs peaked at
US$63.9 per tonne. Total production volumes increased 12% to 10.8
million tonnes of pellets in 2013 (2012: 9.7 million tonnes) leading to
higher fixed cost absorptions. In addition, there were cost benefits
related to the high grade ore at FYM as well as lower mining costs at
the new open pit.
In terms of logistics costs, rail tariff cost inflation was partially
mitigated by savings from using the Group’s own rail cars. The
Group proposes to acquire further rail cars, while Ferrexpo reduced
its cost of freight per tonne to the Far East by 20% (see pages 18
and 21 for further information on the Group’s logistics).
Group profit after tax increased to US$264 million compared to
US$219 million in 2012.
Ukrainian VAT incurred at FPM was recovered in 2013 on a timely
basis, however balances from 2012 and prior years as well as from
FYM and amounts in dispute in the court system remained unpaid.
As of 31 December 2013, Ferrexpo was owed US$318 million (2012:
US$302 million) of VAT by the Ukrainian government. The Group has
recorded a total provision in respect of the overdue and disputed
VAT amounts of US$60 million (2012: US$20 million). At the current
time it is unclear how VAT will be repaid, and the provision in part
reflects the likely discount to face value of any financial instrument
which may be issued and converted to cash. In January 2014, the
Group received a VAT repayment relating to December 2013 for
Ferrexpo Poltava Mining (‘FPM’) and for FYM relating to 2012. As of
31 January 2014, the gross VAT outstanding balance was US$291
million; this compares to an expected VAT balance, reflecting normal
business activity, of between US$50 million and around US$100
million depending on the level of capital investment in any period.
Net cash flow from operating activities was US$233 million, a 96%
increase compared to 2012 (2012: US$119 million).
Working capital increases were principally due to the stockpiling of
the lower grade ore at FPM as priority was given during the year to
processing the higher grade ore from FYM in order to focus on pellet
quality. The lean ore at FPM will be processed in 2015 following
completion of the quality upgrade project. This stockpiling, together
with an increase in pre-paid corporate profit tax (see page 26 for
further explanation), were the main drivers behind a working capital
outflow of US$103 million.
During the year the Group spent US$278 million on capital
investment in its existing and new mines as well as on logistics
infrastructure (2012: US$429 million). The reduction compared to
2012 reflects the near completion of the Group’s approved capex
programme to improve the quality and quantity of its pellet output
to 65% Fe and 12 million tonnes respectively.
Savings on capital investments have also been made, particularly in
sustaining capital where projects have been optimised. The Group
closed the year with US$103 million of capital commitments,
compared to US$163 million as at 31 December 2012.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 18
s t r a t e g i c
r e p o r t
a r e v i e w o f 2 0 1 3 continued
Ferrexpo has continued to maintain its financial discipline with net
debt to EBITDA of 1.3 times (2012: 1.1 times). At the period end,
Ferrexpo had net debt of US$639 million (2012: US$423 million)
and cash combined with undrawn committed facilities with a
maturity in excess of one year of US$671 million.
dividend
ordinary dividend
The Group has invested significantly over the past six years and has
maintained its dividend since IPO at 6.6 US cents per share split
equally between interim and final payments. Ferrexpo is continuing
to invest prudently in its operations to ensure sustained volume
increases and earnings growth over the coming years. However,
taking into consideration the volatility of iron ore pricing the Board
feels it is appropriate to maintain the ordinary dividend at its current
level during the continued investment in the business. As such, the
Board recommends a final dividend in respect of profits generated
by the Group in 2013 of 3.3 US cents per Ordinary Share (2012 final
ordinary dividend: 3.3 US cents per Ordinary Share) for payment on
30 May 2014 to shareholders on the register at the close of business
on 2 May 2014. The dividend will be paid in UK Pounds Sterling with
an election to receive US Dollars.
special dividend
In recognition of the good results for 2013, and the success in growing
output by 30% since IPO and 12% compared to 2012, the Board is
pleased to announce a special dividend of 6.6 US cents per Ordinary
Share for payment on 28 March 2014 to shareholders on the register
at the close of business on 21 March 2014. The dividend will be paid
in UK Pounds Sterling with an election to receive US Dollars.
market environment
The World Steel Association reported that global crude steel
production grew 3.5% in 2013 (compared to 2012) to 1.6 billion tonnes.
2013 Chinese Spot Pellet Premiums (US$/tonne)
40
35
30
25
20
15
10
5
0
13.10.11
13.12.11
13.2.12
13.4.12
13.6.12
13.8.12
13.10.12
13.12.12
13.2.13
13.4.13
13.6.13
13.8.13
13.10.13
13.12.13
Source: Metal Bulletin iron ore index, 65% Fe pellets
Of this, 779 million tonnes were produced in China representing 7.5%
growth in Chinese steel production. This growth in steel production
supported iron ore demand and prices with seaborne exports
increasing by approximately 11% to 1.3 billion tonnes. The average
benchmark price for iron ore (62% Fe CFR fines to China) increased
by 4% to US$135 per tonne compared to an average price in 2012
of US$130 per tonne.
Demand for iron ore pellets was strong in 2013 with pellet premiums
increasing from approximately US$15 per tonne in the Chinese spot
market (the largest buyer of iron ore including pellets) at the beginning
of the year to over US$30 per tonne by year end.
Cost of Pellet Production (USc/dmtu)
70
56
42
28
14
0
Ferrexpo
Source: CRU, January 2013
Please note the graph above only reflects costs incurred at pelletising stage of the production
process (i.e. does not include mining, concentration and beneficiation costs) and as such
should not be considered as a cost curve for total cost of pellets production.
0.2 Bnt
The improvement in pellet premiums was largely due to a reduction in
supply from the market’s principal pellet producers following low pellet
premiums in 2012 as well as increasing demand for pellets in the Middle
East. Direct reduction steel making in the Middle East requires high
quality iron ore which reduces the availability of pellets for traditional blast
furnaces in the rest of the world.
The marginal cost to produce pellets from pellet feed is believed to be
approximately US$30 per tonne based on the position of the larger
suppliers of pellets on the global pelletising cost curve, as can be seen
above. Ferrexpo’s position at the low end of this curve highlights that it is
well placed to benefit from growing demand for a high quality product.
marketing and logistics
In 2013, Ferrexpo sold 10.7 million tonnes of iron ore pellets
compared to 9.7 million tonnes in 2012, an 11% increase.
During the year Ferrexpo reduced its cost of freight to the Far East
by 20% per tonne primarily due to increased utilisation of capesize
vessels and the commencement of its own transshipment facilities.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 19
s t r a t e g i c
r e p o r t
t h e i r o n o r e m a r k e t 2 0 1 3
1.6
b i l l i On t On n e s
g l O b a l s t e e l
p r Od u c t i O n
3.5
% g rO W t h
v e r s u s 2 0 1 2
48
% O f
g l O b a l
s t e e l
p r Od u c t i O n
% g rO W t h i n c h i n e s e
s t e e l p r O d u c t i O n i n
2 0 1 3
7.5
Average Grades of Iron Ore Product in
Seaborne Market (% Fe)
63.5
63.0
62.5
62.0
61.5
04 05 06 07 08 09 10
11
12 13E
Source: Jefferies, Modern Day Iron Age January 2014
Price premiums for high quality iron ore
feedstock, such as lump and pellets,
increased in 2013. Looking forward this is
expected to continue driven by greater
environmental requirements for steel mills to
reduce their harmful emissions as well as a
necessity to compensate for the growth in
lower grade iron ore fines that is becoming
increasingly prevalent.
CRU forecasts that the total consumption
of pellets will grow on average by 4.7%
per annum to 2018 while overall iron ore
consumption is expected to increase by only
2.7% per annum. The difference in growth
highlights the expected demand for quality
iron ore product.
see www.ferrexpo.com
to find out more
blast furnaces use sintered
fines, lump ore and pellets
as iron ore inputs.
fines Iron ore fines are small in size, and
must be sintered and processed into larger
particles before they can be used in a blast
furnace.
lump ore Iron ore lump consists of
individual particles and can be charged
directly into a furnace, enabling a steel
producer to avoid sintering. The share of
lump in the seaborne market is reducing
due to declining grade and availability.
pellets Pellets are high grade spheres of
iron ore with uniform quality and are easier
to transport than sintered fines. Pellets are
often considered to be the highest quality
form of iron ore to be used in a blast furnace.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
20
s t r a t e g i c
r e p o r t
fpm dashboard
30
M i l l i On t On n e s
O f i r O n O r e
M i n e d , 2 0 1 3
8,062
eM p l O y e e s
l i f e25
y e a r
M i n e
1.5
b i l l i On t On n e s
j O r c c l a s s i f i e d
r e s e r v e s
fpm is extending
its mine life to
2038 and will
complete a major
modernisation of
its production
assets in 2014.
see www.ferrexpo.com
to find out more
the poltava region, in
which ferrexpo’s mining
operations are situated, is
an area of predominantly
flat agricultural land close
to the river dnieper, one of
the largest european river
systems and an important
transport artery for ukraine,
belarus and russia.
Iron ore mining in the area dates from the
19th century, although the major expansion
of mining activity occurred in the early 20th
century. The town of Komsomolsk was
established adjacent to the mine to support
the mining operation and ancillary industries
(transport, power etc). Ferrexpo is still by
far the largest employer in the town, which
has a population of around 55,000 people,
with approximately 23% of the working
population of Komsomolsk being employed
by the mine in one capacity or another.
FPM consists of a mine (as can be seen
above) and concentrating and pelletising
facilities. FPM has been operating
successfully for over 40 years without
any significant disruptions or delays
in production.
The mine is adjacent to rail and port facilities
on the Dnieper River and is 6 kilometres long
and over 350 metres deep. FPM operates a
traditional shovel and truck open pit mining
operation extracting approximately 30mtpa
of crude ore. Its pelletising facility has
nameplate capacity to produce 12 million
tonnes of pellets which requires
approximately 30 million tonnes of crude
ore at 30% Fe.
see page 2 for our reserves and resources information
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 21
s t r a t e g i c
r e p o r t
Loading of the Los Angeles
capesize vessel at the
Group’s port facilities.
in 2013, ferrexpo loaded
22 capesize vessels
carrying an average of
170,000 tonnes of pellets
(2012: 17 capesize
vessels).
The Group continued to build its brand awareness in these regions
with the signing of new long-term contracts including its first long-term
contract with one of China’s largest steel producers as well as renewal
of two existing contracts with long established steel mills. In 2013,
sales volumes to Japan increased four-fold while volumes sold to
Turkey doubled and sales to Germany increased by over 85%
compared to 2012.
year. Other enhancements included improved vessel scheduling
and more competitive freight rates as the Group looked to attract
additional ship owners to the region.
The 20% reduction of the Group’s freight rate per tonne to Asian
markets was a vital step in establishing the Group’s reputation as a
competitive global supplier of pellets.
breakdown of sales volume by market
Traditional
Natural
Growth
2013
47%
18%
35%
2012
49%
9%
42%
The reduction in sales to Growth markets reflects the Group’s
decision to focus on building market share in Natural markets as
well as current constraints regarding the Group’s production output.
As Ferrexpo increases its output it anticipates increasing sales to
Growth markets.
43% of Ferrexpo’s contracted sales volume in 2013 was based
on the Platts benchmark index1 compared to 29% in 2012.
Sales volumes priced on a quarterly negotiation, based on the
underlying market conditions, were reduced to 40% in 2013
compared to 47% in 2012. As of 1 January 2014, this type of pricing
was eliminated and it is intended that all of the Group’s long-term
sales contracts will be based on a benchmark indexed formula1.
In 2013, 17% of sales volume was priced on a spot basis compared
to 24% in 2012.
Overall, 83% of Ferrexpo’s sales were made to long-term customers
(2012: 75%) on contracts with tenures typically running from two to
ten years.
sales volume by contract type
Index
Quarterly negotiated
Spot
2013
43%
40%
17%
2012
29%
47%
24%
In 2013, Ferrexpo loaded 22 capesize vessels carrying an average
of 170,000 tonnes of pellets (2012: 17 capesize vessels).
Ferrexpo has implemented improvements to its logistics
infrastructure during the year which have resulted in sustainable cost
reductions to its seaborne freight rate. This included cost savings
from the commissioning of the Group’s own transshipment vessel as
well as contributing to an improvement in load rates throughout the
As of 31 December 2013, the Group owned 2,200 rail cars (2012:
1,933 rail cars) and has ordered an additional 300 units to be delivered
in 2014, so as to maintain maximum independence and reduce
reliance on state-owned rail cars as production volumes continue to
increase. It is the Group’s aim to be broadly self-sufficient in rail cars,
which will necessitate further purchases beyond the orders already
placed. The Group shipped 6.7 million tonnes of pellets through its own
shipping terminal and a neighbouring terminal at the port of Yuzhny in
2013. Ferrexpo believes it currently has seaborne shipping capacity of
seven million tonnes per annum. Original capacity of five million tonnes
has been enhanced through improved vessel scheduling and more
consistent rail deliveries. Finally, Ferrexpo delivered 1.5 million tonnes
of pellets by barge to steel mills in Central Europe via the Danube River
(2012: 1.4 million tonnes).
Overall in 4Q 2013, Ferrexpo delivered 3.1 million tonnes of pellets
to its global customer base via rail, barge or ship. This was a record
and in line with the Group’s target of annualised production of
12 million tonnes.
health and safety
The management of Ferrexpo fosters and continually develops a
culture of safety in the organisation, linking safety performance to
remuneration.
Most regrettably there was a contractor fatality in 2013 at the Group’s
operations. A description of the incident is provided on page 41.
The lost-time injury frequency rate (‘LTIFR’) at FPM continued to fall
in 2013 to 0.67 per million man hours worked (2012: 0.74). At FYM
one lost-time injury was reported during the year (2012: nil). Overall,
Ferrexpo’s total LTIFR in Ukraine for 2013 was 0.64 compared to
0.66 in 2012.
Ferrexpo is pleased to announce that in 2013, FPM was awarded
second place in the category ‘Cultural Evolution in Safety or
Sustainability’ by DuPont at its annual Safety and Sustainability
Awards. The award evaluated companies from 17 countries.
DuPont believe the award reflects FPM’s determination to continue
to improve is safety record in line with industry best practice.
1 Platts benchmark index for 62% Fe iron ore fines CFR to China. As is industry
standard, this price is then adjusted for quality and a pellet premium (typically
negotiated on a quarterly basis).
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 22
s t r a t e g i c
r e p o r t
a r e v i e w o f 2 0 1 3 continued
production
In 2013, Ferrexpo’s pellet production increased by 12% to 10.8 million
tonnes. This was a record for the Group and ensured Ferrexpo was
the fastest growing global pellet exporter by volume for the year. The
production growth was underpinned by the ramp up of production at
the Group’s second mine FYM. In 2013, 6.6 million tonnes of crude
ore from FYM was delivered to FPM for beneficiating and pelletising.
As a result, 2 million tonnes of pellets were produced from FYM ore
or 20% of Group production. The FYM mine will continue to ramp
up production enabling the Group to reach its target of producing
12 million tonnes of pellets on an annualised basis in 2014.
In 2013, Ferrexpo produced 5 million tonnes of premium grade
pellets (Ferrexpo Premium Pellets). This was a record for the Group
and represented growth of 20% compared to 2012.
2013
2012
+/–
Change
%
30,599
29,803
32.3% 30.7%
796
1.6
Concentrate produced
11,830
Weighted average Fe content % 62.8% 62.2%
13,195
1,365
0.6
2.7
5.2
11.5
1.0
11.2
14.7
–
8.5
0.2
23.4
0.8
23.5
370
0.2
10,466
9,409
1,057
4,118
4,725
64.9% 64.9%
5,291
5,741
62.2% 62.1%
401
325
65.9% 65.4%
347
263
281
56
607
–
450
0.1
76
0.5
66
207
0.1
production statistics
(000t unless otherwise stated)
Iron ore processed from
FPM and FYM
Average Fe content %
Pellets produced from
FPM and FYM
Higher grade
Average Fe content %
Lower grade
Average Fe content %
Purchased concentrate
Average Fe content %
Pellets produced from
purchased concentrate
Higher grade
Average Fe content %
64.9% 64.8%
Lower grade
Average Fe content %
Total pellet production
Pellet sales volume
Gravel output
Total Group stripping
volume (bcm)
84
225
(141)
(62.7)
62.2% 62.1%
0.1
10,813
10,689
9,690
1,123
9,675
1,014
0.2
11.6
10.5
2,281
2,822
(541)
(19.2)
49,208
50,033
(825)
(1.6)
During the year FPM continued to complete a major modernisation
and refurbishment programme of its production facilities whilst
increasing the volume of output. As a result of the modernisation of
three of the 15 grinding sections in 2013 FPM was able to process
more ore and thus produce more concentrate for pelletising. Six out
of the 15 grinding sections have now been refurbished with a further
three expected to be completed in 2014. This should allow the
Group to reach its target of 12 million tonnes of annualised
production in 2014.
for further information please see capital investments on
page 24.
production costs
For the year ended 31 December 2013, the C1 cash cost of
production of pellets from own ore was US$59.8 per tonne in line
with the cost in 2012.
During the year, the Ukrainian Hryvnia remained stable. Just over half
of C1 cash costs are denominated in local currency. Cost inflation
was principally driven by a 7% increase in electricity tariffs.
Following the ramp up of production at FYM in 1Q, the C1 cost
declined throughout the year with the average cost for the year in line
with 2012 and 7% below the first quarter.
1Q 2013
2Q 2013
3Q 2013
4Q 2013
fy 2013
FY 2012
C1 cash cost of
production
63.9
59.8
58.2
57.6
59.8
59.6
The mining and processing of FYM ore has had a positive impact
on the Group’s overall production volumes and unit cost through
increased volume efficiencies, lower mining costs and the addition
of higher grade ore. The ore mined at FYM has magnetic properties
that allow for easier separation of the iron from other elements
compared to the lower grade ore which forms part of the seam
mined at the FPM pit. To increase output and minimise overall cost,
FPM focused on processing the higher grade portion of its ore
together with the ore from FYM. The lower grade ore from FPM has
been stockpiled to be processed once the quality upgrade project is
complete. This has enabled better recovery and higher profitability to
be earned whilst optimising FYM’s mining plan and ore recovery.
Ferrexpo’s strategy is to continuously improve efficiency and reduce
costs so as to remain competitive on the global cost curve. During the
year, improved efficiencies were achieved through higher output and the
Business Improvement Programme (‘BIP’) which has a target to reduce
the C1 cost of production by 1% to 2% per annum on a constant output
basis. The BIP programme has resulted in an overall reduction in the C1
cost of US$8.6 per tonne since its inception in 2006.
Ferrexpo’s average cost of transportation of its pellets to Ukrainian
border points was US$14.4 per tonne in line with 2012. Rail tariff cost
increases of 5% were largely offset by savings gained from using the
Group’s own rail cars which qualify for a discount from the State rail
authority. Ferrexpo sells its pellets mainly on a CFR basis and its
realised pricing depends on freight costs. Importantly, during the year
Ferrexpo reduced its cost of freight to China by 20% achieving its
goal of being at least in line with the cost of freight for capesize
vessels from Brazil to China.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 fym dashboard
6.6
M i l l i On t On n e s
O f i r O n O r e
p r O c e s s e d i n 2 0 1 3
23
s t r a t e g i c
r e p o r t
1,318
eM p l O y e e s
l i f e32
y e a r
M i n e
b i l l i On t On n e s
j O r c c l a s s i f i e d
r e s e r v e s
the experience
gained from fpm
has underpinned
the establishment
of world class
mining facilities
at fym.
2km
the fym open pit
mine is located
approximately 2
kilometres north
of the fpm mine.
1.2
us$450m
invested to reach
first ore and
complete related
infrastructure.
see www.ferrexpo.com
to find out more
the fym deposit has
estimated resources of
1.2 billion tonnes under
the Jorc code, of which
approximately 624 million
tonnes were proved and
probable reserves with an
average iron content of 32%.
Assuming an iron ore production rate of
28mtpa (broadly similar to FPM’s current
production), it has the capacity to add
approximately 32 years to the Group’s
production profile.
The FYM open pit mine is located
approximately 2 kilometres north of the FPM
mine. First ore was reached in 2H 2012.
The initial ore extracted from the FYM mine
is being processed at FPM’s beneficiating
facilities. Together with existing output from
the FPM mine, this will allow the Group to
increase its pellet production to an
annualised rate of approximately 12 million
tonnes in 2014.
FYM is developing additional processing
and pelletising facilities for the remaining ore
mined at the FYM pit. These processing
facilities are expected to increase the
combined output of the Group to around
20 million tonnes of pellets or concentrate
equivalent per annum. This includes a new
concentrating complex with up to 10 million
tonnes of capacity to produce 67% Fe
pellet feed.
see page 2 for our reserves and resources information
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
24
s t r a t e g i c
r e p o r t
a r e v i e w o f 2 0 1 3 continued
Overall on the global cost curve for iron ore, management believe
that Ferrexpo is positioned in the middle after adjusting for different
iron ore products on a like for like basis, including any benefits or
discounts a producer may receive relative to the 62% Fines CFR
China price.
Cash Charge Curve1 (US$/tonne – Dry, 62% Fe, CIF China) (mtpa)
e
n
n
o
t
/
$
S
U
140
120
100
80
60
40
20
0
Ferrexpo
0
500
1,000
mtpa
1,500
2,000
Source: Deutsche Bank October 2013; Ferrexpo
At current cost levels, Ferrexpo estimates that approximately 1 billion
tonnes of supply would need to be eliminated due to iron ore price
declines before Ferrexpo’s operations would be loss making.
In 2014, Ferrexpo is aiming to reduce its costs through increased
production and further efficiencies from processing FYM ore.
capital investments
In 2013, capital investment amounted to US$278 million (2012:
US$429 million). The reduction in spending largely reflects the near
completion of the Group’s US$647 million programme, approved in
November 2010, primarily to increase the quality of its pellet output
to an average of 65% Fe and to open the Group’s second mine
providing ore to increase pellet production to 12 million tonnes.
These projects, as well as the Mine Life Extension project to extend
FPM’s mine life to 2038, are progressing to plan and budget.
A summary of the Group’s major capital projects follows.
sustaining capex and capacity upgrade project
During the period, the Group spent US$81 million on modernisation
and reducing bottlenecks at FPM’s production facilities (2012:
US$108 million).
1 In order to determine a comparable CFR cost for non-homogeneous iron ore
products any benefits or discounts a producer may receive relative to the 62% Fines
CFR China price are deducted or added. In the case of Ferrexpo, the calculation is as
follows: C1 cash cost of production + freight to Port Yuzhny + sea freight to China +
maintenance capex + regional market discount – less pellet premium – premium for
higher Fe content.
Included in sustaining capital investments are projects to upgrade
FPM’s beneficiating and pelletising facilities to allow processing of
12 million tonnes of pellets per year. Activities during the period,
focused on the redesign and refurbishment of the three grinding
sections. These were completed and commissioned through the
year, while maintaining day-to-day operations and increasing
production levels above those in 2012. As a result of the upgrade
of the FPM beneficiation plant, concentrate production increased
by more than 11% during the year.
Future activities will involve the modernisation of additional
grinding sections of the existing beneficiation plants, as well
as the replacement of medium/fine crushing sections and a
major rebuild of one kiln in the pelletising plant.
Sustaining capital investment also provides for the modernisation
of existing assets and systems to increase operating efficiencies
benefiting the cash cost of production. As the capacity upgrade
project is nearing completion, management believe that sustaining
capex at FPM for 2014 and future years is expected to be reduced.
quality upgrade project
In order to improve the quality of the pellet product, the overall iron
content of the concentrate requires upgrading. The primary method
to achieve this is through vertimill fine grinding technology and
flotation. This will allow for the production of concentrate with an
average 67% iron content (compared to the current average iron
content of 65%) and will ensure all pellets contain 65% iron content.
During 2013, a floatation cell with all related equipment was installed
and will be commissioned in 2014. This was constructed along with
part of the second floatation plant and the associated upgrade of the
tailing facilities.
In addition the following engineering work was carried out in relation
to the quality upgrade project aimed at further enhancing returns.
• Engineering design for the modernisation of the existing flotation
and installation of associated vertimills
• Pre-feasibility study for the construction of a new filter plant at the
pelletizing plant which will accommodate the filtering of the higher
grade concentrate to increase yields
In 2013, US$47 million was spent on the above activities (2012:
US$35 million), mainly relating to the construction of the additional
flotation and fine grinding unit.
fym capital project
In 2013, FYM spent US$100 million on pit and associated
infrastructure development (2012: US$146 million). During the year,
FYM delivered 6.6 million tonnes of ore to the FPM processing
plants. In terms of infrastructure development, the construction field
office, tyre repair centre, and the canteen were commissioned along
with the potable water and sewage handling facilities. The welding
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 FYM 793D CAT truck
25
s t r a t e g i c
r e p o r t
the majority of the group’s
cash flows have been
reinvested in the business
over many years. to ensure
a smooth long-term growth
profile through business
cycles, it is the strategy
of ferrexpo to, where
possible, maintain strong
credit ratios.
bay, equipment service centre, administration and repair centres are
expected to be completed in the first half of 2014.
ukraine
As the Group’s current processing capacity of crude ore at FPM will
be limited to 35mtpa, during the year FYM finalised the design for a
10mtpa concentrating facility in order to process mined ore from the
FYM pit that is not delivered to FPM for further processing (crude ore
volumes from FPM’s pit is approximately 30mtpa while FYM will be
able to mine 28mtpa at full capacity). Studies are also under way to
evaluate concentrate transportation and pelletising options.
investment opportunities
In 2013, Ferrexpo announced it had acquired a stake in Ferrous
Resources (‘Ferrous’), a producing iron ore company operating in the
iron ore quadrangle of the Minas Gerais region of Brazil, a major iron
ore producing region in the world. Total consideration for the stake
was US$82 million.
For the year ended 31 December 2013, Ferrous produced over
5.1 million tonnes of 62% iron ore fines compared to 3.2 million tonnes
in 2012. Ferrous has a 4 billion tonne JORC compliant reserve and
resource base, and the company is aiming to expand output to
17mtpa by 2017. Ferrexpo currently owns 15.5% of the company.
financial management
Ferrexpo’s financial position as of 31 December 2013 reflected its
strategy of maintaining prudent balance sheet metrics and ensuring
sufficient liquidity given that it operates in a volatile commodity
market and is a single country operation.
Net debt to EBITDA was 1.3x at year end compared to 1.1x for the
same period in 2012. Net debt at year end was US$639 million (31
December 2012: US$423 million), of which approximately 63% has
been used to finance outstanding gross VAT balances of US$318
million as well as prepaid corporate profit tax of US$88 million in
Ukraine. During 2013, Ferrexpo secured a new revolving credit
facility of US$350 million. The facility has a forward start date of no
later than 1 September 2014 and carries a cost of 325bps above US
LIBOR. This facility can be used to extend the tenor of the Group’s
existing US$420 million bank facility which commences its two year
amortisation period in September 2014 maturing on 31 August 2016.
Together with the Group’s cash balance as of 31 December 2013,
cash and available undrawn facilities totaled US$671 million1.
1 As of 31 December 2013, US$280 million of the new US$350 million pre-export
finance (‘PXF’) facility was available. Once repayment of the in-situ PXF commences in
2014 the remaining US$70 million will become available.
Ukraine is experiencing financial difficulties due to low growth and
high public spending. As a result, it has a high current account deficit
while foreign reserves were reported at approximately US$16 billion
as of 28 February 2014. To date in 2014, the Hryvnia has devalued
by approximately 16%. These economic problems are not expected
to be resolved in a short time frame, and with external debt markets
difficult to access for the country, Ukraine is expected to be reliant
on external financial aid. In the coming year this could include aid
directly from individual sovereign states or the European Union as
well as from the IMF.
The Group’s facilities are located in central Ukraine in the Poltava
region 200 miles south of Kyiv. At the time of writing, Ferrexpo’s
operations remain unaffected by the unfolding events of recent
weeks. Production and logistics to the western border of the
country and to the Group’s port in Odessa on Ukraine’s south coast
operate normally. Ferrexpo continues, however, to monitor the
situation closely.
The Group’s priority continues to be to maintain production and
supply its first class customer base with high quality premium iron
ore product as it has done throughout its 40-year production history.
It has and will continue to follow its strategy which will grow
production and reduce risk in its operations.
vat
In 2013, the Group received 11 monthly VAT refunds which took the
outstanding VAT balance as of 31 December 2013 to US$318 million
(31 December 2012: US$302 million). In January 2014, the Group
received VAT repayments for December 2013 and January 2014.
As of 31 January 2014, the gross VAT outstanding balance was
US$291 million. The Group did not receive a VAT refund in February.
Of the total VAT outstanding balance at the end of 2013, US$146
million related to 2012 and prior years, and US$102 million was in
dispute in the court system. As such the gross VAT amount as of
31 December 2013 of US$318 million has been adjusted by US$60
million (2012: US$20 million) to US$258 million in order to reflect
either the likely discount if financial instruments are issued to settle
the outstanding balance or, alternatively, the time value of money
related to the cost of financing these balances.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
26
s t r a t e g i c
r e p o r t
a r e v i e w o f 2 0 1 3 continued
The late repayment of VAT is, in the view of the Board, a result of the
Ukrainian government’s current weak fiscal position. The Board
believes that there is a risk that continued fiscal weakness could
further impact the timely repayment of VAT. This would lead to higher
levels of working capital and increase the risk of a financial loss when
repayment occurs which would depend on the eventual type of
repayment and the prevailing exchange rate as repayments will be
made in local currency. Ferrexpo has received VAT repayments
consistently throughout 2013, however, balances from 2012 and
earlier remain unpaid. Ferrexpo continues to have a constructive
dialogue with the Ukrainian authorities regarding the repayment of
overdue VAT and hopes that a resolution to this long standing
problem in Ukraine will be found in 2014.
full details on ukrainian vat receivable are disclosed in
notes 26 and 36 to the accounts.
pre-paid corporate profit tax
As part of an agreement with the majority of industry players in
Ukraine the tax authorities have been remitting regular VAT refunds
in 2013 in exchange for the pre-payment of corporate profit tax in
respect of future periods. In 2013, Ferrexpo paid US$63 million in
this respect resulting in a year-end balance of US$88 million (2012:
US$25 million).
full details on pre-paid corporate profit tax are disclosed
in note 26 to the accounts.
court case
The Group faces an ongoing legal claim over a shareholding in FPM.
After having taken Ukrainian legal advice, the Board believes that
risks related to these court proceedings are remote. Due to the
nature of the country and its court system, however, a negative
outcome cannot be ruled out. The case has been running for seven
years and the Board believe it still has a considerable way to go.
full details on the court case are disclosed in the
principal risks section of this report on page 28 and
note 36 to the accounts.
corporate governance
The Board of Ferrexpo remains committed to maintaining high
standards of governance and integrity throughout the Group. As
a set of individuals of different nationalities and backgrounds with
complementary skills and experience, the Board has worked
together effectively in guiding the notable progress the Group
has made since the IPO, and within the context of a volatile global
economic environment.
The UK Corporate Governance Code of 2012 highlights the need for
progressive refreshing of the Board and recommends that the re-election
of Directors who have served more than six years be reviewed. The
Board has appointed external recruitment consultants to search for
suitable candidates who can provide diversity and balance in terms of
knowledge, experience and gender. The Board will prioritise an orderly
succession once new members have been recruited.
Ferrexpo’s principal shareholder and CEO, Kostyantin Zhevago,
holds 50.3% of the shares in the Company and his interests remain
fully aligned with all shareholders. Mr Zhevago is a long-term investor
focused on developing a high quality sustainable business. He has
unparalleled experience of operating in Ukraine which can be a
difficult and at times unstable environment. Mr Zhevago’s experience
is of significant value to Ferrexpo and all its shareholders.
The strategy of the Board, including Mr Zhevago, is to operate to best
international standards of governance, transparency and fairness.
people
The Board would like to express its sincere appreciation to all of
Ferrexpo’s employees for their continued hard work and dedication
which has led to another excellent year of progress at the Group.
Brian Maynard, Chief Operating Officer, will be leaving Ferrexpo in
April 2014. Brian has contributed greatly to the Group during his
three years and Ferrexpo wishes him success in his future
endeavours.
outlook
The Group has successfully opened its new mine, FYM, and it is
increasing its annualised production capacity to 12 million tonnes of
pellets which should reduce costs through higher volumes in 2014.
Since the balance sheet date, the Ukrainian Hryvnia has devalued by
16%. This will lower the operating costs which are denominated in
local currency, as expressed in US Dollars, and reduce the carrying
value of assets and liabilities which are also denominated in Hryvnia.
In the first quarter of 2014 iron ore prices have been weak. It is
expected that prices will stabilise but remain volatile for the
remainder of the year. There is a growing demand for higher quality
iron ore feedstock. This trend for premium iron ore is expected to be
driven by greater environmental requirements for steel mills to reduce
their harmful emissions as well as a necessity to compensate for the
growth in lower grade iron ore fines that is becoming increasingly
prevalent. Ferrexpo believes it should benefit from this trend.
Ferrexpo is committed to reducing its unit costs and developing its
substantial resource from own generated cash flows within the
discipline of prudent balance sheet management whilst providing
appropriate dividend returns to shareholders.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
27
s t r a t e g i c
r e p o r t
c.5%
c.30%
O f t h e W O r l d ’ s
b l a c k s Oi l
% O f t h e
W O r l d ’ s
n a t u r a l
r e s O u r c e s
46m
i n h a b i t a n t s
u k r a i n e
kyiv
is ukraine’s capital city.
it is approximately
200 miles from
ferrexpo’s mining
operations in
komsomolsk.
c.30%
c O n t r i b u t i O n f r O M
t h e s t e e l a n d i r O n
O r e i n d u s t r y t O g d p
europe’s largest country,
covering 233,000 square
miles (603,628 square
kilometres) of land. it is
bordered by poland,
slovakia, hungary, romania,
moldova, russia and
belarus.
With a large highly skilled workforce (70% of Ukraine’s 46 million people have a secondary
education or higher), developed transport infrastructure (third biggest rail network in Europe)
and abundant natural resources Ukraine is a competitive European economy.
Ukraine possesses one of the world’s largest reserves of commercial-grade iron ore and a
well-established steel and iron ore industry. Well located to reach the industrial markets of
Europe, the Middle East and Asia due to its position on the northern shores of the Black sea,
it is in an ideal position to export this resource.
Ferrexpo has been a consistent and reliable producer throughout its 40-year history and has
not experienced any significant production disruptions to date.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
28
s t r a t e g i c
r e p o r t
p r i n c i p a l r i s k s
the list of the principal risks and
uncertainties facing the group’s
business that follows below is
based on the board’s current
understanding. due to the very
nature of risk it cannot be expected
to be completely exhaustive. new
risks may emerge and the severity
or probability associated with
known risks may change over time.
we have indicated how our principal
risks would impact our ability to
deliver against our strategy.
develop its resource base
improve the quality of its output
develop its logistics capabilities
maintain a social licence to
operate
evaluate relevant investment
opportunities
develop its customer portfolio
maintain financial discipline
to be a low cost producer
train and develop the group’s
employees
maintain high standards of
corporate governance
r i s k s r e l a t i n g t o o p e r a t i o n s i n u k r a i n e
political and legal (see note 36 in the accounts)
possible impact
Due to rising political instability, Ukraine’s sovereign risk rating has
recently been downgraded by all credit agencies.
Ukraine has a high current account deficit funded by foreign borrowings
and a large external debt refinancing requirement in 2014, while foreign
reserves were reported at US$16 billion as of 28 February 2014.
If the country does not peacefully resolve the current political uncertainty
as well as secure additional financing, there is a risk it may default on its
obligations and potentially increase the cost of funding for Ferrexpo.
Other risks could include a weak judicial system that is susceptible to
outside influence. The Group faces an ongoing legal claim over a
shareholding in Ferrexpo Poltava Mining. The case has been running for
more than six years in Ukraine, and the Directors believe it still has some
way to go. The Board continues to receive legal advice that the case
against Ferrexpo has little legal merit under Ukrainian law for legal,
technical and practical reasons.
associated strategic priority
mitigation
• Management proactively engages with local, regional and central
government. Ferrexpo protects its local and international interests by
ensuring it operates to the very highest international standards and
actively defends its rights.
• At the time of writing, Ferrexpo’s operations remain unaffected by the
current political instability and operations continue to proceed as
planned. Ferrexpo, however, continues to monitor closely the current
situation as it is volatile.
• The Group’s priority continues to be to maintain production and
supply its first class customer base with high quality premium iron ore
product, as it has done throughout its 40-year production history.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
29
s t r a t e g i c
r e p o r t
ukrainian producer price inflation (‘ppi’)
possible impact
As the Group’s operations are in Ukraine it is exposed to cost inflation.
Ukraine has experienced high levels of inflation over a number of years.
The inflationary environment increases local costs if not mitigated by
a devaluation of the Ukrainian currency and operational efficiency
improvements.
mitigation
• The Group’s BIP has achieved continuing efficiency improvements
and cost reductions over many years. Since inception of BIP in 2006,
the cash cost of production has reduced by US$8.6 per tonne of
pellets. The Group also has a consistent track record of producing at
full capacity to achieve maximum overhead absorption and is set to
expand production output in 2013.
associated strategic priority
ukrainian vat receivable (see note 26 in the accounts)
possible impact
As the bulk of the Group’s output is exported, it does not collect
substantial amounts of VAT on sales (which could otherwise be offset
against VAT incurred on purchases of goods and services for operating
and investment activities). The Ukrainian government refunds the
outstanding balance of VAT, although not always on a timely basis. The
late repayment of VAT results in increased working capital, which must
be funded from operating cash flows and debt. Ukrainian VAT balances
are exposed to a risk of devaluation of the UAH.
As of 31 December 2013, Ferrexpo was owed US$318 million of VAT by
the Ukrainian government, of which US$146 million was overdue relating
to 2012 and prior financial years. In addition to this overdue balance,
US$102 million is in dispute in the court system. The Group has
recorded a total provision in respect of the overdue and disputed VAT
amounts of US$60 million.
associated strategic priority
ukrainian taxes
possible impact
The Group is exposed to changes in local tax laws especially in Ukraine.
During the year new transfer pricing regulations were implemented.
Ukrainian tax laws are complex and subject to varying interpretations,
and inconsistent enforcement by local, regional and national authorities.
Tax authorities can challenge the Group’s interpretation and treatment of
these laws resulting in increased tax liabilities owed by the Group.
As part of an agreement with the majority of industry players in Ukraine
the tax authorities have been remitting regular VAT refunds in 2013 in
exchange for the partial pre-payment of corporate profit tax in respect of
future periods. In 2013, Ferrexpo paid US$63 million in this respect
resulting in a year-end balance of US$88 million (2012: US$25 million).
associated strategic priority
counterparty risk (see notes 34 and 37 in the accounts)
mitigation
• The Group maintains an open dialogue with the government and
operates to best international standards, ensuring the validity of
the VAT repayments.
mitigation
• The Group takes regular advice on tax matters from Ukraine tax
experts and complies with all known requirements. The Group
maintains a transparent and open relationship with local, regional and
national tax authorities.
possible impact
The Group operates in Ukraine which has a weak country credit
profile as defined by international credit rating agencies. Financial
instability of the Group’s counterparties, including its major suppliers,
Ukrainian government, local banks and a weak banking sector can
absorb high amounts of working capital. Counterparty risk could also
lead to lower sales volumes, delays in projects and interruption of
production or financial loss in the event of a default by counterparties
and adversely affect its future financial results.
mitigation
• The financial strength of all of the Group’s counterparties is subject to
regular and thorough review. The results of these reviews are used to
determine appropriate levels of exposures consistent with benefits
obtained in order to mitigate the potential risk of financial loss. The
Group has not experienced any financial losses from transactions
with its counterparties.
• The Group regularly reviews its supplier base in order to avoid
excessive dependence on any supplier, actively encouraging a
diversity of supply where reasonable and practical.
associated strategic priority
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
30
s t r a t e g i c
r e p o r t
p r i n c i p a l r i s k s continued
develop its resource base
improve the quality of its output
develop its logistics capabilities
maintain a social licence to
operate
evaluate relevant investment
opportunities
develop its customer portfolio
maintain financial discipline
to be a low cost producer
train and develop the group’s
employees
maintain high standards of
corporate governance
r i s k s r e l a t i n g t o t h e g r o u p ’ s o p e r a t i o n s
iron ore prices and market
possible impact
Fluctuations in iron ore prices as well as in demand may negatively
impact the financial result of the Group.
associated strategic priority
mining risks and hazards
mitigation
• Ferrexpo has a competitive cost base which has enabled it to
produce at full capacity and remain profitable throughout the
commodities cycle.
• The Group has an established, broad customer base and logistics
infrastructure which can service regional and seaborne markets.
This provides flexibility should a particular region experience a
decline in demand.
possible impact
Mining risks and hazards may result in employee and contractor fatalities
as well as material mine or plant shutdowns or periods of reduced
production. Such events could damage the Group’s reputation and
operating results.
mitigation
• Safety, environmental and operational performance is regularly and
rigorously reviewed throughout the organisation including the COO,
the Executive Committee and the Board.
• Through its capital investment programme Ferrexpo is modernising
associated strategic priority
reliance on state monopolies
possible impact
The Group purchases certain goods and services from state-owned
enterprises, and changes in the related tariffs affect the Group’s cost
base. Availability of services can also be limited, which could affect the
Group’s ability to produce and deliver pellets. Examples include railway
tariffs and availability of rail wagons, supply of gas and electricity and
associated tariffs, and mining royalties.
associated strategic priority
its mining and production facilities which is improving safety,
environmental and operational performance.
• All accidents are fully investigated and lessons are drawn and
implemented.
• Appropriate safety training is regularly provided to employees.
• Employee remuneration is linked to safety performance.
mitigation
• The factors affecting the Group’s future cost structure are closely
managed.
• Cost reduction initiatives are planned and reported to the Board.
• Since inception of BIP in 2006, it has reduced the C1 cash cost
by US$8.6 per tonne of pellets.
• The Group has purchased its own rail wagons to reduce reliance
on state-owned rail cars.
• The Group sourced alternative gas supplies in January 2009 when
there were gas price disputes between Russia and Ukraine.
• Ferrexpo actively looks to invest in areas to reduce reliance on state
monopolies.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
31
s t r a t e g i c
r e p o r t
logistics
possible impact
The Group’s logistics capability is dependent on services provided by
third parties and state-owned organisations, mainly in relation to rail and
port services. Logistical bottlenecks may affect the Group’s ability to
distribute its products on time, impacting customer relationships.
mitigation
• The Group continues to invest in its logistics capabilities in order to
ensure available capacity, better service its customers, lower costs
and to reduce reliance on third-party providers. Beside considerable
investment in the rail car fleet over recent years, Ferrexpo owns 145
barges operating on the Danube/Rhine River corridor. It also owns a
48.6% in the port of TIS Ruda which guarantees the Group
independent access to the seaborne markets avoiding reliance on
the state port.
associated strategic priority
r i s k s r e l a t i n g t o t h e g r o u p ’ s s t r a t e g y
expansion capital investment
possible impact
The Group’s growth depends on its ability to upgrade existing facilities
and develop its iron ore resource base. For any major capital project
there is a risk of insufficient controls, cost overruns, shortage of required
skills, and unexpected technical problems affecting the time taken to
complete the project and the return on the capital invested.
associated strategic priority
government approvals of expansion
possible impact
The Group does not yet have all the governmental approvals required to
develop future deposits. Although all approvals that have been applied
for have been granted, there is no guarantee that others will be granted
in the future.
associated strategic priority
investment opportunities
possible impact
Ferrexpo evaluates and, if it believes appropriate, enters into net present
value opportunities which it believes are potentially value accretive to the
Company and can reduce future operating risk.
There is a risk that Ferrexpo may make acquisitions or investments,
which may not be accretive to earnings or otherwise meet its operational
or strategic expectations. In addition such an investment or acquisition
may divert management’s attention away from ongoing business
activities.
associated strategic priority
mitigation
• The Group has established strict procedures to control, monitor
and manage this expenditure which is regularly reviewed by the
Investment and Executive Committee and the Board.
mitigation
• Ferrexpo maintains an open and proactive relationship with various
governmental authorities and is fully aware of the importance of
compliance with local legislation and standards.
• The Group monitors and reviews its commitments under its various
mining licences in order to ensure that the conditions contained
within the licences are fulfilled or the appropriate waivers obtained.
Ferrexpo maintains strict compliance with the Ukrainian mining code
and execution of work in accordance with the project design through
active engagement of Ukrainian and international legal advisers.
mitigation
• Management has procedures in place to ensure any potential
investment opportunity undergoes thorough due diligence and meets
strict financial criteria. All investment decisions are approved by the
Board.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
32
s t r a t e g i c
r e p o r t
f i n a n c i a l r e v i e w
US$ million (unless otherwise stated)
year ended 31.12.13
Year ended 31.12.121
Change
Revenue
EBITDA2
As % of revenue
Profit before taxation
Income tax
Profit for the period
Diluted earnings per share (US cents)
Final dividend per share (US cents)
Special dividend per share (US cents)
1,581
505.9
32.0%
305.4
41.6
263.8
44.69
3.3
6.6
1,424
405.4
28.5%
265.7
47.1
218.6
37.08
3.3
6.6
11.0%
24.8%
14.9%
(11.7%)
20.7%
20.5%
–
–
1 As a result of the retrospective application of the amendments to IAS 19, the pension cost for the year ended 31 December 2012 was adjusted and
had a positive effect of US$3.9 million on the previously disclosed EBITDA figures.
2 The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation and amortisation and non-recurring
exceptional items included in other income and other expenses, share-based payment expenses and the net of gains and losses from disposal of
investments, property, plant and equipment. See note 5 on page 104 for further information.
Chris Mawe,
Chief Financial Officer
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 33
s t r a t e g i c
r e p o r t
revenue
Total revenue increased by 11.1% to US$1.6 billion for the year ended
2013 compared to US$1.4 billion in 2012. The increase was driven
by a 10.5% growth in sales volumes to 10.7 million tonnes (2012: 9.7
million tonnes) as well as a 4% improvement in the Group’s received
price in line with the industry benchmark price which increased on
average by US$5 per tonne (2013 CFR Platts 62% fines China:
US$135 per tonne versus 2012 CFR Platts 62% fines China: US$130
per tonne).
Other revenue, not related to pellet sales was broadly stable year on
year and amounted to US$86.5 million (2012: US$94.0 million). This
included revenue from third-party services, such as bunker fuel sales
and freight services at the Group’s logistics operations as well as
sales of gravel.
cost of sales
Total cost of sales for the year ended 31 December 2013 was
US$773.2 million (2012: US$690.7 million). Cost of sales consists
of the C1 cash cost of sales, the cost of sales of the logistics and
bunker business, depreciation as well as the cost of production from
third-party concentrate. Increases in the year related to production
growth along with an increase in depreciation following the
commencement of operations at the FYM mine.
c1 cash cost
The C1 cash cost of production per tonne is defined as the cash
costs of production of pellets from own ore divided by production
volume of own ore, and excludes non-cash costs such as
depreciation, costs of purchased ore, concentrate and production
cost of gravel.
Overall, C1 costs in 2013 were in line with 2012 at US$59.8 per
tonne (2012: US$59.6 per tonne). This reflected increases in
electricity tariffs which increased to 9.2 US cents per kWh (2012: 8.6
US cents per kWh) and royalties attached to FYM ore, offset partly
by slightly reduced costs in other categories particularly oil and gas.
The Hryvnia was stable during the year. Against this backdrop, the
C1 cost declined in each quarter of the year following the ramp up of
production at FYM in the first quarter and the start of full commercial
production from FYM ore in Q3. The C1 cost in 4Q 2013 was 10%
lower than the peak which was reached in 1Q 2013. This is shown in
the table below:
1Q 2013
2Q 2013
3Q 2013
Q4 2013
FY 2013
FY 2012
C1 cash cost of
production
63.9
59.8
58.2
57.6
59.8
59.6
The mining and processing of FYM ore has had a positive impact
on the Group’s overall production cost through increased volume
efficiencies, lower mining costs and the addition of higher grade
ore which combined with efficiency improvements at FPM resulting
from the BIP and capital investment programmes has resulted in
lower costs.
The split of C1 costs by category are shown below:
C1 Cash Costs
Electricity – 24%
Gas – 13%
Fuel – 12%
Grinding media – 7%
Explosives – 4%
Other materials – 12%
Spare part, maintenance and consumables – 15%
Personnel costs – 11%
Royalties and levies – 2%
gross margin
The Group’s gross margin was 51.1% in 2013 in line with 2012
(2012: 51.5%). This reflected higher sales volumes and prices with
the margin unchanged as a result of stable C1 costs and increased
depreciation due to projects being bought into production.
selling and distribution expenses
Selling and distribution expenses were US$335.7 million in 2013
compared to US$312.0 million in 2012 driven by increased volumes
and higher market rates for capesize vessels offset by logistics cost
saving as a result of capital investments in ship loading top-off
facilities, the use of more capesize vessels and rail cars compared
to 2012.
DAP/FOB distribution costs incurred in delivering product to the
Ukrainian border were US$154.2 million (2012: US$140.4 million),
equating to US$14.4 per tonne in line with 2012. These costs
primarily include railway freight to the southern ports at Yuzhny and
Izmail and ocean freight to Constanta, as well as port charges and
railway freight to the western Ukrainian border. Rail tariff cost inflation
was 4.6% in 2013 which was mitigated by lower costs associated
with using own rail cars which increased by 267 units to 2,200 units
during the year.
International freight costs to seaborne markets, which are also
reflected as part of revenue on associated CFR sales, amounted
to US$114.4 million in line with 2012 (2012: US$113.5 million). This
reflected an increase in seaborne sales volumes offset by the freight
savings achieved by the Group during the year through enhanced
port capacity, increased use of capesize vessels and improved
scheduling.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
34
s t r a t e g i c
r e p o r t
f i n a n c i a l r e v i e w continued
The Group loaded 5.9 million tonnes of pellets at its port facilities in
2013, an increase of 55% compared to 3.8 million tonnes loaded in
2012. The introduction of Iron Destiny, the Group’s top-off vessel,
helped improve throughput at the port and reduced freight costs
to Asia by US$2.30 per tonne in 2013.
selling and distribution expenses
US$ million
International freight for pellets
Railway transportation
Port charges
Other pellet transportation costs
(commissions, insurances, personnel)
Cost of logistics business
Advertising
Depreciation
Other
Total selling and distribution expenses
Total sales volume (thousand tonne)
Cost per tonne of pellets sold
(including international freight)
DAP/FOB distribution costs per tonne of
pellets sold
year ended
31.12.13
Year ended
31.12.12
114.4
108.2
31.1
13.1
33.0
12.2
14.1
9.7
335.7
10,689
31.4
14.4
113.5
93.4
31.9
18.6
27.5
9.6
9.8
7.5
312.0
9,675
32.2
14.5
In 2012, finance expense included a US$20.0 million discount to
reflect the time value of money on outstanding VAT balances in
Ukraine that were expected to be recovered after more than one
year. This discount has been increased by US$3.7 million in 2013,
with a further US$36.4 million reflected separately in the income
statement. Further information in respect of the VAT situation in
Ukraine is provided in the VAT section below and in note 26 to
the accounts.
income tax expense
The income tax expense in 2013 was US$41.6 million compared to
US$47.1 million in 2012.
The effective tax rate in 2013 was 13.6% (2012: 17.8%). This reduction
mainly reflects the lower tax rate in Ukraine which reduced from 21%
in 2012 to 19% in 2013.
cash flows
working capital
Working capital increased by US$103.0 million in 2013, mainly
reflecting a US$88.5 million increase in inventories due to the
stockpiling of FPM ore which is expected to be processed in 2015
following the completion of the quality upgrade project. Other
working capital increased by US$14.5 million principally due to
higher trade receivables reflecting higher volumes and prices.
general and administrative expenses and other expenses
General and administrative expenses were US$5.1 per tonne sold
in 2013 compared to US$5.8 per tonne in 2012. The improvement
reflects higher sales volumes and lower costs of US$54.8 million
compared to 2012 (2012: US$56.3 million).
Other expenses were US$6.7 million below the prior year mainly as
a result of lower community support donations due to the timing of
project completions in the prior year.
ebitda
EBITDA increased 24.8% or by US$100.5 million to US$505.9 million
in 2013 compared to US$405.4 million in 2012. The increase was
due to strong growth in sales volumes, higher market pricing and
stable C1 costs,
finance income and expense
Finance income was US$2.4 million (2012: US$2.6 million) reflecting
lower average cash balances. The average cash balance in 2013
was US$435.6 million compared to US$743.4 million in 2012.
Net debt at 31 December 2013 was US$638.7 million (31 December
2012: US$423.4 million) while gross debt was US$1,029.2 million
(31 December 2012: US$1,020.0 million).
Finance expense was US$66.0 million (2012: US$88.2 million). The
average cost of Group debt for the period was 5.15% compared to
an average of 5.24% in 2012.
vat
In 2013, the Group received 11 monthly VAT refunds for FPM and
first refunds for FYM, taking the outstanding VAT balance as of 31
December 2013 to US$318.2 million (31 December 2012: US$301.5
million). In January 2014, the Group received VAT repayments for
December 2013 and January 2014. As of 31 January 2014, the gross
VAT outstanding balance was US$291.4 million. The Group did not
receive a VAT refund in February 2014.
The amount of VAT outstanding from 2012 and prior years is
US$145.7 million. Management believe that this will be recovered
within the next year, possibly through the issue of financial
instruments, as has been the practice in the past. There is no fully
reliable way to estimate the ultimate amount of recoverability,
however, it is believed that if financial instruments were to be issued
they would trade at a discount for which an appropriate provision of
US$36.4 million has been recorded as of 31 December 2013
(disclosed separately in the income statement).
The provision recorded in respect of the total outstanding VAT
balances amounts to US$60.1 million as of 31 December 2013
(2012: US$20.0 million). This includes a discount of US$23.7 million
to reflect the time value of money on outstanding VAT balances in
Ukraine that are expected to be recovered after more than one year
and the provision of US$36.4 million (2012: nil).
full details on the ukrainian vat receivable are disclosed
in note 26 to the accounts.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 35
s t r a t e g i c
r e p o r t
group liquidity and debt
In 2013, Ferrexpo maintained prudent financial metrics. As of
31 December 2013, net debt to EBITDA was 1.3x at year end
compared to 1.1x for the same period in 2012.
summary of group liquidity and debt
US$ million
Cash and cash equivalents
Gross debt
Net debt
Total equity
Undrawn facilities1
Total liquidity (undrawn facilities plus cash)
as of
31.12.13
As of
31.12.12
390.5
(1,029.2)
(638.7)
1,735.0
280.0
670.5
596.6
(1,020.0)
(423.4)
1,547.4
–
596.6
1 Ferrexpo secured a new pre-export finance (‘PXF’) facility in 2013 for US$350 million
maturing in 2018. This facility remains undrawn and as of 31 December 2013,
US$280 million of the US$350 million was available. Once repayment of Ferrexpo’s
US$420 million PXF facility commences in 2014 the remaining US$70 million of the
US$350 million PXF will become available. Ferrexpo can use the new facility to extend
the maturity of its US$420 million PXF should it wish.
Net debt at year end was US$638.7 million (31 December 2012:
US$423.4 million) of which approximately 63% had been used to
finance outstanding VAT receivables and pre-paid corporate profit tax.
In 2013, Ferrexpo secured a new revolving credit facility of
US$350 million. The facility has a forward start date of no later than
1 September 2014 with a four year tenor, including two years of
amortisation, and carries a cost of 325bps above US LIBOR. This
facility may be used to repay the Group’s existing US$420 million
bank facility which commences its two year amortization period
in September 2014 maturing on 31 August 2016.
pre-paid corporate profit tax
As part of an agreement with the majority of companies in Ukraine
the tax authorities have been remitting regular VAT refunds in 2013
in exchange for the pre-payment of corporate profit tax in respect of
future periods. In 2013, Ferrexpo paid US$62.6 million resulting in a
US$87.5 million prepayment as of 31 December 2013 (2012 pre-paid
corporate profit tax: US$24.9 million).
net cash flow
Net cash flow from operating activities was US$232.9 million
representing a 96% increase over 2012 (2012: US$118.6 million). This
was principally due to higher EBITDA and regular VAT refunds which
compensated for the pre-payments of corporate profit tax.
capital investment
Total capital investment for 2013 was US$277.8 million compared
to US$429.3 million for 2012. The reduction in spend largely reflects
the near completion of the Group’s US$647 million programme. This
was approved in November 2010 to increase the volume and quality
of its pellet output to 12 million tonnes and 65% Fe respectively. The
level of capital expenditure also reflects savings on projects. Overall,
capital commitments were US$103.0 million at the year end, in line
with 2012.
In 2013, sustaining capital expenditure was US$86.7 million (2012:
US$113.5 million) for the Group, of which US$81.0 million was
invested at FPM (2012: US$108.4 million). This included US$19.8
million for the capacity upgrade project.
The remaining US$5.7 million of sustaining capex in 2013 was
principally invested in the Group’s barge fleet (2012: US$5.1 million).
Capital investment in FPM’s development projects during the year
was US$61.9 million (2012: US$83.7 million) while development
expenditure at FYM was US$100.3 million (2012: US$146.3 million).
acquisitions
In 2013, Ferrexpo acquired a stake in Ferrous Resources, a
producing iron ore company operating in the iron ore quadrangle
of the Minas Gerais region of Brazil. Total consideration for the stake
was approximately US$82.4 million. Ferrexpo currently owns 15.5%
of the company.
dividends
The Group paid dividends, gross of applicable withholding taxes,
of US$77.9 million in 2013 (2012: US$38.7 million) which included a
US$39.1 million ordinary payment and a US$38.7 million special
dividend relating to 2012.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 36
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y
“ FPM continues to improve its safety systems using knowledge gained from
international best practice. We are modernising our mine and processing
plants to increase productivity and optimise our energy consumption. The
ongoing success of our business provides for a sustainable employee and
community development programme.”
“ FYM was brought into commercial production in 2013 with the employment
of over 1,000 individuals. Local and national contractors worked to establish
world class standards of mining, maintenance and administrative
infrastructure. Through the engagement of the community and regional
stakeholders FYM was able to gain approvals to construct a 10mtpa iron ore
concentrator. Once constructed, this facility will ensure that a great mineral
resource continues to share many benefits with employees, future
employees and the surrounding communities for many decades to come.”
“ FBM is a potential new mining and processing resource that is undergoing
technical, environmental and community reviews in order to establish a
business case for future development. The knowledge and experience
gained from FPM and FYM have been taken into account so as to minimise
the impact on the environment and maximise the positive impact on future
employees and nearby communities.”
Victor lotous
Chief Operating Officer of Ferrexpo
Poltava Mining (‘FPM’)
nikolay goroshko
General Director of Ferrexpo Yeristovo
Mining (‘FYM’)
bob garrick
General Manager of Ferrexpo Belanovo
Mining (‘FBM’)
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 37
S t r a t e g i c
re p o r t
governance
the corporate Safety and Social responsibility committee
The Group has a Corporate Safety and Social Responsibility
Committee (the ‘CSR Committee’) which is a sub-committee of the
main Board and includes two Board members and two senior
executives. It monitors the implementation of CSR policies.
The CSR Committee is chaired by Brian Maynard (Group Chief
Operating Officer). The other members of the CSR Committee
are Michael Abrahams (Chairman of the Board), Kostyantin
Zhevago (Chief Executive Officer) and Viktor Lotous (FPM Chief
Operating Officer). To assist them in the exercise of their duties,
the CSR Committee will, from time to time, engage specialist
technical advisers.
During the year the matters considered by the CSR Committee
included the following:
• A review of the main CSR risks facing Ferrexpo (see the ‘Principal
Risks’ section of this report on page 28) and how they are being
managed.
• A review of the work being done to implement the greenhouse
gas emissions reporting regulations in the UK.
• A review of health and safety, human resources, community
support projects, environmental protection measures, and
progress in improving the use of natural resources.
• A review of Ferrexpo’s environmental and social risk profile from
the investor’s point of view.
Stakeholder engagement
Stakeholders
Stakeholders are those groups or individuals who are significantly
affected by Ferrexpo’s activities or those whose actions may affect
the ability of the Group to implement its strategies and objectives.
The stakeholder groups that the Group engages with are described
below.
Shareholders and the investment community
Directors and senior executives have frequent discussions with
institutional investors and major shareholders on a range of issues
including performance, strategy and governance. The Head of
Investor Relations manages programmes and communications,
particularly at the time of the full and half-year results
announcements when presentations are given to analysts, brokers
and major shareholders. The Annual General Meeting is an
important event in the calendar, giving all shareholders the
opportunity to engage directly with Directors and management.
customers and Suppliers
Ferrexpo has had successful business relationships with several of
its customers for over 20 years. Marketing plays an important role in
developing new relationships in order to diversify the customer base
in anticipation of the planned increase in production.
Shareholders and investment
community
– Annual Report and Accounts
– Website
– Analyst and investor meetings and
conferences
– Annual General Meeting
– Written communication and email
– Presentations
– Site visits
customers and Suppliers
– Written communication and email
– Face-to-face
– Annual Report and Accounts
– Networking at conferences
How
Ferrexpo
engages
with its
Stakeholders
local communities
– Sponsorship (finance and know-
how)
– Funding of community projects
– Local TV
– Local press articles and interviews
– Site visits
government (national and local)
– Written communication and email
– Face-to-face
– Site visits
– Audits and inspections
– Annual Report and Accounts
employees and trade Unions
– Face-to-face regular meetings with
employees and unions
– Information boards around the site
– Training
– Written communication and email
– Surveys
– Special programmes (e.g. anti-
bribery procedure training)
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 38
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
employee engagement
A reputation for integrity and responsible behaviour underpins
Ferrexpo’s commercial performance and is gained by motivating
employees and building trust and goodwill. Employee engagement
starts at a personal level when employees begin their employment
through an established induction programme, and continues
throughout their period of employment with the Company. It takes a
variety of forms according to circumstances – from face-to-face
discussions between employees and their supervisors to formal
Group training programmes, from job-specific training to events for
ensuring compliance with legal or regulatory requirements (such as
that undertaken in 2011 and repeated in 2013 in implementing
anti-bribery procedures across the Group).
In addition, all employees are communicated with through Ferrexpo’s
formal internal communication system. This system includes use of
bulletin boards, monthly publications and ‘tool-box’ talks at the start
of each shift. Important information is also communicated through
Ferrexpo memoranda. In general, either an operations Director or
senior manager is responsible for issuing these formal communiqués
to the relevant employees.
Two-way communication is also encouraged, with employees
providing feedback through their line managers or through
occasional employee surveys.
employee representation
At FPM approximately 90% of the workforce is represented by a
single labour union, while at FYM employees are represented by
an employee representative forum consisting of both management
nominated and employee elected representatives. Positive
engagement with employees and the labour union is maintained
through established forums and communication structures. In 2013,
the Company continued to enjoy positive labour stability without any
disruption to production.
On various matters of mutual interest to Ferrexpo and its employees,
management regularly consults and communicates with employees
belonging to the labour union or represented by the employee
representative forum through transparent partnership and
communication structures. Minutes from formal meetings are
published to ensure that all the relevant employees of the applicable
business operation are kept clearly and meaningfully informed on
issues currently under discussion.
The labour union and employee representative forum also consult
directly and provide feedback to their members at membership
meetings. The Company provides the necessary resources for these
meetings to enable these employee representative organisations to
brief their members on important employee and Group matters.
respect for Human rights
Ferrexpo is committed to the adoption of fair labour practices at
its workplaces: the Group’s conditions of service comply with
applicable laws and industry standards.
Ferrexpo promotes workplace equality and seeks to eliminate all
forms of unfair discrimination.
The Group does not tolerate inhumane treatment of employees,
including any form of forced labour, physical punishment, or
other abuse.
Ferrexpo prohibits the use of child labour.
The Group recognises the right of its employees to freedom
of association.
Ferrexpo operates fair and appropriate means for the determination
of terms of conditions of employment.
The Group provides appropriate procedures for the protection of
workplace rights and its employees’ interests.
Ferrexpo provides employees with opportunities of enhancing their
skills and capabilities, enabling them to develop fulfilling careers
and to maximise their contribution to the business.
Ferrexpo respects human dignity and the rights of individuals and
of the communities associated with its operations. The Group
seeks to make contributions to the economic, social, and
educational wellbeing of these communities by means that include
sponsoring local community events and providing opportunities
for employment to workers from the communities surrounding the
Group’s operations.
Ferrexpo believes that it has the right and the responsibility to
make its position known to governments on any matters that
affect its employees, shareholders, customers, or the communities
associated with its operations.
While the primary responsibility for the protection of human rights
lies with governments and international organisations, where it is
within the Group’s power to do so Ferrexpo seeks to promote the
observance of human rights in the countries where it operates.
The Group supports the principles set out in the Universal
Declaration of Human Rights.
Ferrexpo respects the personal participation of its employees
in the democratic political process and their right to absolute
privacy with regard to personal political activity. The Company
will not attempt to influence any such activity, provided there is
no disruption to workplace activities and that it does not contribute
to industrial unrest.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 39
S t r a t e g i c
re p o r t
The recent civil unrest experienced in some parts of Ukraine did not
impact the areas surrounding Ferrexpo’s operations.
At the same time, the right to equal opportunities and fairness is
recognised. Approximately 27% of the Group’s total workforce is
composed of women as can be seen from the table below.
Protection services are supplied to the Group through an external
contract security company. The protection services supplier
ensures that its personnel take cognisance of Ferrexpo’s stance
on human rights, especially in relation to procedures of search,
arrest and charging.
local communities
Ferrexpo recognises that a regular dialogue with the communities
affected by its operations, in which many employees also live, is an
important element in minimising the risk of local hostility or disruption
to operations. Ferrexpo has a positive impact on local communities
through being a major employer. As a mining company, it also
recognises the sensitivities that surround the occasional necessary
displacement of small communities by its operations, and those
operations’ impact on the physical landscape. It works hard to
maintain dialogue with local communities and has a dedicated
department through which communications are channelled.
Support for local projects and community events is a further element
of community engagement. The structure and objectives of
community engagement are defined for all operations, where this is
relevant, and clear management accountability and success criteria
have been identified.
government (national and local)
Engagement with local and national government is open and
proactive. Communication often revolves around project
implementation and land acquisition, as well as routine submission
of information as required by the authorities.
Diversity
Ferrexpo believes that by building an inclusive culture it benefits from
the many advantages of a richly diverse workforce. Being able to
draw on diverse experiences, perspectives and approaches
encourages innovation and can be a source of competitive
differentiation. The Group’s efforts in this area therefore endeavour to
create an inclusive culture where all employees feel appreciated for
their uniqueness and the contribution they make to the Company.
In this important area, the need to increase the number of women in
the workforce remains a key challenge. Mining as a career remains
the choice of few women in Ukraine as a consequence of a mixture
of historical and cultural factors, such as the need to work shifts, and
legislative restrictions in Ukraine that prevent women from working
in potentially hazardous areas. The Group acknowledges that it has
an important task ahead in finding effective ways to attract more
women into careers in mining. Notwithstanding this, Ferrexpo
recognises that it has a duty of care to provide a system of work that
is safe for women of reproductive age, their unborn children, and
working mothers who are breastfeeding.
number of employees
Employees
% of workforce
Directors of Ferrexpo plc
EXCO members
Other key management
Female
2,651
27%
–
–
8
Male
7,045
73%
8
5
53
total
9,696
–
8
5
61
training
Human resource development is a core component of Ferrexpo’s
human resources and business strategies. Our investment in skills
training initiatives is significant, with the objective of ensuring that
the Company is resourced with people with appropriate skills to
contribute to Ferrexpo’s performance and results.
Human resource development primarily takes place through the
Ferrexpo Training and Development Centre in Komsomolsk, which
delivers core technical, mining, information technology, and labour
safety training to both employees and contractors. Training in theory
is followed up through practical application and formal assessment
in the workplace.
Healthcare
Comprehensive, quality healthcare is available to all Ferrexpo
employees and their dependants through a fully equipped company
funded hospital at FPM. In addition, the Group has a well-developed
system of occupational healthcare services, including annual health
screening for all employees working in hazardous areas and
an annual assessment of hazardous areas where employees are
required to work.
contractors
Contractor staff working on Ferrexpo’s sites are subject to agreed
minimum performance requirements between their employers and
Ferrexpo that cover, inter alia, compliance with labour legislation,
labour safety and environmental protection. For example, all
contractor staff are required to undergo appropriate safety induction
programmes before being allowed to work on the site. Ferrexpo
requires adherence to these principles by its business partners,
and their willingness to accept these principles is an important
factor in the Company’s decisions to enter into, and remain in,
such relationships.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
40
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
S t r a t e g y
cSr Strategy
Set out below are the short, medium and long-term CSR goals for the Group.
Short-term (1–2 years)
Progress
Medium-term (3–5 years)
Progress
Long-term (5 years+)
Health and
Safety
Reduce/eliminate recurring injuries
through improvement in safe
workplace behaviour
Implement effective systems to
ensure compliance with the Group’s
safety standards
Implement hazardous operations
analysis and risk assessment
processes to drive best practice
employees
Increase availability of improved
living accommodation
Increase employee
development programmes
Integrate recruitment and
retention systems
environment Keep controlled emissions (dust, gas
and effluent) below permitted limits
and reduce further where possible
Adapt production techniques so
as to minimise use of inputs and
minimise waste
Increase productive output
while reducing the impact on
the environment through new
processes and technology
Align the growth of operations with
land acquisition and city planning
processes for rural and urban living
Work jointly with local communities
to create new infrastructure, social
programmes and leisure activities
community
Improve workplace conditions
through the implementation of
modern equipment and processes
Contribute to the development
of the education and skills of the
local population, and support
the modernisation of local
community infrastructure and
services, in order to develop and
maintain the local labour pool
Conduct successful negotiations
with local communities in order
to facilitate land acquisition
for mining infrastructure
Key
achieved
in progress
not achieved
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 41
S t r a t e g i c
re p o r t
H e a l t H a n D S aF e t y
p o l i c y
g o a l S
Ferrexpo’s goal is to develop a culture in which safe production is recognised as
cost-effective, and which leads to improved workplace conditions and behaviour.
The objective (originally set in 2009) of achieving the best mining safety record in
Ukraine is supported by targets including a reduction of 5% in the lost-time injury
frequency rate (‘LTIFR’).
In 2013, management continued the task of further reinforcing the safety culture
at Ferrexpo. During the year, it concentrated on implementing a programme of
addressing high potential hazards in the workplace. The link between safety
performance and staff remuneration (safety KPIs now apply to all staff down
to middle management level) continues to be operated.
The prevention of injuries to employees is the highest priority of the Board and
management. Policies and practices at all levels reflect this.
Within the operating assets, accountability for health and safety performance lies
with senior line management.
All operating assets are required to develop and implement health and safety
management systems in line with Group policy, including performance management.
Performance metrics will reflect the Group’s commitment to strive to achieve the
highest standards of health and safety performance.
Senior line management is responsible for ensuring that adequate resources are
committed to health and safety. They have an obligation to secure their resources
through the Group’s planning and budgeting processes.
Adequate health and safety training will be given to all employees and contractors.
Specific focus needs to be applied to behavioural safety at all levels, to fatal risk
prevention and to the major industrial health hazards associated with our operations.
Employees are personally responsible for their own safety and that of their
colleagues.
S t r a t e g y
Short-term (1–2 years)
Progress
Medium-term (3–5 years)
Progress
Long-term (5 years+)
Reduce/eliminate recurring injuries through
improvement in safe workplace behaviour
Implement effective systems to ensure
compliance with the Company’s safety
standards
Implement hazardous operations analysis
and risk assessment processes to drive
best practice
p e rF o r m a n c e
Short-term performance
Most regrettably a contractor died at the Group’s operations in 2013.
The fatality occurred when the contractor was placing concrete on
the roof of a new control room, on the top floor of the new flotation
building. While performing these duties his shoulder came in contact
with an electrical conductor on the overhead crane, and he suffered
a fatal electric shock. The state regulator (Labour Safety) investigated
the incident and issued a number of findings and recommendations.
The systems for Contractor Safety Management are being modified
in order to address the deficiencies. The prevention of injuries to
employees is the highest priority of the Board and management,
who follow the principle that all accidents are avoidable.
During the year, injuries in the workplace were reduced as can be
seen in the table below:
LTIFR1
Fatal accidents
Total accidents
Lost days
2013
0.64
1
10
758
2012
0.66
0
10
338
2011
0.77
0
11
469
2010
1.46
1
20
916
1 LTIFR – number of work-related lost time injuries per million man hours (not including
contractors).
The number of lost days increased due to specifics of the received
injuries which required more days for recovery.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
42
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
An FPM employee
Number of Accidents at the Group’s Mining Operations
80
70
60
50
40
30
20
10
0
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
The accident rate in Ferrexpo’s operations has fallen.
Staff are trained in health and safety matters as part of their general
technical training. In 2013, safety training was provided to 4,117
employees at the Group’s mining operations.
Ferrexpo is pleased to announce that in 2013, FPM was awarded
second place in the category ‘Cultural Evolution in Safety or
Sustainability’ by DuPont at its annual Safety and Sustainability
Awards. The award evaluated companies from 17 countries. DuPont
believe the award reflects FPM’s determination to continue to
improve is safety record in line with industry best practice.
contractor Safety
During the year, a mandatory personal protective equipment
(‘PPE’) policy was implemented for all contractors. The Group also
implemented a contractual clause that outlines the monetary
penalties for contractors that do not follow Ferrexpo’s safety
requirements. Furthermore, there is now a requirement to review all
the contractor’s own safety programmes during the tender process
and random safety audits of contractor safety behaviour are being
carried out in the workplace.
medium-term performance
The Group aims to continue to address high potential hazards in
the workplace such as overhead cranes, explosives and electricity
dangers.
There was a significant increase in the availability of PPE during the
year which Ferrexpo believes has led to a noticeable improvement
in contractor safety behaviour.
long-term performance
In 2014, FYM plans to commence a hazardous operation and risk
assessment regarding the proposed FYM 10 million tonne per
annum concentrator.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 An FPM employee
43
S t r a t e g i c
re p o r t
e mp l o y e eS
p o l i c y
g o a l S
Ferrexpo’s employment principles include policies and practices on company
standards, security, recruitment, remuneration, equal opportunities and training and
development. These are backed up by subsidiary company employment manuals to
cover local legal and regulatory requirements.
Ferrexpo is aware of the increasing demand for staff with mining expertise in the CIS
countries and elsewhere, and is constantly looking for ways to motivate and retain
its employees by involving a greater number of staff in its employee development
programmes and by ensuring compensation packages remain competitive.
Ferrexpo aims to combine employees’ local knowledge with modern technology
so as to enhance the capacity and utilisation of its physical plant and equipment.
S t r a t e g y
Short-term (1–2 years)
Progress
Medium-term (3–5 years)
Progress
Long-term (5 years+)
Increase availability of improved living
accommodation
Increase employee development
programmes
Integrate recruitment and retention systems
p e rF o r m a n c e
Short-term performance
A notable achievement in 2013 was the construction and
commissioning of 212 apartments to be allocated to FYM and FPM
employees under the Group’s subsidised housing and social loyalty
programme. The aim of this programme is to motivate and retain
skilled workers within the Company by enabling them to take out
loans for the purchase of accommodation at a subsidised rate of
interest. In Ukraine’s current economic environment the proposed
subsidised rate of 4% per annum is five to six times lower than the
market average. During the year, 135 FYM and FPM employees
joined the programme and purchased apartments in the new
apartment building.
medium-term performance
Ferrexpo’s strategic goal to increase employee development
programmes was ongoing during 2013. The Group provides
technical training for all employees consistent with their duties and
responsibilities. In particular, investment has been made in facilities
for health and safety training. Training takes the form of basic and
specialised training, retraining and refresher training courses, both
internal and external.
number of employees and contractors trained
FPM
FYM
FBM
Total
Employees
Contractors
6,909
680
742
54
–
–
total
7,589
742
54
7,705
680
8,385
long-term performance
As is the norm in Ukraine, the Group does not have individual
contracts with its employees other than with its senior managers.
At FPM, a collective agreement with the representative labour union
is renewed on an annual basis, which states, inter alia, that individual
salaries will be increased at least in line with inflation. Management
believes, having externally benchmarked wages, that wages paid
by the Group are higher than average wages in Ukraine. There has
been no major industrial action or labour dispute at the Company’s
Ukrainian operations since its privatisation in 1995.
Further information on employee numbers is set out in note 35 to
the accounts.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
44
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
e n V i r o n m e n t
p o l i c y
g o a l S
Operating practices and growth plans will be implemented in a manner consistent
with the principles underlying long-term sustainable resource development; Ferrexpo
will always bear in mind the long-term environmental consequences of its actions.
All operating assets are required to develop and implement environmental
management systems, in line with Group policy.
All new capital projects will include environmental risk assessments (according to
International Finance Corporation (‘IFC’) Environmental and Social Performance
Standards) and mitigation plans.
Maximise recovery of iron from ore, tailings and concentrate so as to ensure the
best use of Ferrexpo’s natural resource.
Minimise use of production consumables such as water, electricity, natural gas,
diesel fuel and explosives in order to reduce demand for externally sourced
natural resources.
Use timely investment to sustain existing operations, and develop new projects so
as to allow mineral resource to be converted into new iron ore reserves.
Utilise stripping materials (topsoil, sand, clay, rock) to support the creation of new
plant and transport infrastructure.
Eliminate workplace waste through improved management systems, and utilise
plant facilities to reuse scrap materials.
Monitor processes and employee behaviour in order to minimise waste and by-
product contaminants and improve the condition of plant and equipment.
Monitor dust and gas emissions, and waste effluents in order to keep them below
the permitted limits, and reduce them further wherever possible.
Work with engineers and National Design Institutes to ensure that modernisation
and production growth plans include designs and documentation that reduce
their overall impact on the environment.
Monitor new technologies that could assist in the reprocessing of iron ore tailings.
S t r a t e g y
Short-term (1–2 years)
Progress
Medium-term (3–5 years)
Progress
Long-term (5 years+)
Keep controlled emissions (dust, gas and effluent) below permitted
limits and reduce further where possible
Improve workplace conditions through the implementation of modern
equipment and processes
Adapt production techniques so
as to minimise use of inputs and
minimise waste
Increase productive output
while reducing the impact on the
environment through new processes
and technology
p e rF o r m a n c e
Short-term performance
As can be seen from the table opposite total gas emissions in 2013
declined by 6.6% despite an 11.6% increase in pellet production.
This was due to more steady feed of concentrate and higher
utilisation of the kilns.
emissions in tonnes
Monitoring the effectiveness of environmental policy includes the
review of key emissions which are shown opposite.
Emissions in tonnes
Total gas emissions
Of which:
Nitrogen dioxide
Carbon monoxide
Sulphur dioxide
Total solid emissions
Total emissions
2013
5,915
2,762
2,107
946
2,861
8,776
2012
6,332
3,293
2,226
813
3,296
9,628
2011
2010
5,803
6,294
2,475
2,345
887
3,968
9,771
2,922
2,336
937
3,575
9,869
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
45
S t r a t e g i c
re p o r t
The methodology for the calculation of CO2 quantities for the Group’s
primary iron ore operations was based on energy volumes reported,
and multiplied by the factors stated in the following source
documents:
• Liquid, solid, gaseous fuels, refrigerants, purchased heat & steam
(DEFRA 2013 Factors as per their UK website)
• Purchased electricity (European Bank for Reconstruction and
Development – Development of the electricity carbon emission
factors for Ukraine – Baseline Study for Ukraine – Final Report –
14 October 2010).
• Blasting explosives (Australian Government Department of
Climate Change – National Greenhouse Accounts (‘NGA’) Factors
– January 2008).
business improvement programme (‘bip’)
(Short-Term and Long-Term Performance)
The table below highlights the savings made from the BIP in 2013.
The programme targets a reduction in the Group’s C1 cash cost of
1% to 2% per annum on a constant output basis. This has resulted
in an overall reduction in the C1 cost of US$8.6 per tonne or US$64
million since its inception in 2006.
The Group has placed particular emphasis on reducing its energy
consumption given that energy comprises 50% of the cost of
production. The graphs at the top of the page show the decrease in
electricity and gas consumption since 2005, the year before the
commencement of BIP.
Electricity
kWh per tonne of pellets
Gas
m3 per tonne of pellets
–20%
205.5
165.0
–26%
22.0
16.2
2005
FY2013
2005
FY2013
In 2013, FPM spent approximately US$7 million (2012: US$11 million)
on the implementation of environmental protection measures.
Additionally, US$10 million (2012: US$9 million) was spent on
environmental monitoring and maintenance activities. Charges
payable under emissions regulations totalled US$6 million (2012:
US$4 million).
Ongoing environmental management activities in 2013 included the
building of reservoirs for water conservation (using mining
overburden to build dams), further development of the closed water
cycle for production activities, environmental equipment upgrades,
and landscaping work. In addition, new measures implemented
included the replacement of an electric filter at pellet plant No 2 with
a bag filter and construction of waste water treatment facilities at the
fuel storage centre.
co2 reporting
In order to comply with the new UK Carbon Reporting Regulations,
Ferrexpo held two workshops with an external service provider to
understand and work through the greenhouse gas information
offered by DEFRA (UK). The business units of FPM, FYM, and FBM
collected information on greenhouse gas emissions created by solid,
liquid, and gaseous fuels, as well as refrigerants, explosives,
purchased steam and electricity. The results are shown in the table
below.
Item
Intensity ratio (CO2 tonnes/pellet tonnes)
Total tonnes of CO2 (million tonnes)
Figure
0.2
2.2
major bip projects implemented in 2013
Division
Name
A reduction of open pit shovel/excavator and truck loading cycle times
Utilisation of pre-made overhaul kits to reduce repair time
Recycling of axles for railway wagons and locomotives
Improved maintenance planning in locomotive overhauls
Recycling of plastic borehole sleeves used in open pit blasting
Mining department
Truck department
Railway department
Railway department
Blasting department
Crushing and concentrating plant Magnetic separation control system improvements
Crushing and concentrating plant Modernisation of ball mills including new automation equipment
Crushing and concentrating plant Grinding media consumption monitoring
Pelletising plant
FPM service department
Motor transport department
Talling storage
R&D for a new natural gas burner in one of four rotary pelletising kilns
Improved maintenance techniques for large ball mill gears
Improved utilisation of mobile service and support equipment
Improved pumping of hydraulic tailings from the concentrator to the
tailings dam
total projects
UaH’000
savings in
2013
7,282
12,905
3,242
7,761
304
1,469
9,158
10,374
1,018
3,350
3,095
1,586
61,544
Description of savings
Loss of productivity
Loss of time
CapEx avoiding
Loss of time
Cost saving
Electricity
Electricity
Electricity
Gas
Cost saving
Fuel
Electricity
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 46
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
b i o D i V e rS i t y
Please see the panels outlining Ferrexpo’s initiatives in 2013 and
approach to biodiversity below.
Fpm environmental initiatives and biodiversity
1
2
t o F o S t e r a r e S p o n S i b l e
a t t i t U D e a n D c a r e F o r n a t U r e
i n F U t U r e g e n e r a t i o n S t H e
F o l l o w i n g i n i t i a t i V e S t o oK
p l a c e i n 2 0 1 3
• Site visits for the students of Komsomolsk where they learn proper ecological
methods, and the local flora and fauna types.
• Children scatter apricot, plum and cherry stones along with seeds of acacia,
chestnut and hawthorn over the slopes of FPM’s waste rock piles.
• Flora grows relatively quickly in the waste dumps as rocks are warmed during
the day and at night the moisture condenses on the surface of the stones
creating favourable conditions for trees and grass. The various rock types
provide certain chemicals that allow roots to take hold in particular pines,
poplars and fruit trees
t H e l a r g e V a r i e t y o F F l o r a
c U l t i V a t e D o n t H e g r o U p ’ S r o c K
w a S t e D U m p S a r e a g o o D F o o D
r e S e r V e F o r b i r D S
• Over 100 of the bird species nesting in the Poltava region have been observed.
In addition to permanent nesting sites near Komsomolsk, the migration routes
of many birds that fly to Africa or Western Europe for winter are nearby. These
birds stop at the Group’s rock waste dumps to replenish their food reserves
before the long journey.
• Plenty of small animals and insects on the moist FPM dumps attract birds of
prey. Over the FPM territory one can often see falcons, golden eagles and
hawks. Occasionally, ornithologists observe rare bird species like the emperor
eagle (with a wingspan of around 2 metres). This bird was included in the
International Red List of vulnerable species.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 47
S t r a t e g i c
re p o r t
3
4
w e U S e b i o e n g i n e e r e D F a c i l i t i e S
t o c l e a n c l a r i F i e D w a t e r t H a t
H a S a c c U m U l a t e D i n t H e F p m
t a i l i n g S D a m S
• The total area of such facilities at FPM is 18 hectares. On the bottom of these
artificial basins there is a waterproofing material covered with layers of river
sand and gravel, creating a favourable medium for the development of
organisms which biologically decompose harmful organic impurities. Final
filtration of the water is done by the bulrush (cattail) plants that have water
purifying properties. The cane filters particles of heavy metals and organic
compounds. Cane can remove around 20 chemical elements from the water
including contaminants like phosphorus, nitrogen and potassium.
Decomposition products are well absorbed by the canes.
• Following cleaning at the bioengineered facilities the water is drained into the
nearby river. Dense thickets of canes and plants on the edge of the river act as
high quality modern filters.
• This filtration method is also applied to clean storm and spring water coming
from the site. There are fish in the tailings dam and crayfish (clean water
species) in the drainage channels.
F p m w a S c e r t i F i e D F o r i S o 1 4 0 0 1
( e nVi r o n m e n t a l ma n a g e m e n t
S y S t e m )
• The system was implemented to minimise the influence of the Company’s
activities on the environment, and to allow for continuous improvement of the
environmental KPIs. In doing so, FPM has established new practices for
environmental management in the Poltava region.
• This standard is applied to all organisational levels, and operational practices in
the Company. The standards set out the steps to be taken by the Company in
order to achieve their environmental management goals. The quality of the
system is monitored by the state regulator (Poltavastandartmetrogeologiya),
and there are 16 auditors based at FPM monitoring the standards and ensuring
that any deficiencies are addressed. The accreditation of the FPM
environmental management system (ISO 14001) is confirmed every five years.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 48
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
c o m mUn i t i eS
p o l i c y
g o a l S
Ferrexpo’s presence should benefit those communities around its operations;
operations will benefit if local communities are thriving.
Ferrexpo strives to be recognised as an attractive local employer and a concerned
corporate citizen.
Ferrexpo will assist in the development of the micro-economic environment within the
communities in which it operates, so as to ensure that their dependence on Ferrexpo
for their livelihood is reduced.
Make operational leadership accessible to the various local citizen groups and
organisations, so as to allow Ferrexpo to assess and prioritise their concerns
about its various initiatives.
Provide expertise and voluntary services in order to sustain and/or improve
community infrastructure, supplying financial assistance where appropriate.
Participate in the development of modern cultural and social programmes and
activities in the local area.
Ferrexpo aims to enhance and have a positive relationship with the communities
around it; to hold an open dialogue with those communities; and to ensure that its
involvement with them is cost-effective and relevant to their needs
Work consistently with local town and village councils in order to understand their
expectations of Ferrexpo, so that Ferrexpo can within reason provide value added
solutions or alternatives.
Give preference to suitably qualified local residents when hiring to fill vacancies.
S t r a t e g y
Short-term (1–2 years)
Progress
Medium-term (3–5 years)
Progress
Long-term (5 years+)
Contribute to the development of the education
and skills of the local population, and support
the modernisation of local community
infrastructure and services, in order to develop
and maintain the local labour pool
Conduct successful negotiations with
local communities in order to facilitate land
acquisition for mining infrastructure
Align the growth of operations
with city planning processes
for rural and urban living
Work jointly with local communities
to create new infrastructure, social
programmes, and leisure activities
community context
The Poltava region, in which Ferrexpo’s mining operations are
situated, in an area of predominantly flat agricultural land close to the
River Dnieper, one of the largest European river systems and an
important transport artery for Ukraine, Belarus and Russia. Iron ore
mining in the area dates from the 19th century, although the major
expansion of mining activity occurred in the early 20th century. The
town of Komsomolsk was established adjacent to the mine to
support the mining operation and ancillary industries (transport,
power etc). Ferrexpo is still by far the largest employer in the town,
which has a population of around 55,000 people, with approximately
23% of the working population of Komsomolsk being employed by
the mine in one capacity or another.
p e rF o r m a n c e
community initiatives
Ferrexpo has been a significant investor in local community initiatives
from the outset, investing substantial funds in the social
infrastructure of Komsomolsk and the surrounding area. These funds
have been spent on medical facilities, social services, education,
religion, culture and sporting activities, as well as on the
maintenance of certain of the city’s social and cultural structures.
Links with the local community are strengthened by meetings of
senior management with heads of schools and colleges, supporting
local celebration days, giving vocational guidance and vacation work
to the students of local schools (including providing financial
sponsorship to individual students whom Ferrexpo may
subsequently employ) and organising student excursions to
Ferrexpo’s operations and its museum.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
49
S t r a t e g i c
re p o r t
Historically, the Group has employed a significant number of people
in providing support services to its mining activities. In many cases,
these services could be made available on a commercial basis to
other enterprises within the local community which in turn improves
the viability and sustainability of the local economy. To encourage
this process, Ferrexpo has offered financial and other support to
employees who provide these in-house services so as to encourage
them to transform internal departments into stand-alone businesses.
(a) Health and Safety
In 2013 First-DDSG experienced six lost-time accidents, equating to
a LTIFR of 6.98 accidents per million man hours; there were no
fatalities. Accidents were mainly due to injuries causes by handling
equipment during frequent barging and mooring operations.
Accidents are reported to, and discussed at, monthly meetings with
the senior management of the Group, and steps are taken to
minimise their recurrence.
community spending in 2013 (US$000):
Medical care
Financial support to
vulnerable people
Education
Sport
Infrastructure
2013 total
FPM
318
1,380
1,246
1,300
4,039
8,283
FYM
8
83
54
42
1,581
1,768
FBM
4
11
13
–
594
622
Total
330
1,474
1,313
1,342
6,214
10,673
(b) employees
First-DDSG provides training for staff so that they can develop the
knowledge, skills and values necessary for the performance of
their roles.
(c) environmental
First-DDSG complies with the applicable environmental regulations
of the countries along the River Danube in which it operates (for
example, regarding the prevention of fuel leakages and the
grounding of barges).
(d) community
As a transport company operating over a wide area rather than
concentrated in one place, First-DDSG does not at present consider
it appropriate to incur significant expenditure on community
initiatives.
medium-term performance
The Kremenchug council officially approved the proposed FYM
concentrator and the FBM mine development (including its impact
on the local communities and environment).
long-term performance
FBM optimised the mine design so as to mitigate the social impact
on local residents by redefining the mining area and the location of
fixed infrastructure.
First-DDSg logistics Holding gmbH (formerly Helogistics
Holding gmbH)
The Group acquired the river transport company Helogistics Holding
GmbH (now renamed First-DDSG Logistics Holding GmbH ‘First-
DDSG’) at the end of 2010. Because of the different nature of its
activities its CSR is reported on separately from that of the Group’s
mining operations. Ferrexpo’s strategy is to integrate First-DDSG fully
into Ferrexpo’s CSR culture.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 50
S t r a t e g i c
re p o r t
c o r p o r a t e r e S p o n S i b i l i t y continued
The average expenditure on community support over the last
three years was US$14.8 million. This reflects the timing of project
completions. In 2012, the Group spent US$21.8 million and in
2011, US$12.0 million.
Please see the panels below for examples of FPM support in 2013.
1
2
F p m p r o V iDe S F i n a n c i a l S U p p o r t
t o St U De n t S c o m p e t i n g i n
r e g i o n a l a n D n a t i o n a l c o n t e S t S
• These grants encourage more children to spend some of their free time
continuing to learn in order to take part in the contests. In the 2012/2013
academic year, local students won 50 prizes in the regional contests (record
breaking).
• A grade 10 student (V.A. Nizhnichenko school) ranked third in the National
biology contest. Three students from grade 10 (L. Buhaevska school) won the
Ukrainian contest for young business entrepreneurs with their project on ‘Iron
ore sculptures’. Another student won the national contest for geological
research, and was also placed third in the national geography contest.
F i n a n c i a l S U p p o r t F r o m F p m w a S
U S e D t o e q U i p n e w c l a S S r o o m S
• History, geography and IT classrooms at the secondary school of Dmitrovka
were equipped with new furniture, computers, air-conditioners and video
projectors. The IT classroom has a new interactive SmartBoard (computer/
touch screen) which allows new teaching methods in many subjects. In
addition, two plasma TVs were purchased so that the students can watch
educational video courses and present their own projects. Free Wifi internet is
now also available for the students.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 51
S t r a t e g i c
re p o r t
3
4
t H e c H a r i t y F U n D o F F p m
S U p p o r t e D r e p a i r S t o t H e
g y m n a S i Um , p H y S i cS a nD i t
l a b o r a t o r i e S , a n D c r e a t i o n
o F a n e D U c a t i o n a l 3 - D c i n e m a ,
i n K o m S o m o l S K S c H o o l n o . 1
( S p e c i a l i S i n g i n e c o n o m y a n D l a w )
• One of the latest achievements is the opening of the first innovative iPad-
classroom in Ukraine. In this project traditional textbooks have been replaced
by iPads. The students have a great opportunity to learn how to work with
different operating systems on different types of computers, allowing them to
be well grounded in the IT world. In addition, thousands of educational
programmes and electronic books have now become available to the pupils.
• 33 iPads and special Wifi routers ensure high speed quality of teaching.
• The school signed an agreement with the Kyiv Institute of Innovative
Technologies and the Ministry of Education to implement an official experiment
for the introduction of the iPad-classrooms. Teachers and students
immediately improved their skills.
t H e c H a r i t y F U n D o F F p m
p r o V i D e S S U p p o r t t o t a l e n t e D
S p o r t S e n t H U S i a St S oF
K o m S o m o l S K o n a r e g U l a r b a S i S
• For example, the funding of the large-scale reconstruction of the local Neptune
swimming pool (installation of a new ventilation system, replacement of the
roof, floor, walls, heating system, wall cladding). In addition, modern equipment
for water sterilising, purification, heating and quality control was installed at the
swimming pool.
• Training in the improved conditions has resulted in better performance. In the
regional, national and international competitions the trainees of the local
swimming school ranked first 97 times, won 113 silver and 101 bronze medals.
The local swimming school ranks sixth among 50 sport schools in the team
event and 26th among 78 swimming schools domestically.
•
• During the 2012/2013 academic year 657 athletes of various categories trained
at the Komsomolsk swimming school. Regional champion Marina Nadtochiy
joined the ranks of the national swimming team and Alexandra Konareva joined
the team as an alternate.
In 2013, Komsomolsk boxer Anna Okhota became the national champion of
Ukraine for the fourth time in a row, and is among the best European juniors. In
September 2013, she won a silver medal at the World Boxing Championship
for women aged under 23. Anna’s coach Alexander Serednitskiy receives
financial support from FPM which allows him to accompany Anna to training
camps and competitions.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 52
g o V e r n a n c e
b o a rD oF D i r e c t o r S
michael abrahams, cbe Dl
Non-executive Chairman
oliver baring
Senior Independent
Non-executive Director
raffaele (lucio) genovese
Independent Non-executive
Director
wolfram Kuoni
Independent Non-executive
Director
christopher mawe, Fca
ihor mitiukov
miklos Salamon
Chief Financial Officer
Independent Non-executive
Non-executive Director
Kostyantin Zhevago
Chief Executive Officer
Director
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Michael Abrahams joined the
Board on 14 June 2007.
Oliver Baring joined the Board
on 1 December 2007.
Lucio Genovese joined the
Board on 14 June 2007.
Wolfram Kuoni joined the
Board on 14 June 2007.
Chris Mawe joined the Board
on 7 January 2008.
Ihor Mitiukov joined the
Board on 14 June 2007.
Mike Salamon joined the
Board on 27 March 2009.
Kostyantin Zhevago joined
the Board as a Non-executive
Director on 14 June 2007 and
was appointed Chief Executive
on 1 November 2008. He
is ultimately the controlling
shareholder of Ferrexpo.
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
He is chairman of the Prudential
Staff Pension Scheme.
He is non-executive chairman
of First Africa Holdings Limited,
and is a non-executive director
of BlackRock World Mining
Trust plc, and a member
of the Advisory Council of
Sentient Resources Fund.
He is the founder and senior
partner of Kuoni Attorneys-
at-Law, Zurich, Switzerland,
and serves on a number
of boards of directors.
He is the chief executive officer
of Nage Capital Management,
a Swiss-based advisory
and proprietary company
specialising in the metals and
mining sector. He is the non-
executive chairman of Firestone
Diamonds plc and serves on
a number of other boards of
directors. He was appointed a
non-executive director of Ferrous
Resources on 4 March 2014.
None.
He is the managing director
He is a non-executive director
None.
and head of country for
Ukraine, Morgan Stanley.
of Central Rand Gold, Gem
Diamonds and Minera las
Cenizas.
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
He was deputy chairman of
Prudential plc until May 2000,
and chairman of KCOM Group
plc until July 2009. He has
served as chairman and as a
director of a number of quoted
and unquoted companies. He
was chairman of the London
Clinic until March 2012.
He was chairman of Mwana Africa
plc from 2005 until August 2013.
He retired from UBS Warburg in
2001, having led the International
Mining Group with responsibility
for Africa and Europe. Previously
he had been head of the UBS
Warburg mining equity sales
team and was responsible for its
respected coverage and sales
capability. He was a partner
in Rowe and Pitman before its
merger with SG Warburg.
He has previously served as
investment officer and a member
of the board of Taj Investment
Limited with responsibility for
its Indian public and private
investment portfolio. Prior to that,
he held a number of positions
with Glencore International,
including senior member of the
copper division, CEO of CIS
operations, manager of the
Moscow office and trader in the
ferrous division. He is a Chartered
Accountant (South Africa).
He has over 13 years of
experience in investment
banking. Prior to 2005, he held
a number of positions within
UBS Investment Banking (Zurich
and New York), including head
of the european export and
project finance team. He also
originated and structured cross-
border acquisitions and equity
capital markets transactions.
He graduated with a law degree
from the University of Berne, and
holds a doctorate in law from
the University of Zurich and an
MBA from INSEAD in France. He
is a member of the Zurich Bar.
He qualified as a Chartered
Accountant with Coopers and
Lybrand in 1991, having gained
a First Class Honours degree in
Engineering. He has held senior
He was the general director of
He was executive chairman of
the Financial Policy Institute until
New World Resources plc, a
He was a non-executive director
of New World Resources plc, a
March 2008. From 2002 to 2005
subsidiary of BXR Group Limited
subsidiary of BXR Group Limited
he served as Extraordinary and
Plenipotentiary Ambassador of
and managing director of AMCI
from 2009 until 24 February
Capital, a private equity fund from
2014. He has been a member of
financial positions for the past 17
Ukraine in the United Kingdom.
years, first with IMI plc in both the
He also represented Ukraine
in the International Maritime
2007 until 2012. With a career
spanning more than 30 years,
recently with BHP Billiton, he
the Ukrainian Parliament since
1998. He was chairman of the
management board and deputy
UK and Europe, and then with
Carclo plc as finance director.
Before joining Ferrexpo he was
finance director of UK Coal plc.
Organisation. From 1997 to 2001
has extensive knowledge of the
chairman of the supervisory
he served as Minister of Finance of
international mining and extractive
board of CJSC Commercial Bank
Ukraine and, from 1995 to 1997, as
industries. Before 1997 he held a
Finance and Credit (‘Bank F&C’).
Ukraine’s Special Representative
number of positions, first at Anglo
Between 1993 and 1996, he was
to the European Union in
American and later in the coal
financial director of F&C Group
Brussels. In 1994, he was deputy
divisions of Shell and Gencor Ltd.
of companies. He graduated
governor of the National Bank
of Ukraine and then Vice-Prime
Minister of Ukraine for Banking
He graduated in 1975 from The
from the Kyiv State Economic
University of the Witwatersrand,
University in 1996, specialising
Johannesburg with a degree in
in international economics.
and Finance. He graduated from
Mining Engineering (Cum Laude)
the Cybernetics Department,
Kyiv State University and has
a PhD in Economics (1985)
from the Institute of Economy,
Academy of Sciences (Ukraine).
and obtained an MBA from
the London Business School,
University of London in 1981.
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
He is a member of the
Nominations and CSR
Committees.
He is Chairman of the
Nominations Committee and a
member of the Audit Committee.
He is Chairman of the
Remuneration Committee and a
member of the Audit Committee.
He is Chairman of the Audit
Committee and a member
of the Remuneration and
Nominations Committees.
None.
He is a member of the
Audit, Remuneration and
Nominations Committees.
None.
He is a member of the
Nominations and CSR
Committees.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 53
g o V e r n a n c e
michael abrahams, cbe Dl
oliver baring
raffaele (lucio) genovese
wolfram Kuoni
Non-executive Chairman
Senior Independent
Non-executive Director
Independent Non-executive
Independent Non-executive
Director
Director
christopher mawe, Fca
Chief Financial Officer
ihor mitiukov
Independent Non-executive
Director
miklos Salamon
Non-executive Director
Kostyantin Zhevago
Chief Executive Officer
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Michael Abrahams joined the
Oliver Baring joined the Board
Board on 14 June 2007.
on 1 December 2007.
Lucio Genovese joined the
Board on 14 June 2007.
Wolfram Kuoni joined the
Board on 14 June 2007.
Chris Mawe joined the Board
on 7 January 2008.
Ihor Mitiukov joined the
Board on 14 June 2007.
Mike Salamon joined the
Board on 27 March 2009.
Kostyantin Zhevago joined
the Board as a Non-executive
Director on 14 June 2007 and
was appointed Chief Executive
on 1 November 2008. He
is ultimately the controlling
shareholder of Ferrexpo.
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
other appointments
None.
He is the managing director
and head of country for
Ukraine, Morgan Stanley.
He is a non-executive director
of Central Rand Gold, Gem
Diamonds and Minera las
Cenizas.
None.
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
background and experience
He qualified as a Chartered
Accountant with Coopers and
Lybrand in 1991, having gained
a First Class Honours degree in
Engineering. He has held senior
financial positions for the past 17
years, first with IMI plc in both the
UK and Europe, and then with
Carclo plc as finance director.
Before joining Ferrexpo he was
finance director of UK Coal plc.
He was the general director of
the Financial Policy Institute until
March 2008. From 2002 to 2005
he served as Extraordinary and
Plenipotentiary Ambassador of
Ukraine in the United Kingdom.
He also represented Ukraine
in the International Maritime
Organisation. From 1997 to 2001
he served as Minister of Finance of
Ukraine and, from 1995 to 1997, as
Ukraine’s Special Representative
to the European Union in
Brussels. In 1994, he was deputy
governor of the National Bank
of Ukraine and then Vice-Prime
Minister of Ukraine for Banking
and Finance. He graduated from
the Cybernetics Department,
Kyiv State University and has
a PhD in Economics (1985)
from the Institute of Economy,
Academy of Sciences (Ukraine).
He was executive chairman of
New World Resources plc, a
subsidiary of BXR Group Limited
and managing director of AMCI
Capital, a private equity fund from
2007 until 2012. With a career
spanning more than 30 years,
recently with BHP Billiton, he
has extensive knowledge of the
international mining and extractive
industries. Before 1997 he held a
number of positions, first at Anglo
American and later in the coal
divisions of Shell and Gencor Ltd.
He graduated in 1975 from The
University of the Witwatersrand,
Johannesburg with a degree in
Mining Engineering (Cum Laude)
and obtained an MBA from
the London Business School,
University of London in 1981.
He was a non-executive director
of New World Resources plc, a
subsidiary of BXR Group Limited
from 2009 until 24 February
2014. He has been a member of
the Ukrainian Parliament since
1998. He was chairman of the
management board and deputy
chairman of the supervisory
board of CJSC Commercial Bank
Finance and Credit (‘Bank F&C’).
Between 1993 and 1996, he was
financial director of F&C Group
of companies. He graduated
from the Kyiv State Economic
University in 1996, specialising
in international economics.
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
committee membership
He is a member of the
Nominations and CSR
Committees.
He is Chairman of the
He is Chairman of the
Nominations Committee and a
member of the Audit Committee.
Remuneration Committee and a
member of the Audit Committee.
He is Chairman of the Audit
Committee and a member
of the Remuneration and
Nominations Committees.
None.
He is a member of the
Audit, Remuneration and
Nominations Committees.
None.
He is a member of the
Nominations and CSR
Committees.
He is chairman of the Prudential
He is non-executive chairman
Staff Pension Scheme.
of First Africa Holdings Limited,
and is a non-executive director
of BlackRock World Mining
Trust plc, and a member
of the Advisory Council of
Sentient Resources Fund.
He is the founder and senior
partner of Kuoni Attorneys-
at-Law, Zurich, Switzerland,
and serves on a number
of boards of directors.
He is the chief executive officer
of Nage Capital Management,
a Swiss-based advisory
and proprietary company
specialising in the metals and
mining sector. He is the non-
executive chairman of Firestone
Diamonds plc and serves on
a number of other boards of
directors. He was appointed a
non-executive director of Ferrous
Resources on 4 March 2014.
He was deputy chairman of
Prudential plc until May 2000,
and chairman of KCOM Group
plc until July 2009. He has
served as chairman and as a
director of a number of quoted
and unquoted companies. He
was chairman of the London
Clinic until March 2012.
He was chairman of Mwana Africa
He has previously served as
He has over 13 years of
plc from 2005 until August 2013.
investment officer and a member
experience in investment
He retired from UBS Warburg in
of the board of Taj Investment
2001, having led the International
Limited with responsibility for
Mining Group with responsibility
its Indian public and private
banking. Prior to 2005, he held
a number of positions within
UBS Investment Banking (Zurich
for Africa and Europe. Previously
investment portfolio. Prior to that,
and New York), including head
he had been head of the UBS
Warburg mining equity sales
he held a number of positions
with Glencore International,
team and was responsible for its
including senior member of the
respected coverage and sales
capability. He was a partner
in Rowe and Pitman before its
merger with SG Warburg.
copper division, CEO of CIS
operations, manager of the
Moscow office and trader in the
He graduated with a law degree
ferrous division. He is a Chartered
from the University of Berne, and
Accountant (South Africa).
of the european export and
project finance team. He also
originated and structured cross-
border acquisitions and equity
capital markets transactions.
holds a doctorate in law from
the University of Zurich and an
MBA from INSEAD in France. He
is a member of the Zurich Bar.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 54
g o V e r n a n c e
e x e c U t iV e c o m m i t t e e
nikolay goroshko
General Director, FYM
Jason Keys
Group Chief Marketing Officer
nikolay Kladiev
Chief Financial Officer, FPM
Nikolay is a graduate of the Kyiv
Institute of National Economics,
specialising in Industrial Planning.
He became Acting Group Chief
Financial Officer in April 2007,
and Chief Commercial Officer in
charge of the Group’s Growth
Projects in December 2007.
Jason brings with him significant
industry experience in the
European and Asian iron ore
markets. He was previously global
marketing manager for Iron Ore
at BHP Billiton for five years and
for the 12 years prior to that, he
held senior sales and marketing
roles within BHP Billiton Coal
and Rio Tinto Coal and Iron Ore.
Jason is a Certified Professional
Accountant and has a Bachelor
of Commerce degree from the
University of Western Australia.
Over the course of his career
Nikolay has spent several years
as an Audit manager with Ernst
& Young and CFO of a large
Russian factory. Nikolay is a
qualified Chartered Accountant
(UK) and holds a Masters
in International Economic
Relations from the Kyiv National
University of Economics.
Victor lotous
Chief Operating Officer and
Head of Managing Board, FPM
Victor is a graduate of Kryvy
Rih Mining and Ore Institute,
and of the Kyiv State Economic
University, specialising in
Finance. He became Chief
Engineer in 1997 and General
Director and Chief Operating
Officer in April 2007.
christopher mawe, Fca
Chief Financial Officer
See previous page for details.
brian maynard
Group Chief Operating Officer
Kostyantin Zhevago
Chief Executive Officer
See previous page for details.
Brian has extensive operational
experience in bulk commodities
having managed various
large scale mining divisions
throughout his 30-year career
at Vale Australia (Coal) and
Vale Inco (Canada Nickel).
Brian was educated at the
University of Manitoba, Canada
in geological engineering.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
55
g o v e r n a n c e
c o r P o r a T e g o v e r n a n c e r e P o r T
chairman’s Statement
In accordance with the recommendation of the UK Corporate
Governance Code (the ‘Code’), I wish to make a few points by way
of introduction to the Corporate Governance Report.
The Ferrexpo Board remains committed to good corporate
governance practices, in its management of the affairs of the Group
and in its accountability to shareholders, and keeps under review
the Group’s own policies and procedures in these areas. This
commitment stems from the conviction that good governance is not
only important for its own sake and because it is required of us,
but is also important in sustaining the Company’s success over the
longer term, by helping to preserve shareholder value and, through
careful attention to stakeholder interests, maintaining the social
licence to operate.
As detailed in this report, the Directors’ Report and the reports of the
Audit, Nominations and Remuneration Committees, the Group has
implemented an effective corporate governance framework and has
established Board Committees, internal procedures and Group
policies which are considered vital for the proper management of
the Group and good governance of Ferrexpo as an international
business. The Board and management of the Group have a policy of
conducting all business affairs in a fair and transparent manner and
of maintaining high ethical standards in dealings with all relevant
parties. The aim of all this is to ensure that the Board discharges
properly its duty to the shareholders to challenge and hold to
account the executive management, as well as advising and
assisting them. This means that the balance of skills and experience
on the Board and its Committees is critical. It is subject to regular
review, and was also considered as part of the Board evaluation
that was concluded at the beginning of 2013, externally facilitated
by Prism Cosec (this process is described in more detail later in
this report).
As we indicated in last year’s report, in 2013 we embarked on a
search for new Non-executive Directors, with a view to making new
appointments and retiring current Directors from 2014 onwards.
Executive search consultants (Spencer Stuart, who have no other
connection with the company) have been appointed for this purpose.
Ferrexpo already has a well-diversified and well-balanced Board in
terms of nationality, professional background, and industry
experience. We are anxious to ensure that the skills, expertise and
diversity, including gender diversity, on the Board are maintained and
if possible increased. We will be reporting on progress with this
search as it occurs.
Michael abrahams
chairman
Information Pursuant to the eU Takeover Directive
The Company has provided the additional information required
by the Disclosure and Transparency Rule 7.2.7 of the UK Listing
Authority (Directors’ interests in shares; appointment and
replacement of Directors; powers of the Directors; restrictions on
voting rights and rights regarding control of the Company) in the
Directors’ Report and the Remuneration Report.
Statement of compliance
(In accordance with Listing rule 9.8.6r)
During the year to 31 December 2013 the Company complied with
all relevant provisions of the 2012 UK Corporate Governance Code
(the ‘Code’), to which it is subject.
The Code establishes principles of good governance in five areas:
Leadership, effectiveness, accountability, remuneration,
and relations with Shareholders. This report explains how
these principles were applied, with the exception of those relating
to Directors’ remuneration which are included in the Remuneration
Report on pages 63 to 76.
The Group’s auditor has reviewed those parts of this statement
which it is required to review under the Listing Rules of the Financial
Conduct Authority.
Leadership and effectiveness
The Board
The Board is composed of a Non-executive Chairman: Michael
Abrahams; two Executive Directors: Kostyantin Zhevago, Chief
Executive Officer (‘CEO’), and Christopher Mawe, Chief Financial
Officer (‘CFO’); and five Non-executive Directors. Oliver Baring is the
Senior Independent Director. The other Non-executive Directors are
Lucio Genovese, Wolfram Kuoni, Ihor Mitiukov and Mike Salamon.
Biographical details of the Directors at the date of this report are set
out on pages 52 and 53, and details of their membership of Board
Committees are set out on pages 58 and 59. A summary of the roles
of the Chairman, the CEO and the Senior Independent Director is set
out below.
The structure and business of the Board are designed to ensure that
the Board focuses its attention on the strategy, management,
governance and control issues which are its ultimate responsibility.
The Board has a formal schedule of matters which sets out the
matters requiring Board approval and specifically reserved to it for
decision (such as approving the Group strategy and budget, annual
and long-term capital expenditure plans, and contracts for more
than a certain monetary amount). The Board is responsible for
setting the Group’s objectives and policies, providing effective
leadership and control required for a public company and for
approving the Group strategy, budgets, business plans and major
capital expenditure. It also monitors financial performance and
critical business issues. Major project approvals, contract awards
and key policies and procedures also require the approval of
the Board.
Certain aspects of the Board’s responsibilities have been delegated
to appropriate Committees to ensure compliance with the
Companies Act 2006, FCA Listing Rules and the Code. It is the
responsibility of the CEO and the Executive Committee to manage
the day-to-day running of the Group. The Board is supported by the
Executive Committee which meets approximately monthly. All of the
information that is submitted to the Board by management is
reviewed and approved by the Executive Committee.
All Directors have access to the advice and services of the Company
Secretary, who is responsible for ensuring that Board procedures
are followed and that applicable rules and regulations are complied
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 56
g o v e r n a n c e
c o r P o r a T e g o v e r n a n c e r e P o r T continued
with. The Company Secretary is also responsible for advising the
Board on governance issues and for ensuring, with the Chairman,
that information reaches Board members in a timely fashion, so that
they are alerted to issues and have time to reflect on them properly
before deciding how to address them. Directors have the right to
request that any concerns they have are recorded in the appropriate
committee or Board minutes.
Time commitment
The role of a Non-executive Director is an increasingly demanding
one; the Non-executive Directors of Ferrexpo would normally expect
to spend two days a month, on average, on Ferrexpo’s affairs, and
in the case of the Senior Independent Director, the Committee
Chairmen and in particular the Chairman of the Board, considerably
more than that.
The Board met five times during the reporting period. Attendance
by Directors at Board meetings and Board Committee meetings is
shown on pages 58 and 59. All Board meetings are held in
Switzerland.
How the Board operates
chairman, ceo and Senior Independent Director
The roles of the Chairman and CEO are held by different individuals.
The division of responsibilities between the Chairman and CEO has
been clearly established in writing and agreed by the Board.
The Chairman is responsible for leadership of the Board, ensuring
its effectiveness, setting its agenda and ensuring effective
communication with shareholders. The Chairman also ensures that
there is a constructive relationship between the Executive and
Non-executive Directors. From time to time the Chairman holds
meetings with the Non-executive Directors without the Executive
Directors present.
The Chairman’s other current responsibilities are set out in the
biographical notes on page 52. There has been no increase in those
commitments during the reporting period.
The role of the CEO is to provide leadership of the executive team,
to develop proposals for the Board to consider, and to oversee and
implement Board-approved actions. Mr Zhevago has no other
directorships of quoted companies.
The Senior Independent Director, Oliver Baring, in conjunction
with the other independent Non-executive Directors, assists in
communications and meetings with shareholders concerning
corporate governance matters. He also chairs the Nominations
Committee and the Committee of Independent Directors. At least
once a year, the Senior Independent Director meets the Non-
executive Directors, without the Chairman present, to evaluate the
Chairman’s performance. The Senior Independent Director is
available to discuss with shareholders any issues that the Chairman
has been unable to resolve to shareholders’ satisfaction.
all non-executive Directors
The Non-executive Directors, acting either as the Board or as one
of its Committees (see below), approve budgets; discuss and
contribute to strategic proposals and approve strategy; monitor the
integrity, consistency and effectiveness of financial information,
internal controls and risk management systems; monitor
management’s execution of strategy against agreed targets and
determine their remuneration accordingly; and monitor executive
succession planning (for Board succession planning, see
Nominations Committee Report below).
Board Balance and Independence
The Board considers that its membership of two Executive Directors,
a Non-executive Chairman and five Non-executive Directors, four
of whom are deemed by the Board to be independent, is of an
appropriate size and structure to manage the Group in an effective
and successful manner. It also considers that no single Director can
dominate or unduly influence decision making. The Relationship
Agreement with Kostyantin Zhevago specifically deals with decision
making. More details are given below.
The Board has carefully considered the guidance criteria on
independence of Non-executive Directors under the Code. In the
opinion of the Board, all the Non-executive Directors bring
independence of judgement and character to the Board and to the
Board Committees on which they sit. The Board considers that,
with the exception of Mike Salamon who until September 2012
represented a significant shareholder, all of the Non-executive
Directors as at the date of this report are independent of the Group
within the terms of provision B.1.1. of the Code.
Lucio Genovese and Wolfram Kuoni are required to devote more
time to their duties as Non-executive Directors of Ferrexpo AG than
had been expected at the time of their appointment. The Board
therefore increased their remuneration with effect from 1 January
2009 (as set out in the Remuneration Report on page 71). In
reaching this decision the Board also concluded, in the light of the
supervisory and non-executive nature of their duties as Directors
of Ferrexpo AG, that both Mr Genovese and Mr Kuoni remained
independent in character and judgement, as defined by provision
B.1.1 of the Code. The Board believes this still to be the case.
Lucio Genovese was appointed as Ferrexpo’s representative on the
board of Ferrexpo’s 15.5% investee company Ferrous Resources
on 4 March 2014. This is in a non-executive capacity, and the Board
considers that it does not affect his independence as a member of
the Ferrexpo Board.
Kostyantin Zhevago is a beneficiary of The Minco Trust which owns
100% of Fevamotinico S.a.r.l., the major shareholder in the Group.
Consequently he, The Minco Trust and Fevamotinico S.a.r.l. have
entered into a Relationship Agreement with the Company to ensure
that the Group is capable of carrying on its business independently,
that transactions and relationships between the Group, Fevamotinico
S.a.r.l., The Minco Trust and Mr Zhevago are at arm’s length and on
normal commercial terms, and that there shall be at all times a
majority of Directors independent of Fevamotinico S.a.r.l., The Minco
Trust and Mr Zhevago on the Board (the ‘Relationship Agreement’).
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The Board monitors compliance with the Relationship Agreement
through the Committee of Independent Directors (see under
‘Conflicts of Interest’ below).
conflicts of Interest
A procedure is in place to deal with Directors’ conflicts of interest
and the recording, reporting and, where appropriate, approval of
related party transactions and review of relevant disclosures. This
procedure is in line with published guidance, the Company’s Articles
of Association and the provisions in section 175 of the Companies
Act 2006 on conflicts of interest. Schedules of a Director’s actual or
potential conflicts and related party transactions have been compiled
based on disclosures made by the Director. These are updated
and reviewed on a regular basis by the Executive Committee, the
Executive Related Party Matters Committee (‘ERPMC’) (which is
composed of certain members of the Executive Committee and
other members of senior management) and the Committee of
Independent Directors (‘CID’). Any changes to the schedules are
noted at the beginning of the next Board meeting. The CID has
delegated authority to carefully consider and (if deemed appropriate
in the circumstances) approve on behalf of the Board transactions
where there is a risk of a conflict of interests. This procedure
operates effectively, and the Group undertakes to follow emerging
best practice in this area.
The Board has established the CID to consider and, if appropriate,
approve related party transactions and transactions where there is a
risk of a conflict of interest to the extent foreseen within Chapter 11
of the Listing Rules (whether in relation to Mr Zhevago or any other
Director), and to consider any matters referred to it concerning the
operation of the Relationship Agreement and ensure that decisions
are taken objectively in the Company’s interest. This Committee also
oversees anti-bribery compliance matters on behalf of the Board.
appointments to the Board and re-election
Under its terms of reference the Nominations Committee is
responsible for leading the process for appointments to the Board.
The process for election and re-election of Directors is set out in the
Directors’ Report on page 77.
Information and Professional Development
Directors receive briefing notes and reports for their consideration in
advance of each Board meeting, including reports on the Group’s
operations to ensure that they are up to date on the latest
developments and are able to make fully informed decisions. These
notes and reports take into account the factors set out in section 172
of the Companies Act 2006 (Directors’ duty to promote the success
of the Company), which are considered by the Executive Committee
when making any proposals and recommendations to the Board.
Decisions made by the Board are set within the framework of the
Directors’ statutory duty to promote the success of the Company for
the benefit of its members as a whole.
Professional development and training are provided in a number
of ways, including updates given to the Board on changes and
proposed changes in laws and regulations affecting the Group. Site
visits to ensure Directors are familiar with the Group’s operations are
held at least annually, and Directors may visit the operations of the
Group independently to the extent that they feel this is necessary.
During the year, as in previous years, the Board spent two days
visiting the site in Ukraine.
All Directors may take independent professional advice at the
expense of the Group in the furtherance of their duties. On
appointment, all Directors are advised of their duties, responsibilities
and liabilities as a Director of a public listed company. In addition
an appropriate induction programme is provided to a Director on
appointment taking into consideration the individual qualifications
and experience of the Director.
Performance evaluation
Performance evaluation of the Board and its Committees has, until
2012, been carried out internally by the Chairmen of these bodies.
In line with the Code it is the intention to hold an externally-facilitated
assessment once every three years. The first externally facilitated
evaluation was conducted in 2013 and is reported on below.
choice of evaluator
The choice of external evaluator was a key consideration for
Ferrexpo. The brief was to find a company used to dealing with
Board members who would provide a service that addressed the
specific requirements of the evaluation. Prism Cosec (‘Prism’) was
chosen to conduct the process due to its flexibility in approach and
ability to engage meaningfully with the Directors. Prism assisted
Ferrexpo at the time of the Company’s listing in 2007. Its dealings
with Ferrexpo are now minimal and consist of providing some ad hoc
advice, mainly on governance issues. However, Prism’s knowledge
of the background and development of Ferrexpo was also an
important factor in enabling it to carry out an effective and well-
designed process.
evaluation Focus
It was agreed that the evaluation should be specifically aimed at
areas where previous evaluations had highlighted points for review.
These fell under four main headings:
• Board dialogue
• Board and Committee structure
• Management of related party transactions
• Management of shareholder interests
In addition there was a review of the main Board and Committee
documents and records.
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evaluation Process
Office based review of Board and Committee documents,
policies and procedures
Agenda of topics prepared in conjunction with the Chairman for
discussion with individual Directors
Interviews conducted with each of the Directors in person or by
telephone, finishing with the Chairman
Preliminary report prepared of findings and recommendations,
discussed with the Chairman and Company Secretary
Final publication and review by the Board as a whole
Main recommendations
Overall Summary
The current Board processes are working effectively and well. The
Board and Committee structure and roles are well understood and
their duties effectively carried out. Oversight of related party
transactions is working effectively. Relations with independent
shareholders are dealt with constructively.
Theme
Actions taken/to be taken
Succession planning
for the Board
A Board renewal strategy has been formulated
and agreed and is in the process of being
implemented (see the Chairman’s Statement on
Corporate Governance on page 55)
Development of
executive management
Review of plans to develop next tier of
management
CSR Committee
Governance policies
and procedures
Review of operation of the Corporate Safety
and Social Responsibility Committee (the
‘CSR Committee’) in order to ensure
maximum effectiveness
Continue to review and update governance
policies and procedures in line with best
practice
Proposals for next year’s evaluation
The evaluation in 2014 will be carried out internally. It is proposed to
review the action points highlighted from the 2013 evaluation to
ensure they have been addressed.
The Senior Independent Director and the other Non-executive
Directors have evaluated, and will continue to monitor, the
performance of the Chairman.
Board committees
The Board has a number of Committees consisting of certain
Directors, and in the case of the Executive Committee and CSR
Committee, certain senior managers, to which specific
responsibilities have been delegated and for which written terms of
reference have been agreed. The terms of reference of the Audit,
Remuneration, Nominations and CSR Committees are available for
inspection on the Group’s website at www.ferrexpo.com.
Membership of the various Committees, including the Chairman of
each Committee, is shown below.
The Board periodically reviews the membership of its Committees to
ensure that Committee membership is refreshed and balance and
diversity maintained. This was last done in 2012.
The Group provides the Committees with sufficient resources to
undertake their duties, including access to the Company Secretary.
Tables of attendance of members of the Board and its principal
Committees at meetings during the financial period together with a
summary of the terms of reference are set out below.
Board
Five Board meetings were held during the year.
Board members
M Abrahams
K Zhevago
C Mawe
O Baring
L Genovese
W Kuoni
I Mitiukov
M Salamon
Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
Senior Independent Non-executive
Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Non-executive Director
audit committee
Five Audit Committee meetings were held during the year.
Committee members
W Kuoni
O Baring
L Genovese
I Mitiukov
Chairman
Attendance
record
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
Attendance
record
5/5
5/5
5/5
5/5
Under its terms of reference the Audit Committee is required to meet
at least three times a year at the most appropriate times in the
reporting and audit process. The Committee monitors the integrity of
the financial statements of the Group, including its annual and interim
reports, interim management statements, preliminary results
announcements and any other formal announcement relating to its
financial performance, reviewing the significant financial reporting
issues and judgements that they contain and satisfying itself that
the Annual Report sent to shareholders is fair, balanced and
understandable. The Audit Committee is also responsible for
reviewing internal controls and risk management systems, whistle-
blowing procedures and internal audit processes, and oversees the
relationship with the external auditors.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 59
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remuneration committee
Three Remuneration Committee meetings were held during the year.
Committee members
L Genovese
W Kuoni
I Mitiukov
O Baring
Chairman
Attendance
record
3/3
3/3
3/3
3/3
Committee for reviewing management’s investigation of incidents or
accidents that occur in order to assess whether policy improvements
are required. Further details concerning the activities of the CSR
Committee are set out in the Corporate Responsibility section of the
Strategic Report on page 37.
cID
Five CID meetings were held during the year.
The Remuneration Committee meets at least twice a year, as
required by its terms of reference, and is responsible for reviewing
and approving all aspects of remuneration for the Executive
Directors and members of the Executive Committee. Further details
concerning the Remuneration Committee are set out in the
Remuneration Report on pages 64 and 70.
Committee members
O Baring
M Abrahams
L Genovese
W Kuoni
I Mitiukov
Chairman
Attendance
record
5/5
5/5
5/5
5/5
4/5
nominations committee
One Nominations Committee meeting was held during the year.
Chairman
Committee members
O Baring
M Abrahams
W Kuoni
I Mitiukov
K Zhevago
Attendance
record
1/1
1/1
1/1
1/1
1/1
nominations committee report
The Nominations Committee meets at least once a year, as required
by its terms of reference. The role of the Nominations Committee is
to identify and nominate, for the approval of the Board, candidates to
fill Board vacancies, having due regard to the need for appropriate
balance and diversity (including of gender) on the Board.
In accordance with the need for the non-executive membership of
the Board to be ‘refreshed’ from time to time, the Committee during
2013 started the search for new Directors, with a view to making
new appointments and retiring current Directors from 2014 onwards.
For further details, see the Chairman’s Statement on Corporate
Governance on page 55.
For diversity in the workplace, see ‘Diversity’ in the Strategic Report
on page 39.
cSr committee
One CSR Committee meeting was held during the year.
Committee members
B Maynard
M Abrahams
V Lotous
K Zhevago
Chairman
Attendance
record
1/1
1/1
1/1
1/1
The CSR Committee’s role is to formulate and recommend to the
Board the Group’s policy on corporate safety and social
responsibility issues as they affect the Group’s operations. In
particular it focuses on ensuring that effective systems and
standards, procedures and practices are in place in the Group. The
CSR Committee is responsible in conjunction with the Executive
The CID is composed of the Senior Independent Director (Oliver
Baring), the Chairman of the Board, and the three other Independent
Directors. The Committee considers and, if appropriate, authorises
on behalf of the Board related party transactions within the terms of
Chapter 11 of the Listing Rules of the Financial Conduct Authority and
otherwise ensures compliance with Chapter 11 and with the
Relationship Agreement entered into between Fevamotinico S.a.r.l.,
Mr Zhevago, The Minco Trust and the Company. The CID holds
delegated authority to consider and, if appropriate, authorise
transactions where there is a risk of a conflict of interest of any
member of the Board under the relevant section of the Companies
Act 2006. The CID keeps under review the authorisation and approval
process relating to such transactions (which have previously been
reviewed in detail by the ERPMC (see ‘Conflicts of Interest’ above))
and satisfies itself that Related Party Transactions have been properly
conducted on an arm’s length basis (and, if not in the normal course
of business, have been approved by UKLA), and that no disclosures
have been omitted or misstated in the financial statements.
The Committee’s terms of reference also cover the oversight of
anti-bribery procedure implementation.
The executive committee
The Executive Committee is a key decision making body of the
Group. Its members are detailed on page 54. It is responsible for
managing and taking all material decisions relating to the Group
apart from those that are reserved for the entire Board. It meets
regularly during the year. No meetings are held in the United
Kingdom. It is the responsibility of the Executive Committee to
ensure its duties are at all times set in the context of the
requirements of the Schedule of Matters Reserved for the Board.
The Board has delegated to the Executive Committee responsibility
for the execution of Board-approved strategies for the Group, for
ensuring that appropriate levels of authority are delegated to senior
management, for the review of organisational structures and for the
development and implementation of Group policies.
accountability and audit
Financial reporting
The Board is aware of its responsibility to present a fair, balanced
and understandable assessment of the Group’s financial position
and prospects. This assessment is primarily provided in the Strategic
Report contained in this Annual Report. Statements of the respective
responsibilities of the Directors and auditors are set out on pages 81
to 83.
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audit committee report
The Code recommends that all members of the Audit Committee are
independent Non-executive Directors, and that at least one member
should have recent and relevant financial experience. The Audit
Committee complies with these requirements, and all members
of the Audit Committee are considered to possess appropriate
knowledge and skills. Wolfram Kuoni, an independent Non-executive
Director, is Chairman of the Audit Committee. The terms of reference
of the Audit Committee and attendance by members at its meetings
are outlined on page 58.
During the reporting period the Audit Committee met five times,
and its activities included:
• Reviewing with Ernst & Young, the external auditors, the annual
and interim financial statements and associated documents
and the preliminary results statement, ensuring that all material
information was properly and clearly disclosed.
• Reviewing with Ernst & Young, the scope of the audit work
proposed for 2013 and audit fees.
• Reviewing the risk matrix at each meeting, and discussing with
the Head of Internal Audit the internal audit plan and the findings
of the internal audit reviews conducted during the year.
• Reviewing the Group’s internal controls and risk management
systems.
• Reviewing the Group’s whistle-blowing arrangements.
• Reviewing the effectiveness of the external auditors, the quality
of their auditing work, their independence and the non-audit
services they provided, and considering whether to recommend
their reappointment.
Since the end of the reporting period the Committee has also
considered the potential impact of recent political and economic
disturbances in Ukraine on the financial statements.
A statement on the Board’s position regarding the Group as a going
concern is contained in the Directors’ Report on page 79.
In 2013 the significant issues addressed by the Committee in
connection with the preparation of the Financial Statements were
Ukrainian VAT receivable and associated provisions, the valuation of
Ferrexpo’s investment in Ferrous Resources, and the reporting of
Related Party Transactions. The Committee discussed these matters
with management and the Auditors at intervals through the year.
The VAT situation was monitored monthly by management, and at its
own meetings the Committee reviewed the balances of refunds paid
and outstanding, with their expected periods of payment. Ihor
Mitiukov’s knowledge of the financial constraints facing the Ukrainian
authorities was also helpful to the Committee in reaching a decision.
Related Party Transactions are covered by the Committee of
Independent Directors procedure described on page 57. The Audit
Committee noted the auditors’ work in checking the disclosures in
the Financial Statements.
Regarding the 15.5% investment in Ferrous Resources, the
Committee reviewed the basis of classification as an ‘available-for-
sale’ asset, and the valuation, as disclosed in note 20 and note 37 to
the Financial Statements.
The Board has asked the Committee to state whether it considers
the 2013 Annual Report to be fair, balanced and understandable;
the Committee confirms that it does so.
Internal control and risk Management
The Board has overall responsibility for the Group’s system of
internal control, which includes risk management and reviewing its
effectiveness. The system of internal control is designed to identify,
evaluate and manage significant risks associated with the
achievement of the Group’s objectives. Because of the limitations
inherent in any system of internal control, this system is designed to
meet the Group’s particular needs and the risks to which it is
exposed, rather than eliminate risk altogether. Consequently it can
only provide reasonable and not absolute assurance against material
misstatement or loss.
The Board has delegated its responsibility for reviewing the
effectiveness of these controls to the Audit Committee. The Audit
Committee reviews these systems on an annual basis. The day-to-
day responsibility for managing risk and the maintenance of the
Group’s system of internal control is collectively assumed by the
Executive Committee. Key risk and control issues are reviewed
regularly by the Executive Committee.
On behalf of the Board, the Executive Committee has established a
process for identifying, evaluating and managing the significant risks
faced by the Group in accordance with the Turnbull Guidance. This
process was followed throughout 2013 and up to the date of
approval of this Annual Report. The Group has also adopted a
risk-based approach in establishing the Group’s system of internal
control and in reviewing its effectiveness. To assist in managing key
internal risks, it has established a number of Group-wide
procedures, policies and standards and has set up a framework for
reporting matters of significance.
Full details of the Group’s policy on risk and uncertainties are set out
in note 37 to the financial statements on pages 133 to 141. See also
the Principal Risks section of the Strategic Report on pages 28 to 31
and Appendix 1 – Subsidiary Risks on pages 147 and 148.
The Board has, through the Executive Committee and the Audit
Committee, reviewed the effectiveness of the Group’s system of
internal controls.
As a result of the continual review of internal control procedures,
several key elements have been established within the Group to
ensure a sound system of internal control which is described in
detail below.
These include:
• Regular review of risk and identification of key risks at the
Executive Committee which are reviewed by the Audit Committee
and by the Board.
• Clearly defined organisational and reporting structure and limits of
authority for transaction and investment decisions, including any
with related parties, applied to subsidiary companies including
Ferrexpo Poltava Mining (‘FPM’) and Ferrexpo Yeristovo Mining
(‘FYM’), the key Ukrainian subsidiaries, and the First-DDSG Group
(formerly Helogistics Holdings).
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• Clearly defined information and financial reporting systems,
including regular forecasts and a rigorous annual budgeting
process with reporting against key financial and operational
milestones.
• Rigorous investment appraisal underpinned by the budgetary
process, where capital expenditure limits are applied to delegated
authority limits.
• An Investment Committee (an executive sub-committee) meets
once or twice a month to approve capital expenditures within
limits delegated by the Executive Committee and the Board.
• The Financial Risk Management Committee (‘FRMC’) (an
executive sub-committee) reviews financial information and
management accounts, and meets monthly.
• Clearly defined treasury policy monitored and applied in
•
accordance with pre-set limits for investment and management of
the Group’s liquid resources including a separate treasury
function.
Internal audit by an in-house internal auditor based in Ukraine
(see below) who monitors, tests and improves internal controls
operating within the Group at all levels and reports directly to the
CFO and the Audit Committee.
• A standard accounting manual is used by the finance teams
throughout the Group, which ensures that information is gathered
and presented in a consistent way that facilitates the production
of the consolidated financial statements.
• A framework of transaction and entity level controls to prevent
and detect material error and loss.
• Anti-fraud measures through an independent department
operating in the Group’s key operating subsidiaries FPM and
FYM.
• A whistle-blowing policy is in place under which staff may in
confidence, via an independent, secure website, raise concerns
about financial or other impropriety.
Treasury
Details of the Group treasury policy are referred to in the Strategic
Report on pages 9, 15, 28 to 31 and 35, and in the notes to the
financial statements on pages 133 to 141.
Investment Proposals
A budgetary process and authorisation levels regulate capital
expenditure. For expenditure beyond specified levels, detailed
written proposals are submitted to the Investment and Executive
Committees and then if necessary to the Board for approval.
Internal audit
A Group-wide internal audit function has been established, and
operated during 2013 using an experienced internal auditor based in
Ukraine but independent of operational management, who reported
directly to the CFO and the Audit Committee.
An internal audit programme for 2012–2014, approved by the Audit
Committee, focuses on the areas of risk identified by the risk reviews
carried out on an ongoing basis by the Executive Committee and the
Board. The Committee reviewed the progress of this plan with the
auditors and the Head of Internal Audit periodically during the year,
and were satisfied with the rigour of the audit projects and with
management’s response.
auditor Independence and assessment of audit Process
effectiveness
The Audit Committee and Board place great emphasis on the
independence and objectivity of the Group’s external auditors, Ernst
& Young, when performing their role in the Group’s reporting to
shareholders.
The effectiveness of the audit process and the overall performance,
independence and objectivity of the auditors are reviewed annually
by the Audit Committee, taking into account the views of
management, and the outcome of this review is relayed to the
relevant partners of Ernst & Young. This review takes the form of an
assessment (using a questionnaire) of the auditors’ performance
under various headings: the robustness of the audit, the quality of
delivery, and the calibre of the audit team. In assessing the
effectiveness of the audit process, the Committee also took note of
the information regarding quality assurance processes contained in
Ernst & Young’s 2013 Transparency Report, and the outcome of the
FRC’s Audit Quality Inspection of the firm, published in May 2013.
The Audit Committee also has regular discussions with the external
auditors, without management being present.
The Audit Committee has approved separate policies in respect of
the provision of non-audit services and employment of former
employees of the auditors. These policies ensure that the external
auditors are restricted to providing only those services which do not
compromise their independence. The policy on the provision of
non-audit services prohibits the use of the auditors for the provision
of transaction or payroll accounting, outsourcing of internal audit and
valuation of material financial statement amounts. Any assignment
that is proposed to be given to the auditors above a value of
US$500,000 must first be approved by the Audit Committee or its
Chairman. The auditors are also expected to provide to the Audit
Committee information about policies and processes for maintaining
independence and monitoring compliance with relevant current
requirements, including those regarding the rotation of audit partners
and staff, the level of fees that the Group pays in proportion to the
overall fee income of the firm, and other regulatory requirements.
The Committee reviewed these arrangements during the year and
believes that they are still appropriate.
Fees for audit-related and non-audit-related services performed by
the external auditors are shown in note 9 to the financial statements
on page 107.
recommendation on reappointment of auditors
The Committee considered whether Ernst & Young should be
proposed for reappointment by the shareholders at the 2014 Annual
General Meeting, or whether the audit should be put out to tender as
a matter of policy. The Committee has reviewed the performance of
Ernst & Young during the year and, taking into account their general
satisfaction with the auditors and the rotation of audit partners in
2012, the Committee agreed to recommend to the Board that Ernst
& Young should be proposed for reappointment for another year.
Ernst & Young were appointed as auditors to the Company in June
2007, prior to the Listing in London. Under current FRC guidance,
the next audit tender would not be required until the 2022 year-end;
however, the Committee will continue to monitor the proposed
requirements in relation to audit tendering and mandatory auditor
rotation from the Competition Commission and the EU and will
consider the appropriate response in due course.
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Implementation of requirements of UK Bribery act 2010
At the time of the introduction of the Bribery Act in July 2011, and
following a thorough risk assessment and the establishment of due
diligence procedures for business counterparties, all employees
were informed (and given instruction where necessary) about the
policies and procedures introduced in order to ensure compliance
with the Act (which took the form of the Group Policy on Bribery and
Corruption). The Board delegated responsibility for implementing the
Policy and monitoring its effectiveness to an anti-bribery compliance
officer (currently the CFO), who reports to the CID at its meetings
and makes any recommendations arising from the meetings to the
full Board. The training given in 2011 was repeated, and extended
where appropriate to other employees, in 2013.
relations with Shareholders
The Board attaches great importance to effective communication
with shareholders. Executive Directors and senior executives have
frequent discussions with institutional shareholders on a range of
issues affecting the Group’s performance, which include meetings
following the announcement of the annual and interim results. The
Chairman, the CEO, the CFO, and the Head of Investor Relations
meet major shareholders and analysts regularly to discuss
performance, strategy and governance, and the Non-executive
Directors are available for discussions with shareholders if required.
J.P. Morgan Cazenove, the Group’s brokers, also provide regular
reports to the Board on changes to the shareholdings of the Group’s
major investors. Information about the views of major investors is
provided to the Board on a regular basis by the CEO, the CFO and
the Head of Investor Relations.
The Board uses the Annual General Meeting (‘AGM’) each year to
communicate with shareholders and welcomes their participation.
The Chairmen of the Audit, Remuneration and Nominations
Committees normally attend the AGMs and are ready to answer
questions from shareholders, as required. Notice of the AGM and
related papers are sent to shareholders at least 20 working days
before the meeting. The voting results of the AGM are available on
the Company’s website following the meeting.
Information on matters of interest to investors can be found on the
Group’s website at www.ferrexpo.com.
The Board approved this report on 11 March 2014.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 63
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The remuneration of Mr Zhevago and Mr Mawe (the ‘Executive
Directors’) is disclosed in local currency and allows year-on-year
comparison, uninfluenced by exchange rate fluctuations on notional
translation into US Dollars. A 1% increase to the salary of Mr Mawe
(the ‘CFO’) was made during the year; no other significant changes
were made to executive pay or incentives during the year. As stated
above, it is in the interests of shareholders to align the incentives of
the executives and the shareholders, and the Board continues to
review the structure and level of remuneration afforded through
share options and ownership in relation to variable and fixed pay.
In line with the new regulations for reporting Directors’ remuneration,
this report is divided into two distinct sections; the first (Part A)
outlines Ferrexpo’s forward-looking remuneration policy for
Executive and Non-executive Directors, setting out components of
pay, how they are linked to the business strategy, and incentive
opportunities for the Executive Directors. The second (Part B)
reviews how the Company’s remuneration policy was implemented
in 2013 and includes a table showing a single figure of total
remuneration for the Directors.
Lucio genovese
chairman of the remuneration committee
r e M U n e r a T I o n r e P o r T
Introduction
This Report has been prepared by the Remuneration Committee
(the ‘Committee’) on behalf of the Board in accordance with the
requirements of the Listing Rules of the UK Listing Authority,
Schedule 8 of the Large and Medium-Sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 and the UK
Corporate Governance Code. Part A of the report, which is not
subject to audit, sets out the Company’s remuneration policy. Part B
provides details of remuneration and share incentives of the
Directors for the year ended 31 December 2013. The sections
subject to audit are highlighted throughout. Part A will be subject to
a binding shareholder vote at the Company’s 2014 AGM and Part B
to an advisory vote.
Summary Statement
a Statement to Shareholders from the chairman of the
committee
On behalf of the Board, I am pleased to introduce the Directors’
Remuneration Report for the year ended 31 December 2013.
The Company has continued to grow during the year, executing its
strategy by increasing production and sales, reducing the risk
profile of the business by diversifying the customer profile and
developing its logistics capabilities, whilst investing within the
means of its balance sheet. The profitability of the Company has
increased, driven by higher volumes along with higher average
commodity prices. The Committee believes that this performance
is fairly reflected in executive remuneration outcomes for the year,
as set out in this report taking into consideration the comments
regarding Mr Zhevago (the ‘CEO’) below.
It is the policy of the Board to align executive and shareholder
interests by linking a high proportion of remuneration to performance,
basing rewards on a balanced portfolio of performance measures,
and assessing them against the relevant market so as to ensure that
they attract, motivate and retain talented executives. The CEO’s
incentive is derived entirely from his shareholding in the Company,
and his salary is paid at a flat rate of US$240,000 per year all of which
is donated to charity. The Board considers this large shareholding in
the business to be a significant factor in aligning the performance of
the CEO with other shareholders’ interests, and is satisfied that this
structure is appropriate.
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P a r T a : P o L I c y S e c T I o n
committee
Terms of reference for the Committee have been approved by the Board, and its duties include the determination of the policy for the
remuneration of the Executive Directors and the members of the Executive Committee, as well as their specific remuneration packages,
including pension rights and, where applicable, any compensation payments. In determining such policy, the Committee is expected to take
into account all factors which it deems necessary to ensure that members of the senior executive management of the Group are provided
with appropriate incentives to encourage strong performance and are, in a fair and responsible manner, rewarded for their individual
contributions to the success of the Group.
The composition of the Committee and its terms of reference comply with the provisions of the Corporate Governance Code and are
available for inspection on the Group’s website at www.ferrexpo.com
Key Principles of the remuneration Policy
Ferrexpo’s remuneration policy is designed to help attract, motivate and retain talented executives to help drive the future growth and
performance of the business. The policy aims to:
• align executive and shareholder interests;
•
• reward a balanced portfolio of performance measures (e.g. relative Total Shareholder Return (‘TSR’) outperformance of sector peers,
link a high proportion of remuneration to performance;
annual business priorities and individual performance); and
• provide competitive rewards assessed against the relevant market to attract, motivate and retain talented executives.
In determining the Company’s remuneration policy, the Committee takes into account the particular business context of the Group,
the industry segment, the geography of its operations, the relevant talent market for each executive, the location of the executive and
remuneration in that local market and best practice guidelines set by institutional shareholder bodies. The Committee will continue to give
full consideration to the principles set out in the UK Corporate Governance Code in relation to Directors’ remuneration and to the guidance
of investor relations bodies.
executive Director Policy Table
This section of our report summarises the policy for each component of Executive Director remuneration, which will apply from the date of
the 2014 AGM in respect of payments to both current and future Executive Directors (but see also ‘Remuneration policy for new
appointments’ below). The Chief Executive takes a salary of US$240,000 per year which is all paid to charity (net of applicable income taxes)
with no performance related pay as described earlier in this report, and his incentive is derived entirely from his shareholding in the
Company. The Board considers this large shareholding in the business to be a significant factor in aligning the performance of the CEO with
other shareholders’ interests, and is satisfied that this structure is appropriate. At the current time, most of these policies below are therefore
not applicable to the current CEO other than those related to benefits and pensions.
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Purpose and link to strategy
Operation
Opportunity
Performance metrics
Fixed pay
Base salary
To attract and retain talent by ensuring
base salaries are competitive in the
market in which the individual is
employed.
Pension
To provide retirement benefits.
Benefits
Competitive in the market in which the
individual is employed.
variable pay
Short-Term Incentive Plan (‘STIP’)
To focus management on delivery of
annual business priorities which tie into
the long-term strategic objectives of
the business which include but are not
limited to developing the reserve base,
increasing production, reducing costs,
reducing the risk profile of the business,
expanding the customer portfolio,
expanding geographically.
Base salaries are reviewed annually, with
reference to the individual’s role, experience
and performance; business performance;
salary levels for equivalent posts at relevant
comparators; cost of living and inflation;
and the range of salary increases applying
across the Group.
Base salary increases are applied in line
with the outcome of the review which
will not exceed 5% p.a. or if higher the
applicable RPI in any year. Increases above
this level may be applied where appropriate
to reflect changes in the scale, scope and
responsibility attaching to the role and
market comparability.
Executive Directors will as appropriate be
offered membership of a scheme which
complies with relevant legislation. Where
necessary, additional pension entitlements
will be provided.
The employer contribution will be a
percentage of pensionable salary and
associated benefits (excluding variable
pay) at a level that complies with local
statutory requirements.
Benefits are paid to comply with local
statutory requirements and as applicable
to attract or retain executives of a suitable
calibre. They include life insurance, and
medical insurance. Where appropriate,
additional benefits may be offered
including, but not limited to, allowances
for accommodation, relocation, tax
advice and legal advice.
Benefits values vary by role and eligibility
and cost are reviewed periodically.
Increases to the existing benefits will
not normally exceed applicable inflation.
Increases above this level may be applied
where appropriate to reflect changes in
role, scope, location and responsibility.
Business and, where relevant for
current Executive Directors, individual
performance are considerations in setting
base salary.
Not performance related.
Not performance related.
Maximum opportunity of 150% of salary.
Performance related.
Targets are set at the start of the year
against which performance is measured.
The Committee determines the extent
to which these have been achieved. The
Committee can exercise discretion to
adjust the formulaic outcome within the
limits of the plan for factors outside of
management control where it believes
the outcome is not truly reflective of
performance or in line with overall
Company performance.
The STIP does not contain claw back
provisions.
Long-Term Incentive Plan (‘LTIP’)
To motivate participants to deliver
appropriate longer-term returns to
shareholders by encouraging them to see
themselves not just as managers, but as
part-owners of the business.
The LTIP framework was approved by
shareholders at the 2008 AGM. To the
extent that an LTIP award vests, this will
include the applicable dividends on the
shares earned during the vesting period.
The LTIP provides for annual awards of
performance shares and options up to
an aggregate limit of 200% of salary in
normal circumstances. This limit may be
exceeded in exceptional circumstances
but will not exceed 300% of salary.
The LTIP does not contain claw back
provisions.
The threshold opportunity is 20% of
maximum.
Performance measures can include
financial, non-financial and personal
achievement criteria measured over one
financial year.
Details of the performance measures and
weightings for the STIP in 2014 are set out
in Part B under ‘STIP framework for 2014’.
The Committee has discretion to make
changes in future years to reflect the
evolving nature of the strategic imperatives
that may be facing the Company.
Vesting of LTIP awards is subject to
the Company’s relative TSR against
a comparator group over a period of
at least three years and continued
employment. In addition, for any shares
to vest, the Committee must be satisfied
that the recorded TSR is a fair reflection
of Ferrexpo’s underlying business
performance.
Details of the performance targets for
the LTIP are set out in Part B under ‘LTIP
granted in 2013’.
The Committee reviews the LTIP
performance conditions, in advance of
granting each LTIP cycle. Over the life of
this policy relative TSR will be retained as
a performance measure and will have a
weighting of at least 50%.
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rationale for Performance Measures
The STIP is based on performance categories that are key to delivering on our long-term strategy. Performance measures are set at the
beginning of the financial year to reflect business priorities and other corporate objectives, and can include financial, non-financial and
personal achievement criteria.
Performance targets are set at such a level as to be stretching but achievable, with regard to the particular strategic priorities and economic
environment in a given performance period. The STIP target is based on the annual budget approved by the Board. Where appropriate, the
Committee sets a performance zone (Threshold to Stretch) around the Target, which it considers provides an appropriate degree of ‘stretch’
challenge and an incentive to outperform. The Committee believes that using multiple targets for the purposes of the STIP provides for a
balanced assessment of performance over the year.
For the LTIP, the Committee believes that relative TSR is the most objective external measure of the Company’s success over the longer
term. Relative TSR helps align the interests of Executive Directors with shareholders by incentivising share price growth and, in the
Committee’s view, provides an objective measure of long-term success. The Committee has discretion to review the comparator index if any
of the constituent companies is affected by corporate events such as mergers and acquisitions. The Committee also reviews the
constituents and their weightings prior to the start of each LTIP cycle in order to ensure that they remain appropriate. Details of the
comparator group will be set out in the Annual Report on remuneration for the year immediately following the year in which the grant is
made.
Share ownership guidelines
With effect from the grant of 2010 LTIP awards (which vested in 2013), Executive Directors and members of the Executive Committee are
encouraged, in line with the growing practice among FTSE 250 companies, to build up a holding of shares of equivalent value to a year’s
base salary (in the case of Executive Directors) or six months’ base salary (for other members of the Executive Committee). Executives will be
encouraged to retain their vested LTIP shares on an after-tax basis until the applicable guideline level is achieved.
remuneration of Senior executives Below the Board
The policy and practice with regard to the remuneration of senior executives below the Board is consistent with that of the Executive Directors.
Senior executives participate in the LTIP with the same performance measures applied as for the CFO. Long-term incentive awards may be
granted to participants below the Board without performance conditions, for example, if it is considered necessary to attract executives of
the appropriate calibre.
Payments resulting from existing awards
Executive Directors are eligible to receive payment resulting from the vesting of any award made prior to the approval and implementation of
the remuneration policy detailed in this report.
non-executive Director Policy Table
This section of our report summarises the policy for each component of Non-executive Director remuneration.
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Fees
To attract and retain talent by ensuring
fees are market competitive and reflect
the time commitment required of Non-
executive Directors in different roles.
Not performance related.
Non-executive Director fees increases
are applied in line with the outcome of
the review.
The maximum aggregate fees, per
annum, for all Non-executive Directors
allowed by the Company’s Articles of
Association is £5,000,000.
Annual fee for the Chairman.
Annual base fee for Non-executive
Directors. Additional fees are paid to the
Senior Independent Director and the
Chairmen of the Committees as well as
for representation on subsidiary boards,
where appropriate, to reflect additional
responsibility
Fees are reviewed from time to time,
taking into account the time commitment,
responsibilities, and fees paid by
comparable companies, and also taking
into consideration geography and risk
profile.
Additional fees may be payable to Non-executive Directors in exceptional circumstances, e.g. if there is a material increase in time
commitment. Non-executive Directors are not eligible to participate in any incentive plans, or receive benefits or any additional elements of
remuneration to that stated above.
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Pay-for-Performance: Scenario analysis
The CEO does not participate in any incentive plan, for the reasons stated in the introduction to this report. Under all scenarios, therefore, his
remuneration, which is donated to charity, remains as set out in Section B of this report. For the CFO who is the remaining Executive
Director, the graph below provides estimates of the potential future reward opportunity and the potential split between the different elements
of remuneration under three different performance scenarios; ‘Below threshold’, ‘Target’ and ‘Maximum’.
CFO (CHF000s)
Maximum
Target
Below
threshold
0
40%
55%
100%
Fixed
STIP
LTIP
44%
16%
2,202
41%
4%
1,594
872
500
1,000
1,500
2,000
2,500
In illustrating potential reward opportunities the following assumptions have been made:
Scenario
Maximum
Target
Maximum STIP (150% of salary)
Performance warrants full vesting1
STIP
LTIP
Fixed pay
On target STIP (100% of salary)
Performance warrants
threshold vesting (20%)1
Base salary,
pension, and benefits
as at 1 January 2014
Below threshold
No STIP payable
Threshold not achieved (nil)
1 Excludes increase in value arising from share price growth.
Potential reward opportunities illustrated above are based on the policy which will apply in 2014, applied to the base salary in force at 1
January 2014. For the STIP, the amounts illustrated for the CFO are those potentially receivable in respect of performance for 2014. For the
LTIP awards, it should be noted that the LTIP awards do not normally vest until the end of three years following the beginning of the year in
which they were granted. For the LTIP awards, the award opportunity for the CFO is assumed to remain the same number of shares as in
2013 (i.e. 130,000 shares for the CFO) and the face value is estimated using the average share price over Q4 2013 of 183 pence).
remuneration Policy for new appointments
The Committee’s approach to setting remuneration for new Executive Directors is to ensure that the Company’s pay arrangements are in
the best interests of Ferrexpo and its shareholders. To do this, the Company takes into account internal pay levels, the external market,
location of the executive and remuneration received at the previous employer. The Committee reserves discretion to offer appropriate
pension and benefit arrangements, which may include the continuation of benefits received in a previous role. Variable pay awards
(excluding any potential ‘buy-out’ awards, described below) for a newly appointed Executive Director will be as described in the Policy
table, subject to the same maximum opportunities. Different performance measures may be set initially for the STIP and LTIP awards,
taking into account the responsibilities of the individual, and the point in the financial year at which he or she joined, and subject to the rules
of the plan. The rationale will be clearly explained in each case.
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In addition, the Committee may make an award in respect of a new appointment to ‘buy out’ existing incentive awards forfeited on leaving a
previous employer. In such cases the compensatory award would typically be on a like-for-like basis with similar time to vesting, performance
measures and likelihood of the targets being met. The fair value of the buy-out award would not be greater than the awards being replaced.
To facilitate such a buy-out the Committee may grant a bespoke award under the Listing Rules exemption available for this purpose.
In cases of appointing a new Executive Director by way of internal promotion, the Group will honour any contractual commitments made
prior to his or her promotion to Executive Director.
In every case, the Board will pay both the appropriate but also the necessary rate of pay to attract an executive who in the view of the Board
will contribute to shareholder value.
The approach to setting Non-executive Director fees on appointment is in line with the approach taken for the fee review set out in the
Non-executive Director policy table earlier in this report, and will also take into account fee levels for existing Non-executive Directors.
Details of executive Directors’ Service contracts
The Executive Directors are employed under contracts of employment with Ferrexpo AG, a Group company (the ‘employer’). The Committee
sets notice periods for the Executive Directors at 12 months or less, which reduces the likelihood of having to pay excessive compensation in
the event of poor performance.
The principal terms of the Executive Directors’ service contracts (which have no fixed term) not otherwise set out in this report are as follows:
save in circumstances justifying summary termination, Mr Zhevago’s service contract with the employer is terminable on not less than six
months’ notice to be given by the employer or by Mr Zhevago, and Mr Mawe’s service contract with the employer is terminable on not less
than twelve months’ notice to be given by the employer or not less than six months’ notice to be given by Mr Mawe.
Executive Director
K Zhevago
C Mawe
Position
CEO
CFO
Date of contract
From employer From employee
Notice period
1 November 2008
6 months
7 January 2008 12 months
6 months
6 months
Under the service contracts, the Executive Directors are entitled to 25 working days’ paid holiday per year.
The Executive Directors’ service contracts contain a provision exercisable at the option of the employer to pay an amount on early
termination of employment equal to the respective notice period. If the employer elects to make such a payment (which in practice it will
do if the speed and certainty afforded by this provision are thought to be in the best interests of shareholders), the Executive Director will
be entitled under his contract to receive all components of his base salary, accrued but untaken holiday and expenses for the extent of the
notice period, including for Mr Mawe a pro rated performance-related payment under the STIP (where the employer terminates employment),
which reflects the practice in the Group at the time when Mr Mawe was appointed. Mr Mawe’s entitlement to a pro rated performance-
related payment where the employer terminates his employment will not be replicated in the service contracts of future Executive Directors.
In addition to the contractual rights to a payment on loss of office, any employee including the Executive Directors may have additional
statutory and/or common law rights to certain additional payments, for example in a redundancy situation.
Policy for Loss of office Payments
The following principles apply when determining payments for loss of office for the Executive Directors and any new Executive Directors.
The employer will take account of all relevant circumstances on a case by case basis including (but not limited to): the sums stipulated in the
service contract (including base salary during his or her notice period, accrued but untaken holiday, and allowances/benefits but excluding
STIP, save in the case of Mr Mawe); whether the Executive Director has presided over an orderly handover; the contribution of the Executive
Director to the success of the Company during his or her tenure; and the need to compromise any claims that the Executive Director may
have. The Company may, for example, if the Committee considers it to be necessary:
• enter into agreements with Executive Directors which may include the provision of legal fees or the settlement of liabilities in return for a
single one-off payment or subsequent payments subject to appropriate conditions;
• terminate employment other than in accordance with the terms of the contract (bearing in mind the potential consequences of doing so);
or
• enter into new arrangements with the departing Executive Director (for example, consultancy arrangements).
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If the individual is considered a ‘good’ leaver (e.g. for reasons of death, ill-health, injury or disability; his employing company ceasing to be a
member of the Group; the business (or part) of the business in which he is employed being transferred to a transferee which is not a member
of the Group; or any other reason which the Committee in its absolute discretion permits) any outstanding LTIP awards will be pro rated for time
and performance conditions will be measured. The Committee retains discretion to alter these provisions (as permitted by the relevant plan
rules) on a case-by-case basis following a review of circumstances, in order to ensure fairness to both shareholders and participants. In
considering the exercise of discretion as set out above, the Committee will take into account all relevant circumstances which it considers are
in the best interests of the Company for example, ensuring an orderly handover, performance of the executive during his tenure as Director,
performance of the Company as a whole and perception of the payment amongst the shareholders, general public and employee base.
In the event of a change of control, the vesting period under the LTIP ends and awards may be exercised or released to the extent to which
the performance conditions have, in the Committee’s opinion, been achieved up to that time. Pro rating for time applies but the Committee
has discretion to allow awards to be exercised or released to a greater or lesser extent if it considers it appropriate having regard to the
circumstances of the transaction and the Company’s performance up to the date of the transaction.
It is the Committee’s policy to review contractual arrangements prior to new appointments in the light of developments in best practice. The
Executive Directors’ service contracts are available to view at the Company’s registered office.
external appointments
It is the Board’s policy to allow the Executive Directors to accept directorships of other quoted companies provided that they have obtained
the consent of both the Chairman of the Board and which should be notified to the Board. Details of external directorships of quoted
companies held by Executive Directors, along with fees retained, are as follows:
Executive Director
K Zhevago
C Mawe
Company
Role(s) held
Fees retained
New World Resources plc1
–
Non-executive Director
–
Nil2
–
1 Directorship ceased 24 February 2014.
2 The fee was donated to various charities.
Details of non-executive Directors’ Letters of appointment
Neither the Chairman nor any of the Non-executive Directors has a service contract with the Company; however, each has entered into a
letter of appointment with the Company. The Non-executive Directors are each appointed for an initial period of three years, and their
appointments may then be renewed on a three-yearly basis, subject to re-election when appropriate by the Company in general meeting; in
2011 the Company adopted the practice of annual re-election of all Non-executive Directors. Unless otherwise determined, neither the
Company nor the Director concerned may give less than three months’ notice of termination of the appointment. The key terms of current
letters of appointment are as follows:
Non-executive Director
Position
Date of appointment
Date of re-election
M Abrahams
O Baring
L Genovese
W Kuoni
I Mitiukov
M Salamon
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
14 June 2007
1 December 2007
14 June 2007
14 June 2007
14 June 2007
27 March 2009
Annual re-election
Annual re-election
Annual re-election
Annual re-election
Annual re-election
Annual re-election
employee context
In making remuneration decisions, the Committee also considers the pay and employment conditions throughout the Group. Prior to the
annual pay review and throughout the year, the Committee receives reports from the CEO setting out the circumstances surrounding, and
potential changes to, broader employee pay. The CEO consults as appropriate with key employees and the relevant professionals
throughout the Group. This forms part of the basis for determining increases in Executive Director and senior executive remuneration which
also takes into consideration factors detailed earlier in this report.
consideration of Shareholder views
The Committee takes into consideration views expressed by shareholders regarding remuneration, either at the AGM, one to one or group
meetings and shareholder events or otherwise by considering these views at the relevant Committee meetings which are subsequently
reported to and if appropriate considered by the Board as a whole. The Committee takes shareholder feedback into careful consideration
when reviewing remuneration and regularly reviews the Directors’ remuneration policy in the context of key institutional shareholder
guidelines and best practice. It is the Committee’s policy to consult with major shareholders prior to making any major changes to its
executive remuneration structure. Details of shareholder consultations carried out during the year are included below in Part B of this
Remuneration Report.
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P a r T B : r e M U n e r a T I o n I n 2 0 1 3
The following section provides details of how the remuneration policy was implemented during the year.
committee Membership in 2013
The Committee comprises four independent Non-executive Directors. Lucio Genovese is the Chairman of the Committee, and its other
members are Oliver Baring, Wolfram Kuoni and Ihor Mitiukov. The Committee met three times during the year. Attendance at meetings by
individual members is detailed in the UK Corporate Governance Report on page 59. A summary of the topics discussed at each meeting in
2013 is detailed below:
• Review of remuneration of Executive Directors and members of the Executive Committee, including STIP outcomes and targets.
• LTIP performance and the Company’s performance compared to its peers.
• General market considerations surrounding executive remuneration packages and structure.
• Performance evaluation of the Committee.
The CEO usually attends meetings of the Committee at the invitation of the Chairman of the Committee, and the Company Secretary acts as
secretary to the Committee. No Director is present when his own remuneration is being discussed.
advisers
The Committee retains Kepler Associates to provide advice on remuneration policy, with particular emphasis on the structure of long-term
incentives for senior management and the provision of annual benchmark reports on executive and non-executive remuneration. Kepler
Associates is a member of the Remuneration Consultants Group and adheres to its code of conduct. Other than advice to the Committee
no other services were provided by Kepler Associates to the Group. The fees paid to Kepler Associates in respect of work carried out in
2013 totalled £35,765 based on time and materials. The advice of the remuneration consultants is considered to be objective and
independent based on the professional qualifications, reputation and expertise of the company involved.
The CEO provides guidance to the Committee on remuneration packages of senior executives employed by the Group (but not in respect of
his own remuneration).
Single Total Figure of remuneration – audited
The table below sets out in a single figure for each currency of payment the total remuneration received by each Executive Director for the
year ending 31 December 2013 and the prior year.
All figures shown in currency of payment
1 Salary
2 Benefits
3 STIP
4 LTIP
5 Pension
Total
K Zhevago (CEO)
2013
2012
C Mawe (CFO)
2013
US$240,000
US$nil
–
–
cHF2,685
US$240,000
US$49,000
–
–
CHF2,000
cHF638,750
cHF168,000
cHF767,689
£52,486
cHF52,219
2012
CHF632,000
CHF168,000
CHF650,000
£235,000
CHF48,000
US$240,000
plus cHF2,685
US$289,000
plus CHF2,000
cHF1,626,658
plus £52,486
CHF1,498,000
plus £235,000
6 Total (single currency)
US$242,896
US$291,134
cHF1,704,646
CHF1,660,150
The figures have been calculated as follows:
1 Base salary: amount earned for the year.
2 Benefits: the taxable value of benefits received in the year (accommodation allowance).
3 STIP: this is the total bonus earned on performance during the year. Further details are provided on pages 65, 67, 71 and 72.
4 LTIP: the market value of shares that vested on performance to 31 December of the relevant year (2013: 22.9% vested on performance;
2012: 91% vested on performance). The market value is based on the share price on the respective dates of vesting: 31 December 2013 of
191.0 pence and of 31 December 2012, 251.2 pence. Further details are provided on pages 65, 67 and 72 to 74.
5 Pension: Valued in accordance with sections 230 to 232 of the Finance Act 2004 for cash balance arrangement schemes. Other formulae
(such as 20 times the increase in the value of accrued benefit over the year) are not considered appropriate since this is not a classic
Defined Benefit scheme (see ‘Pensions and other Benefits’ below), and for expatriate staff the pension is repaid as a lump sum on leaving
the country.
6 Average exchange rates: 2013 - US$1 = CHF0.9272, CHF1 = £0.673; 2012 – US$1 = CHF0.9372, CHF1 = £0.690.
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The table below sets out in a single figure for each currency of payment the total remuneration received by each Non-executive Director for
the year ending 31 December 2013 and the prior year.
All figures shown in
currency of payment,
US$000
Fees
STIP
LTIP
Pension
Total
Total (single
currency)
M Abrahams
O Baring1
L Genovese2
W Kuoni3
I Mitiukov
M Salamon
2013
500
–
–
–
2012
500
–
–
–
2013
200
–
–
–
2012
190
–
–
–
2013
230
–
–
–
2012
230
–
–
–
2013
265
–
–
–
2012
265
–
–
–
2013
150
–
–
–
2012
150
–
–
–
2013
150
–
–
–
2012
150
–
–
–
500
500
200
190
230
230
265
265
150
150
150
150
500
500
200
190
230
230
265
265
150
150
150
150
1 Oliver Baring receives a fee of US$150,000 p.a. as a Non-executive Director and an additional fee of US$60,000 p.a. in total (increased from US$40,000 in July 2013) for his roles as Senior
Independent Director, Chairman of the Nominations Committee and Chairman of the Committee of Independent Directors.
2 Lucio Genovese receives a fee of US$150,000 p.a. as a Non-executive Director and additional fees of US$40,000 p.a. for his role as Chairman of the Remuneration Committee and US$40,000
for his role as a Non-executive Director of Ferrexpo AG.
3 Wolfram Kuoni receives a fee of US$150,000 p.a. as a Non-executive Director and additional fees of US$40,000 p.a. for his role as Chairman of the Audit Committee and US$75,000 for his role
as a Non-executive Director and as Chairman of Ferrexpo AG.
Implementation of remuneration Policy
Salary
Base salaries are reviewed annually, with reference to the individual’s role, experience and performance; business performance; salary levels
at relevant comparators; and the range of salary increases applying across the Group. During the year the Committee considered pay levels
against international mining comparators and other FTSE-listed companies of similar size with executives based in similar geographic
locations. Following this review the Committee decided to increase Mr Mawe’s salary by 2% from 1 January 2014. Mr Zhevago’s salary,
which he donates to Ukrainian charities, remained unchanged at US$240,000.
Executive Director
K Zhevago
C Mawe
Base salary at:
Position
1 January 2014
1 January 2013
Increase
CEO
CFO
US$240,000
US$240,000
CHF651,525 cHF638,750
0%
2%
Pensions and other Benefits – audited
The Group does not operate a separate pension scheme for Executive Directors. Mr Mawe and Mr Zhevago are members of the Ferrexpo
AG pension plan which is a mandatory insurance scheme under Swiss law, provided for all employees of Ferrexpo AG, to which the
Company contributes an average of 6% of their annual base salaries.
K Zhevago
C Mawe
Increase in
value for 2013
less Director’s
contribution
(CHF000)
Total cash
value at end
of 2013
(cHF000)
3
52
30
425
Normal
retirement
date
7.1.39
31.1.27
No additional benefit is receivable should an Executive Director retire early.
Mr Zhevago is entitled to, but in 2013 made no claim in respect of, furnished accommodation in Switzerland (and elsewhere in Europe if
necessary for the performance of his duties), and up to US$5,000 for professional tax advice. Ferrexpo AG provides Mr Mawe with
CHF168,000 of accommodation allowance per annum which is subject to periodic review in line with CPI inflation.
Pension and other benefits will operate as set out in the Executive Director Remuneration Policy set out earlier in the report.
2013 STIP outcome – audited
The Company, as a single product producer of Iron Ore Pellets with a focused customer portfolio, sets its performance targets to ensure that
the CFO and senior executives are motivated to enhance shareholder value in the short term but also in the long term. As such, these targets
are specific and include both financial and operational measures which by their nature are commercially sensitive.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 72
g o v e r n a n c e
r e M U n e r a T I o n r e P o r T continued
Key performance targets for 2013 were set at the start of the year for the CFO and senior executives and were weighted to reflect the
contribution of the CFO to the achievement of that target. Targets during the year related to financial performance, operational performance,
safety (behavioural safety initiatives and improvements in lost-time accident statistics), and project performance, as well as personal targets
relating to operational and corporate development objectives. Financial and operational targets were adjusted, as in previous years, to take
account of market and raw material cost price developments and mining plans as appropriate, to the extent that these were not under the
direct control of management. Adjustments were at the full discretion of the Committee. The level of achievement against each of the targets
for FY2013 as determined by the Committee for the CFO is summarised below. The targets themselves have not been disclosed, as the
Committee considers that they are commercially sensitive.
KPI
Financial
Operational
CSR and safety
Development projects
Personal and governance
Total
EBITDA
NOPAT
Production
Sales volume
Weighting
for CFO FY2013 assessment
22.5%
Above target
At stretch
20%
Between target and stretch
Below threshold
10% Between target and stretch
Below target
Between target and stretch
47.5%
100%
Max bonus as
% of salary
Actual bonus
as % of salary
33.75%
30%
15%
71.25%
19.7%
7.5%
19.2%
0%
12.5%
6.3%
55%
150%
120.2%
Target STIP opportunity (as a percentage of salary) may be varied as appropriate to take account of changes in role, responsibility or scope.
No payment is made under the STIP if performance is below threshold. For the CFO, threshold performance earns a bonus of 50% of salary,
on-target performance 100%, and stretch performance 150%.
The Committee considered the CFO’s personal performance, as well as CSR and project performance, during 2013. Taking his overall
performance and taking into account specific commercially sensitive targets the Committee awarded a bonus of 120.2% of salary to
the CFO.
STIP Framework for 2014
The STIP framework for 2014 is in line with the principles of the Remuneration Policy and 2013 framework. CSR, projects and personal KPIs
continue to be set as in previous years. Mr Mawe’s 2014 STIP opportunity is 150% for maximum performance, and 100% of salary for target
performance. The measures and weightings for the STIP in 2014 are shown in the table below. Due to commercial sensitivity, details of
performance targets will be disclosed in arrears and in certain instances will be aggregated. The CEO does not participate in the STIP.
KPI
Financial (EBITDA, NOPAT)
Operational (Production, sales volume)
CSR and safety
Personal, projects, governance
Total
Weighting
for CFO
17.5%
22.5%
10.0%
50.0%
100%
2011 LTIP award vesting – audited
The performance period for the 2011 LTIP awards ended on 31 December 2013. The 2011 LTIP rewarded TSR outperformance of a tailored
comparator group, as set out on page 73. Under the 2011 LTIP, 20% of maximum would vest for TSR performance in line with the Index,
with full vesting for TSR outperformance of 8% p.a. The constituents of the comparator group are set out on page 73. Brockman Resources
and Xstrata were acquired during the performance period and were therefore dropped from the 2011 LTIP comparator group.
Ferrexpo’s TSR performance relative to the weighted index was assessed by Kepler Associates. From 1 January 2011 to 31 December 2013,
outperformance of Index TSR by 0.3% p.a. resulted in 22.9% of the 2011 LTIP awards vesting.
The Committee has considered the Company’s overall performance and determined that the recorded TSR outperformance was a fair
reflection of Ferrexpo’s underlying performance over the performance period and has therefore determined, in accordance with the rules of
the plan that 22.9% of the 2011 LTIP awards vested.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 73
g o v e r n a n c e
LTIP granted in 2013 – audited
The 2013 LTIP grant to Mr Mawe is outlined below.
Date of grant
Number of
shares
Face value
(£)
Face value
(% salary)
Vesting for
minimum
performance
(% of
maximum)
End of
performance
period
C Mawe
23.04.2013
130,000
£265,2001
62%1
20% 31.12.2015
1 Based on average share price for the last six months of 2012, 204 pence and average 2013 exchange rate of CHF1=£0.673.
The Committee reviewed the constituents of the comparator index and their weightings prior to the grant of 2013 LTIP awards and dropped
China Vanadium and Gindalbie Metals, and added African Minerals. The constituents of the Index for the last three cycles are summarised in
the table below:
Weighting
2011
2012
2013
Focused iron ore miners
African Minerals
Atlas Iron
China Vanadium
Cliffs
Fortescue Metals
Gindalbie Metals
Kumba Iron Ore
MMX Mineracao
Mount Gibson
Northern Iron
global diversified miners
Anglo American
BHP Billiton
Rio Tinto
Vale
Xstrata1
Single commodity/emerging market miners
African Rainbow Minerals
Alcoa
Alumina
Aluminium Corp of China
Antofagasta
Boliden
Eramet
ENRC
First Quantum Minerals
Freeport McMoRan
Industrias Penoles
Katanga Mining
Kazakhmys
KGHM Polska Miedz
Lundin Mining
Norilsk
OZ Minerals
Peabody Energy
Teck Cominco
Vedanta Resources
1
It is intended that Xstrata will be replaced by Glencore Xstrata for future LTIP cycles.
40%
50%
10%
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 74
g o v e r n a n c e
r e M U n e r a T I o n r e P o r T continued
TSR is calculated on a common currency basis to ensure that comparisons with international comparators listed overseas are fair. As
described in previous reports, the TSR share price averaging period was extended from three to six months for LTIP awards granted in 2011
onwards to help improve the comparison of the management long-term incentive in relation to potential short-term movements in Ferrexpo’s
share price or the share price of comparator companies.
No performance shares will vest if Ferrexpo’s TSR underperforms the comparator index. 20% will vest if Ferrexpo’s TSR is equal to Index
TSR; full vesting will occur only if Ferrexpo’s TSR exceeds the Index by at least 8% p.a.; there will be straight-line pro rata vesting in between
those points. In addition, for any shares to vest, the Committee must be satisfied that the recorded TSR is a fair reflection of Ferrexpo’s
underlying business performance. The vesting parameters are illustrated below.
Dividends will accrue on performance shares over the vesting period and be paid on shares that vest.
LTIP framework for 2014
This Directors Remuneration Report is published prior to the grant date of awards under the LTIP, which are normally made in April. It is the
Committee’s intention to grant LTIP awards in 2014 in line with the framework used in 2013. The Committee will review the comparator group
in advance of grant to ensure it remains appropriate. Details of these awards will be set out in the next year’s annual report on remuneration.
non-executive Directors (Including the chairman)
The Non-executive Directors’ fees are reviewed each year in light of the time commitment and level of involvement that Non-executive
Directors are required to devote to the activities of the Board and its Committees, market practice, and surveys by Kepler Associates. Fees
payable for 2014 are:
Role
Chairman fee
Non-executive Director base fee
Committee Chairman fee
Senior Independent Director fee
Annual fee
US$500,000
US$150,000
US$40,000
US$60,000
The Chairman’s fee and the Non-executive Directors’ fees were last increased in 2011; the Senior Independent Director (‘SID’) fee was
increased from US$40,000 on 1 July 2013 (the SID also chairs the Nominations Committee and Committee of Independent Directors for
which he receives no separate fee).
Directors’ Shareholdings – audited
Total interests of the Directors in office (and connected persons) as at 31 December 2013:
K Zhevago1
C Mawe
M Abrahams
O Baring
L Genovese
W Kuoni
I Mitiukov
M Salamon
at
31 December
2013
At
31 December
2012
296,077,944
208,496
176,848
20,130
170,556
29,841
33,046
100,000
300,198,313
142,202
170,992
20,130
169,568
28,854
31,952
100,000
1 Mr Zhevago is interested in these shares as a beneficiary of the Minco Trust, which is the ultimate shareholder of Fevamotinico S.a.r.l., which owns 296,077,944 shares in the Company.
Executive Directors and members of the Executive Committee are encouraged to build up a holding of shares of equivalent value to a year’s
salary (in the case of Executive Directors) or six months’ salary (for other members of the Executive Committee). Executives will be
encouraged to retain their vested LTIP shares on an after tax basis until the applicable guideline level is achieved. As at 11 March 2014, the
Executive Directors’ shareholdings are as follows:
K Zhevago
C Mawe
Shareholding
requirement
(% salary)
Owned outright
100% 296,077,944
208,496
100%
Subject to
performance1
–
370,000
Current
shareholding2
(% salary)
–
92%
Guideline met?
Yes
No
1 Performance awards are nil-cost options. Further details of shares subject to performance are provided below.
2 Based only on shares owned outright at 31 December 2013 and share price of 191 pence.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 75
g o v e r n a n c e
Details of LTIP awards held by Mr Mawe (which are subject to performance) are provided below.
At 1 January 2013
Granted
(2013 award)
100,000
120,0001
120,000
130,000
C Mawe
Total
Exercised
91,000
Lapsed
9,000
Total at
31 December
2013
Price on date
of award
(pence)
0
120,000
120,000
130,000
370,000
275
341
275
169
Date from which
exercisable
01.01.2013
01.01.2014
01.01.2015
01.01.2016
Expiry date
17.06.2020
07.08.2021
22.04.2022
22.04.2023
1 This award has vested 22.9% under the TSR performance condition described above. At the date of vesting (31 December 2013) the market price of a share was 191 pence.
There have been no changes in the interests of the Directors from the end of the period under review to 11 March 2014, being a date not
more than one month prior to the date of notice of AGM. Total outstanding (i.e. awarded but not yet vested) awards granted under the LTIP
from its inception in 2008 until the end of 2013 are equivalent to 0.23% of issued share capital.
exit Payments Made in year – audited
No Directors left during the year and as a result, no payments for loss of office were paid or receivable by any Director or former Director in
the financial year.
Payments to past Directors – audited
No payments were made to past Directors in the year.
Percentage change in ceo remuneration compared to other employees
The table below sets out the percentage increase in salary, taxable benefits, and annual bonus for the CEO between 2012 and 2013
compared to that for other employees.
Salary
Taxable benefits
Annual bonus
1 Refers to senior executives.
CEO
0%
-100%
Other
employees1
2.0%
0%
n/a
11.7%
relative Importance of Spending on Pay
The table below shows Ferrexpo’s dividend and total employee pay expenditure (this includes pension and variable pay, including STIP and
fair value of LTIP, but not social security) for the financial years ended 31 December 2012 and 31 December 2013, and the percentage
change.
US$ million
All-employee remuneration
Distributions to shareholders1
Includes dividends and share buybacks.
Includes special dividends of US$38.7 million paid in 2013 and 2014 in respect of 2012 and 2013.
1
2
3 Assumes final dividend for 2013 is approved at the 2014 AGM.
2013
85
782,3
2012
89
782
Year-on-year
change
-4.7%
0%
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 76
g o v e r n a n c e
r e M U n e r a T I o n r e P o r T continued
comparison of company Performance and executive Director Pay
The graph below shows the value, at 31 December 2013, of £100 invested in Ferrexpo’s shares on 31 December 2008 compared with the
current value of the same amount invested in the FTSE 250 Index or in the shares of the LTIP comparator group. The FTSE 250 Index is
chosen because Ferrexpo is a constituent member of this group.
Historical TSR Performance
1,600
1,400
1,200
1,000
800
600
400
200
0
31 Dec-08
31 Dec-09
31 Dec-10
31 Dec-11
31 Dec-12
31 Dec-13
Ferrexpo
FTSE250 Index
2013 LTIP Index
US$000
K Zhevago
Single figure total remuneration
STIP vesting (% max)
LTIP vesting (% max)
2009
2010
2011
2012
2013
322
341
348
291
243
K Zhevago did not participate in the STIP or LTIP
Statement of Shareholder voting
The following table shows the results of the advisory vote on the 2011 and 2012 Remuneration Reports at the 2012 and 2013 AGMs
respectively.
For
Against
Withheld
2012
2013
No.
453m
530m
%
99.5%
99.7%
No.
2m
1.5m
%
0.5%
0.3%
No.
0.5m
0.6m
Shareholder consultation
As no major changes to the Executive Director remuneration structure were considered in 2013, there was no formal consultation of
shareholders; however, at shareholders’ request there were discussions on various aspects of remuneration during the year.
Other transactions involving Directors are set out in note 34 (related parties) to the financial statements. This report was approved by the
Board on 11 March 2014.
Signed on behalf of the Board
Lucio genovese
chairman of the remuneration committee
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
77
g o v e r n a n c e
D Ir e c T o r S ’ r e P o r T
The Directors present their report to shareholders for the financial
year ending 31 December 2013, which they are required to produce
by law.
Introduction
For the purposes of the disclosures required under the Disclosure
and Transparency Rules and the Listing Rules of the UKLA, cross
references are made where appropriate to other sections of the
Annual Report.
The Company was incorporated under the name Ferrexpo plc as a
public company limited by shares on 22 April 2005. Ferrexpo plc
listed on the London Stock Exchange in June 2007 and is a member
of the FTSE 250 index.
Directors’ Duties
The duties of Directors are set out in sections 170 to 177 of the Act.
The duties that are specifically referred to in the Corporate
Governance Report on pages 55 to 62 include the duties under
section 172 (to promote the success of the Company), section 175 (to
avoid conflicts of interest), section 176 (not to accept benefits from
third parties), and section 177 (to declare any interests in existing or
proposed transactions or arrangements with the Company).
Dividends
Results for the year are set out in the Consolidated Income
Statement on page 84.
The Directors recommend a final dividend of 3.3 US cents per
Ordinary Share. Subject to shareholders approving this
recommendation at the Annual General Meeting (‘AGM’), the
dividend will be paid in UK Pounds Sterling on 30 May 2014 to
shareholders on the register at the close of business on 2 May 2014.
Shareholders may receive UK Pounds Sterling dividends by direct
bank transfer, provided that they have notified the Company’s
registrars in advance. Shareholders may also elect to receive
dividends in US Dollars (the procedure for this is set out in the Notice
of the AGM).
In recognition of the progress made by the business in 2013, the
Directors have also announced a special dividend of 6.6 US cents
per share, amounting to US$39 million, for payment on 28 March
2014 to shareholders on the register at the close of business on 21
March 2014. The dividend will similarly be paid in UK Pounds Sterling
with an election to receive US Dollars.
Directors
The Directors of the Company who served during the year were:
• Michael Abrahams
• Oliver Baring
• Lucio Genovese
• Wolfram Kuoni
• Chris Mawe
•
Ihor Mitiukov
• Mike Salamon
• Kostyantin Zhevago
In compliance with the UK Corporate Governance Code all of the
Directors will retire at the forthcoming AGM and, being eligible, will
offer themselves for re-election.
Further details about the Directors and their roles within the Group
are given in the Directors’ biographies on pages 52 and 53. Details
of the remuneration of the Directors, their interests in shares of the
Company and their service contracts are contained in the
Remuneration Report on pages 63 to 76.
appointment and replacement of Directors
Directors may be elected by the shareholders (by ordinary resolution)
or appointed by the Board. A Director appointed by the Board holds
office only until the next following AGM and is then eligible for
election by the shareholders.
Powers of the Directors
Subject to the Company’s Articles, the Act and any directions given
by special resolution, the business of the Company will be managed
by the Board who may exercise all the powers of the Company.
Directors’ and officers’ Insurance
The Company maintains Directors’ and Officers’ Liability Insurance in
respect of legal action that may be brought against its Directors and
Officers.
Directors’ Indemnity Provision
During the period under review, the Group had in force a qualifying
third-party indemnity provision in favour of one or more of the
Directors of Ferrexpo plc against liability in respect of proceedings
brought by third parties, subject to the conditions set out in the Act.
Disclosures required by statute
employees
Information on the Group’s employment policies can be found in the
Strategic Report on pages 38 to 39 and 43. Employee numbers are
stated in note 35 to the accounts. The Group employs fewer than
250 staff in the United Kingdom and so does not disclose its policies
on employee involvement or employing disabled people. However, it
will give fair consideration to applications for employment from
disabled people.
greenhouse gas emissions
The disclosures concerning greenhouse gas emissions are in the
Strategic Report on page 45.
Political Donations
The Group made no political donations during the year.
Financial Instruments
Information on financial instruments is in note 37 to the accounts on
pages 133 to 141.
Share capital and rights attaching to the company’s Shares
The Company has a single class of Ordinary Shares of 10 pence
each.
Subject to applicable statutes and other shareholders’ rights, shares
may be issued with such rights and restrictions as the Company may
by ordinary resolution decide, or (if there is no such resolution or so
far as it does not make specific provision) as the Board may decide.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 78
g o v e r n a n c e
D Ir e c T o r S ’ r e P o r T continued
At each AGM, the Board proposes to put in place annual
shareholder authority for the Company’s Directors to allot new
shares in accordance with the Institutional Investor Guidelines.
Details of the issued share capital of the Company are shown in note
28 of the financial statements.
variation of rights
Subject to the provisions of the Act, the rights attached to a class of
shares may be varied or abrogated either with the consent in writing
of the holders of at least three-quarters of the nominal amount of the
issued shares of that class (excluding any shares of that class held
as treasury shares) or with the sanction of a special resolution
passed at a separate meeting of the holders of the issued shares of
that class validly held in accordance with the Articles.
Transfer of Shares
Any share in the Company may be held in uncertificated form and,
subject to the Articles, title to uncertificated shares may be
transferred by means of a relevant system. Registration of a transfer
of an uncertificated share may be refused in the circumstances set
out in the Uncertificated Securities Regulations 2001 and where, in
the case of a transfer to joint holders, the number of joint holders to
whom the uncertificated share is to be transferred exceeds four.
Subject to the Articles, any member may transfer all or any of his
certificated shares by an instrument of transfer in any usual form or
in any other form which the Board may approve. The Board may
decline to register a transfer of a certificated share if it is not in the
approved form. The Board may also decline to register any transfer
of any share which is not a fully paid share. The Board may decline
to register a transfer of any of the Company’s certificated shares by a
person with a 0.25% or greater interest if such a person has been
served with a notice and has failed within 14 days to provide the
Company with information concerning interests in those shares
required to be provided under the Act, unless the transfer is shown
to the Board to be pursuant to an arm’s length sale.
repurchase of Shares
Subject to authorisation by shareholder resolution, the Company
may purchase its own shares in accordance with the Act. Any shares
which have been bought back may be held as treasury shares or
cancelled immediately upon completion of the purchase.
The Company was given authority to make market purchases of up
to approximately 10% of its existing Ordinary Share capital by a
resolution passed on 23 May 2013. This authority will expire at the
conclusion of the Company’s 2014 AGM. A special resolution to
renew the authority will be proposed at the forthcoming AGM.
Details of the resolution renewing the authority to purchase Ordinary
Shares are set out in the notice of AGM enclosed with this report.
The Company did not make use of the authority mentioned above
during 2013.
Dividends and Distributions
Subject to the provisions of the Act, the shareholders may by
ordinary resolution, from time to time, declare dividends not
exceeding the amount recommended by the Board. The Board may
pay interim dividends and also any fixed rate dividends whenever the
financial position of the Group, in the opinion of the Board, justifies
their payment.
Under the Company’s Articles, the Board may withhold payment of
all or any part of any dividends or other monies payable in respect of
the Company’s shares from a person with a 0.25% or greater
interest (as defined in the Articles) if such person has been served
with a notice under section 793 of the Companies Act 2006 and has
failed within 14 days to provide the Company with information
concerning interests in those shares required to be provided under
the Act.
voting
At a general meeting of the Company, every member has one vote
on a show of hands and on a poll, one vote for each share held.
Under the Act, members are entitled to appoint a proxy or proxies to
exercise all or any of their rights to attend, speak and vote at a
general meeting. A member that is a corporation may appoint one or
more individuals to act on its behalf at a general meeting as a
corporate representative.
restrictions on voting
No member is entitled to vote at any general meeting in respect of
any shares held by him if any call or other sum outstanding in
respect of that share remains unpaid. Currently, all issued shares are
fully paid. In addition, subject to the Articles no member shall be
entitled to vote if he has failed to provide the Company with
information concerning interests in those shares required to be
provided under the Act.
Shares Held in the employee Benefit Trust (‘eBT’)
The trustees of the Company’s EBT may vote or abstain from voting
on shares held in the EBT as they think fit and in doing so may take
into account both financial and non-financial interests of the
beneficiaries of the EBT or their dependants.
Deadline for voting rights
The Articles provide a deadline for submission of proxy forms of not
less than 48 hours before the meeting. The Directors will also specify
in the notice of any general meeting a time, being not more that 48
hours before the meeting, by which a person must be entered in the
register of members in order to have the right to attend and vote at
the meeting The Directors may decide, at their discretion, that no
account should be taken of any day that is not a working day when
calculating the 48-hour period.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 79
g o v e r n a n c e
corporate Bond Due 2016
Under the conditions of the Notes issued in April 2011, if Kostyantin
Zhevago ceases to own directly or indirectly at least 30% of the
issued and allotted share capital of the Company, or any person
(other than Kostyantin Zhevago) becomes the beneficial owner of
shares in the Company carrying more than 50% of the voting rights
normally exercisable at a general meeting, then any Noteholder will
have the right to require the repurchase of its Notes at a purchase
price in cash equal to 101% of the principal amount plus accrued
and unpaid interest.
relationship agreement
Details of the Relationship Agreement entered into between
Fevamotinico S.a.r.l., Kostyantin Zhevago, The Minco Trust and the
Company can be found in the Corporate Governance Report (pages
56 and 57). The Relationship Agreement ceases to apply if the
holding of Fevamotinico S.a.r.l., The Minco Trust or Mr Zhevago
individually or collectively falls below 25% of the issued share capital
of the Company.
events Since the Balance Sheet Date
Information on events since the balance sheet date is provided in
note 40 to the financial statements on page 142.
Policy on Derivatives and Financial Instruments
The Group does not hold any derivative financial instruments. Group
policy on financial instruments is set out in note 37 to the Notes to
the Consolidated Financial Statements on pages 133 to 141.
Directors’ responsibilities in respect of the annual report
and accounts
The Statement of Directors’ Responsibilities is on page 81.
risk Management Policies
Full details of the Group’s policy on risk and uncertainty and an
overview of the Group’s exposure to credit, liquidity and market risks
are set out in note 37 of the Notes to the Consolidated Financial
Information on pages 133 to 141. Further references to risk are made
in the Risks section on pages 28 to 31, 147 and 148, and in the
Internal Control and Risk Management section of the Corporate
Governance Report on pages 60 to 61 which provides a summary of
the internal control procedures put in place by the Board to identify
key risks and review risk management and its effectiveness.
going concern
The Group’s business activities, together with the risk factors likely to
affect its future development, performance and position are set out
on pages 17 to 35. The financial position of the Company, its cash
flows, liquidity position and borrowing facilities are described in the
Financial Review on pages 32 to 35. In addition, note 37 of the Notes
to the Consolidated Financial Statements on pages 133 to 141 sets
out the Group’s objectives, policies and processes for managing its
capital; its financial risk management objectives and details of its
financial instruments; and its exposures to credit risk, liquidity risk as
well as currency risk and interest rate risk. The Directors are of the
opinion that the Company will continue to operate and, as such, the
accounts have been prepared using the Going Concern principle.
Substantial Shareholdings
As at 31 December 2013, the Company had been advised, in
accordance with the Disclosure and Transparency Rules, of the
following notifiable interests in its voting rights.
% of the
Company’s
total voting
rights at date
of notification
Name of shareholder
Ordinary Shares
Number of
voting rights
Fevamotinico S.a.r.l.1
Wigmore Street Investments
296,077,944 296,077,944
50.30%
No. 3 Ltd2
147,156,035
147,156,035
24.99%
On 28 February 2014 the Company was notified that Wigmore Street
Investments No.3 Ltd’s shareholding had been reduced to
140,456,035 shares, or 23.86%.
1 Fevamotinico S.a.r.l. is a wholly-owned subsidiary of The Minco Trust of which Kostyantin
Zhevago is a beneficiary.
2 BXR Group Ltd is the ultimate parent undertaking and indirect controller of Wigmore Street
Investments No. 3 Ltd, which holds 140,456,035 shares through its nominee Lynchwood
Nominees Ltd.
Significant agreements – change of control
The Company does not have any agreements with Directors or
employees that would provide for compensation for loss of office or
employment resulting from a takeover.
There are no circumstances connected with any other significant
agreements to which the Company is a party that would take effect,
alter or terminate upon a change of control following a takeover bid,
except those referred to below:
LTIP
The rules of the Company’s LTIP set out the consequences of a
change of control of the Company on employee rights under the
plan. Generally, such rights will vest on a change of control to the
extent that the performance conditions have been satisfied and on a
time pro rated basis, subject to the discretion of the Remuneration
Committee. Participants will become entitled to acquire shares in the
Company, or in some cases, to the payment of a cash sum of
equivalent basis.
Bank Loan Facility
Under the US$420 million revolving pre-export finance facility with
ING Bank N.V., Uni Credit Bank AG, Société Générale and other
banks entered into in September 2011, if Kostyantin Zhevago ceases
to own directly or indirectly at least 30% of the issued and allotted
share capital of the Company, or any person (other than Kostyantin
Zhevago) becomes the beneficial owner of the shares in the
Company carrying more than 50% of the voting rights normally
exercisable at a general meeting, then the lenders are not obliged to
fund a drawdown.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
80
g o v e r n a n c e
D Ir e c T o r S ’ r e P o r T continued
corporate governance Statement
The Disclosure and Transparency Rules (DTR 7.2) require certain
information to be included in a corporate governance statement set
out in a company’s Directors’ Report. In common with many
companies, Ferrexpo has an existing practice of issuing, within its
Annual Report, a Corporate Governance Report that is separate
from its Directors’ Report. The information that fulfils the
requirements of DTR 7.2 is located in Ferrexpo’s Corporate
Governance Report on pages 55 to 62 (and is incorporated into this
Directors’ Report by reference), with the exception of the information
referred to in DTR 7.2.6, which is located in this Directors’ Report.
Statement on Disclosure of Information to auditors
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware, there is
no relevant audit information of which the Group’s auditors are
unaware, and that each Director has taken all reasonable steps to
make himself aware of any relevant audit information and to establish
that the Group’s auditors are aware of that information.
amendments to articles of association
The Articles may be amended by special resolution in accordance
with the Act.
agM
The AGM of the Company will be held at 11.00am on Thursday 22
May 2014 at The Dorchester, Park Lane, London W1K 1QA. A
separate letter from the Chairman summarising the business of the
meeting and the Notice convening the AGM will be sent to
shareholders with this Annual Report.
auditors
Having reviewed the independence and effectiveness of the
auditors, the Audit Committee has recommended to the Board that
the existing auditors, Ernst & Young LLP, be reappointed. Ernst &
Young LLP have indicated their willingness to continue in office, and
an ordinary resolution reappointing them as auditors and authorising
the Directors to set their remuneration will be proposed at the 2014
AGM.
Pages 1 to 51 inclusive consist of the Strategic Report and pages 77
to 80 inclusive consist of the Directors’ Report. These reports have
been drawn up and presented in accordance with, and in reliance
upon, applicable English company law and any liability of the
Directors in connection with these reports shall be subject to the
limitations and restrictions provided by such law.
The Strategic Report and the Directors’ Report were approved by
the Board on 11 March 2014.
For and on behalf of the Board
Michael abrahams
chairman
christopher Mawe
chief Financial officer
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
81
g o v e r n a n c e
ST a T e M e n T oF D Ir e c T o r S ’ r e S P o n S I B I L I T Ie S
Statement by the Directors under the UK corporate
governance code
The Directors are responsible for preparing the Annual Report and
the Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. Under that law
the Directors have prepared the financial statements in accordance
with International Financial Reporting Standards (‘IFRS’) as adopted
by the EU. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Parent
Company and of their profit or loss for that period. In preparing those
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
responsibility Statement of the Directors in respect of the
annual report and accounts
We confirm on behalf of the Board that to the best of our knowledge:
(a) the financial statements give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the
undertakings included in the consolidation taken as a whole; and
(b) the Strategic Report and the Directors’ Report includes a fair
review of the development and performance of the undertakings
included in the consolidation as a whole, and the principal risks
and uncertainties that they face.
For and on behalf of the Board
Michael abrahams
chairman
christopher Mawe
chief Financial officer
• state whether applicable IFRS have been followed, subject to any
11 March 2014
material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Parent Company and enable
them to ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations the Directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance statement that
comply with that law and those regulations. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company’s website. Legislation
in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions. The
Board considers that the Annual Report and financial statements,
taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Group’s
performance, business model and strategy.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 82
f i n a n c i a l
s t a t e m e n t s
i n D e p e n D e n t a u D i t O R ’ s R e pO R t t O t h e m e m b e R s O f
f e R R e x pO p l c
We have audited the financial statements of Ferrexpo plc for the year
ended 31 December 2013 which comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Financial Position, the Consolidated
Statement of Cash Flows, the Consolidated Statement of Changes in
Equity, the Parent Company Balance Sheet and the related notes 1
to 40 for the Group financial statements and notes 1 to 7 for the
Parent Company financial statements. The financial reporting
framework that has been applied in the preparation of the Group
financial statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied in the
preparation of the Parent Company financial statements is applicable
law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of the Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 81, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information in the
Annual Report and Accounts to identify material inconsistencies with
the audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 December
2013 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Our assessment of risks of material misstatement
We identified the following risks that have had the greatest effect on
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team:
• the recoverability and classification of Ukrainian VAT receivable;
• the valuation of the investment in Ferrous Resources;
• related party transactions;
• the potential impact of recent political and economic disturbance
in Ukraine on the financial statements.
Our application of materiality
We determined materiality for the Group to be US$15.3 million which
is 5% of pre-tax profit. Our materiality amount provided a basis for
determining the nature and extent of our risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature and extent of further audit
procedures. We assessed our materiality calculation based on the
profit before tax of the Group as we considered that to be the most
relevant performance measure to the stakeholders of the entity.
On the basis of our risk assessment, together with our assessment
of the Group’s overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for misstatement
in an individual account or balance) for the Group should be 75% of
materiality, namely US$11.4 million. Our objective in adopting this
approach was to ensure that total detected and undetected audit
differences in all accounts did not exceed our planning materiality
level.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of US$0.8 million, as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
an overview of the scope of our audit
In assessing the risk of material misstatement to the consolidated
financial statements, our group audit scope focused on two
operating locations, Ukraine and Switzerland at which four
subsidiaries were subject to a full scope audit for the year ended 31
December 2013. Due to certain insignificant loss making subsidiaries
that were out of scope for our Group audit, the coverage of Group
profit before tax achieved from the entities within our Group scope
was greater than 100%. In addition to full scope audits, specific audit
procedures were undertaken on certain accounts within five further
subsidiaries based either in the Group’s principal operating locations
or in other regions where the Group operates. The extent of audit
work on these five entities was based on our assessment of the risks
of material misstatement and on the materiality of the Group’s
business operations in that subsidiary. These subsidiaries were also
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 83
f i n a n c i a l
s t a t e m e n t s
selected to provide an appropriate basis for undertaking audit work
to address the risks of material misstatement identified above.
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
The audit work for the in scope subsidiaries was executed at levels
of materiality applicable to each individual entity, which were lower
than group materiality.
The senior statutory auditor visited Ukraine and Switzerland where
all full scope component teams are based and where the majority of
the Group’s operations are based. For all full scope locations, in
addition to the site visits, the Group team reviewed key working
papers and directed the component team’s planning and execution
of the responses to the risks.
Our principal responses to the risks identified above were as follows:
The recoverability and classification of Ukrainian VAT
receivable
• We have tested the validity of the amounts claimed from the
Ukrainian government, including those currently in dispute.
• We challenged management`s assumptions relating to the
recoverability, classification and measurement of the balance.
• We agreed the related disclosure provided in the Annual Report
and Accounts.
The valuation of the investment in Ferrous Resources
• We challenged management’s conclusions for the classification
and basis of measurement of the investment.
matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if,
in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
is otherwise misleading.
•
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the
audit and the Directors’ Statement that they consider the Annual
Report is fair, balanced and understandable and whether the Annual
Report appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have been
disclosed.
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• We challenged management’s assumptions related to the
determination of the fair value of the available-for-sale investment
in Ferrous Resources.
• the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
Related party transactions
• We understood and verified management’s process for identifying
related parties and recording related party transactions.
• We have assessed management’s controls in relation to the
assessment and approval of related party transactions and
verified management’s disclosures in respect of the transactions
are correct.
• Throughout the performance of our audit we remained alert for
any evidence of related party transactions that had not been
disclosed.
Consideration of the potential impact of recent political and
economic disturbance in Ukraine on the financial statements
• We gained an understanding of the local environment in Ukraine
and monitored its impact on the Group’s operations through post
balance sheet procedures.
• We challenged management’s consideration of the possible
impact on forecasts used for impairment and going concern
modelling and their consideration of the recoverability of assets.
• We read and challenged management’s disclosures in the annual
report.
Opinion on other matters prescribed by the companies act
2006
In our opinion:
• the part of the Directors Remuneration Report to be audited had
been properly prepared in accordance with the Companies Act
2006; and
• certain disclosures of Directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ Statement, set out on page 79, in relation to going
concern; and
• the part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
ernst & Young llp
Ken Williamson (senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
11 March 2014
1. The maintenance and integrity of the Ferrexpo plc web site is the responsibility of the directors;
the work carried out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 84
f i n a n c i a l
s t a t e m e n t s
c On s Ol iD a t e D in c Om e st a t e m e n t
US$000
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Other income
Other expenses
Operating foreign exchange gains
Operating profit from continuing operations before adjusted items
Write-down of VAT receivable
Write-offs and impairment losses
Share of profit from associates
Losses on disposal of property, plant and equipment
profit before tax and finance from continuing operations
Finance income
Finance expense
Non-operating foreign exchange gains
profit before tax
Income tax expense
profit for the year from continuing operations
Profit attributable to:
Equity shareholders of Ferrexpo plc
Non-controlling interests
profit for the year from continuing operations
Earnings per share:
Basic (US cents)
Diluted (US cents)
Notes
3/5/7
10
11
12
26
13
14
9
8
Year ended
31.12.13
Year ended
31.12.12
6 1,581,385 1,424,030
(690,729)
733,301
(311,964)
(56,329)
11,347
(30,161)
653
346,847
–
(836)
2,772
(4,067)
344,716
2,598
(88,203)
6,622
265,733
(47,135)
218,598
(773,221)
808,164
(335,718)
(54,839)
6,662
(23,457)
622
401,434
(36,421)
(854)
3,551
(8,492)
359,218
2,372
(65,953)
9,755
305,392
(41,608)
263,784
15
3/15
3/12
16
261,984
1,800
263,784
217,277
1,321
218,598
17
17
44.76
44.69
37.14
37.08
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 85
f i n a n c i a l
s t a t e m e n t s
c On s Ol iD a t e D st a t e m e n t Of c Om p R e h e n s i v e in c Om e
US$000
profit for the year
Items that may subsequently be reclassified to profit or loss:
Exchange differences on translating foreign operations
Income tax effect
Exchange differences arising on hedging of foreign operations
Income tax effect
Net losses on available-for-sale investments
Income tax effect
Net other comprehensive income to be reclassified to profit or loss in subsequent periods
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension liability
Income tax effect
Net other comprehensive income not being reclassified to profit or loss in subsequent periods
Other comprehensive income for the year, net of tax
total comprehensive income for the year, net of tax
Total comprehensive income attributable to:
Equity shareholders of Ferrexpo plc
Non-controlling interests
Year ended
31.12.13
263,784
Year ended
31.12.12
218,598
(437)
–
–
–
(138)
30
(545)
(566)
–
(201)
32
(326)
62
(999)
498
(58)
440
(105)
263,679
21,244
(3,404)
17,840
16,841
235,439
261,888
1,791
263,679
233,502
1,937
235,439
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 86
f i n a n c i a l
s t a t e m e n t s
c O n s O l i D a t e D s t a t e m e n t O f f i n a n c i a l p O s i t i O n
US$000
assets
Property, plant and equipment
Goodwill and other intangible assets
Investments in associates
Available-for-sale financial assets
Inventories
Other non-current assets
Income taxes recoverable and prepaid
Other taxes recoverable and prepaid
Deferred tax assets
total non-current assets
Inventories
Trade and other receivables
Prepayments and other current assets
Income taxes recoverable and prepaid
Other taxes recoverable and prepaid
Cash and cash equivalents
Assets classified as held for sale
total current assets
total assets
equity and liabilities
Issued capital
Share premium
Other reserves
Retained earnings
equity attributable to equity shareholders of ferrexpo plc
non-controlling interests
total equity
Interest-bearing loans and borrowings
Defined benefit pension liability
Provision for site restoration
Deferred tax liabilities
total non-current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Accrued liabilities and deferred income
Income taxes payable
Other taxes payable
total current liabilities
total liabilities
total equity and liabilities
The financial statements were approved by the Board of Directors on 11 March 2014.
Kostyantin Zhevago
chief executive Officer
christopher mawe
chief financial Officer
Notes
as at
31.12.13
As at
31.12.12
19
26
20
21
26
14
3/23
3/22
117,086
20,546
82,778
58,303
34,575
54,242
78,281
37,612
3/18 1,533,819 1,347,563
112,171
16,995
534
12,362
41,810
–
97,895
33,220
2,017,242 1,662,550
134,111
180,863
116,553
102,498
36,468
25,073
24,869
33,233
187,246
182,863
596,560
390,491
915,021 1,095,807
101
915,127 1,095,908
2,932,369 2,758,458
106
3/23
26
25
27
26
24
32
28
28
22,428
121,628
185,112
(347,326)
928,196
53,154
2,871
2,031
121,628
185,112
(348,056)
28
3 1,753,200 1,568,077
1,712,614 1,526,761
20,637
1,735,042 1,547,398
993,139
50,195
2,368
2,581
986,252 1,048,283
26,846
101,043
62,609
50,001
51,285
35,508
13,672
12,554
8,365
11,969
162,777
211,075
1,197,327 1,211,060
2,932,369 2,758,458
26
33
22
30
26
5/29
3/31
5/29
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 c O n s O l i D a t e D s t a t e m e n t O f c a s h f l O W s
US$000
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets
Interest expense
Write-down of VAT receivable
Interest income
Share of profit from associates
Movement in allowance for doubtful receivables
Loss on disposal of property, plant and equipment
Write-offs and impairment losses
Site restoration provision
Employee benefits
Share-based payments
Operating foreign exchange gains
Non-operating foreign exchange gains
Operating cash flow before working capital changes
Changes in working capital:
Decrease/(increase) in trade and other receivables
Increase in inventories
(Decrease)/increase in trade and other accounts payable
Increase in VAT recoverable and other taxes prepaid
Cash generated from operating activities
Interest paid
Income tax paid
Post-employment benefits paid
net cash flows from operating activities
cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Purchase of available-for-sale investment
Interest received
Dividends from associates
net cash flows used in investing activities
cash flows from financing activities
Proceeds from borrowings and finance
Repayment of borrowings and finance
Arrangement fees paid
Dividends paid to equity shareholders of Ferrexpo plc
Dividends paid to non-controlling shareholders
net cash flows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Currency translation differences
cash and cash equivalents at the end of the year
87
f i n a n c i a l
s t a t e m e n t s
Notes
Year ended
31.12.13
Year ended
31.12.12
305,392
265,733
99,645
60,466
36,421
(2,372)
(3,551)
661
8,492
854
503
8,654
1,266
(622)
(9,755)
506,054
27,485
(88,482)
(29,489)
(12,516)
403,052
(57,037)
(108,321)
(4,768)
232,926
(270,534)
910
(7,268)
(82,382)
2,090
–
(357,184)
26,279
(19,308)
(10,643)
(77,882)
(1)
(81,555)
(205,813)
596,560
(256)
390,491
54,169
81,308
–
(2,598)
(2,772)
721
4,067
836
(650)
12,616
1,608
(653)
(6,621)
407,764
(3,226)
(33,638)
40,603
(131,903)
279,600
(55,610)
(99,771)
(5,641)
118,578
(419,357)
569
(9,911)
–
2,652
6,710
(419,337)
63,955
(13,186)
(4,672)
(38,775)
(254)
7,068
(293,691)
890,154
97
596,560
3/15
26
15
14
11
13
32
3/31
38
12
3/12
26
26
18
19
37
27
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 88
f i n a n c i a l
s t a t e m e n t s
c On s Ol iD a t e D st a t e m e n t Of c h a n G e s i n e q u i t Y
Attributable to equity shareholders of Ferrexpo plc
US$000
at 1 January 2012
Application of IAS 19
revised (note 3)
at 1 January 2012 –
after application
of ias 19 revised
Profit for the period
Other comprehensive
income
total comprehensive
income for the period
Equity dividends paid
to shareholders of
Ferrexpo plc
Share-based payments
(note 38)
Adjustments relating to
the increase in non-
controlling interests
at 31 December 2012
Profit for the period
Other comprehensive
income
total comprehensive
income for the period
Equity dividends paid
to shareholders of
Ferrexpo plc
Share-based payments
(note 38)
at 31 December 2013
Issued
capital
(Note 28)
Share
premium
(Note 28)
121,628 185,112
Uniting of
interest
reserve
(Note 28)
31,780
Treasury
share
reserve
(Note 28)
(77,260)
Employee
benefit trust
reserve
(Notes 28
and 38)
(9,416)
Net
unrealised
gains
Total
reserve
capital and
(Note 28)
reserves
1,084 (294,791) 1,414,512 1,372,649
Translation
reserve
(Note 28)
Retained
earnings
Non-
controlling
interests
(Note 1)
Total
equity
20,480 1,393,129
–
–
–
–
–
–
–
(42,338)
(42,338)
(1,128)
(43,466)
121,628 185,112
–
–
31,780
–
(77,260)
–
(9,416)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,608
1,084 (294,791) 1,372,174 1,330,311
217,277
217,277
–
–
19,352 1,349,663
218,598
1,321
(264)
(797)
17,286
16,225
616
16,841
(264)
(797)
234,563
233,502
1,937
235,439
–
–
–
–
(38,660)
(38,660)
(331)
(38,991)
–
1,608
–
1,608
–
–
121,628 185,112
–
–
–
31,780
–
–
(77,260)
–
–
(7,808)
–
–
–
–
820 (295,588) 1,568,077 1,526,761
261,984
261,984
–
–
–
(321)
(321)
20,637 1,547,398
263,784
1,800
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121,628 185,112
–
31,780
–
(77,260)
1,266
(6,542)
(108)
(428)
440
(96)
(9)
(105)
(108)
(428)
262,424
261,888
1,791
263,679
–
–
(77,301)
(77,301)
–
(77,301)
–
1,266
712 (296,016) 1,753,200 1,712,614
–
–
–
1,266
22,428 1,735,042
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 89
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S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Note 1: Corporate information
Organisation and operation
Ferrexpo plc (the ‘Company’) is incorporated in the United Kingdom with registered office at 2–4 King Street, London, SW1Y 6QL, UK.
Ferrexpo plc and its subsidiaries (the ‘Group’) operate a mine and processing plant near Kremenchug in Ukraine, an interest in a port in
Odessa and sales and marketing activities in Switzerland, Dubai and Kyiv. The Group also owns a logistics group located in Austria which
operates a fleet of vessels operating on the Rhine and Danube waterways. The Group’s operations are vertically integrated from iron ore
mining through to iron ore concentrate and pellet production and subsequent logistics. The Group’s mineral properties lie within the
Kremenchug Magnetic Anomaly and are currently being exploited at the Gorishne-Plavninskoye and Lavrikovskoye (‘GPL’) and
Yeristovskoye deposits.
The majority shareholder of the Group is Fevamotinico S.a.r.l. (‘Fevamotinico’), a company ultimately owned by The Minco Trust, of which
Kostyantin Zhevago, the Group’s Chief Executive Officer, is a beneficiary. At the time this report was published, Fevamotinico held 50.3%
(2012: 51.0%) of Ferrexpo plc’s issued share capital. The Group’s operations are largely conducted through Ferrexpo plc’s principal
subsidiary, OJSC Ferrexpo Poltava Mining.
The Group comprises Ferrexpo plc and its consolidated subsidiaries as set out below:
Name
OJSC Ferrexpo Poltava Mining
Ferrexpo AG
DP Ferrotrans
United Energy Company LLC
Ferrexpo Finance plc
Ferrexpo Services Limited
Ferrexpo Hong Kong Limited
LLC Ferrexpo Yeristovo GOK
LLC Ferrexpo Belanovo GOK
Nova Logistics Limited
Ferrexpo Middle East FZE
Ferrexpo Singapore PTE Ltd.
First-DDSG Logistics Holding GmbH
EDDSG GmbH
DDSG Tankschiffahrt GmbH
DDSG Services GmbH3
DDSG Mahart Kft.
Pancar Kft.
Ferrexpo Port Services GmbH
Ferrexpo Shipping International Ltd.
Iron Destiny Ltd.
Transcanal SRL
Helogistics Asset Leasing Kft.
Universal Services Group Ltd.1
LLC DDSG Ukraine Holding2
LLC DDSG Invest2
LLC DDSG Ukraine Shipping Management 2
LLC DDSG Ukraine Shipping2
1 The entity was incorporated in December 2012.
2 The entities were incorporated in February and March 2013.
3 Formerly Helogistics Transport GmbH.
Country of
incorporation
Ukraine
Switzerland
Ukraine
Ukraine
England
Ukraine
China
Ukraine
Ukraine
Ukraine
U.A.E.
Singapore
Austria
Austria
Austria
Austria
Hungary
Hungary
Austria
Marshall Islands
Marshall Islands
Romania
Hungary
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Principal activity
Iron ore mining
Sale of iron ore pellets
Trade, transportation services
Holding company
Finance
Management services and procurement
Marketing services
Iron ore mining
Iron ore mining
Service company (dormant)
Sale of iron ore pellets
Marketing services
Holding company
Barging company
Barging company
Barging company
Barging company
Barging company
Port services
Holding company
Shipping company
Port services
Asset holding company
Asset holding company
Holding company
Asset holding company
Barging company
Asset holding company
Equity interest owned
31.12.13
%
97.3
100.0
97.3
97.3
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
77.6
100.0
100.0
100.0
100.0
100.0
100.0
31.12.12
%
97.3
100.0
97.3
97.3
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
77.6
100.0
100.0
–
–
–
–
The Group’s interests in the entities listed above are held indirectly by the Company, with the exception of Ferrexpo AG which is directly
held.
The Group also holds an interest of 48.6% (2012: 48.6%) in TIS Ruda, a Ukrainian port located on the Black Sea. As this is an associate,
it is accounted for using the equity method of accounting and further disclosed in note 14.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 2: Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of Ferrexpo plc and its subsidiaries have been prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as adopted by the European Union (‘EU’). IFRS as adopted by the EU differs in certain respects from IFRS
as issued by the International Accounting Standards Board (‘IASB’).
The consolidated financial statements have been prepared on a historical cost basis, except for post-employment benefits and available-
for-sale financial instruments, the latter measured at fair value in accordance with the requirements of IAS 39 Financial instruments:
Recognition and measurement, the former measured in accordance with IAS 19 revised Employee benefits. The consolidated financial
statements are presented in thousands of US Dollars and all values are rounded to the nearest thousand except where otherwise
indicated.
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the
preparation of the Group’s annual financial statements for the year ended 31 December 2012, except for those changes detailed in
note 3.
Basis of consolidation
The consolidated financial statements comprise the financial statements for Ferrexpo plc and its subsidiaries as at 31 December each
year. The financial statements of the subsidiaries are prepared as at the same reporting date as Ferrexpo plc’s, using consistent
accounting policies.
Subsidiaries acquired are fully consolidated from the date of effective control, when the Group obtains effective control. Similarly,
subsidiaries disposed of are deconsolidated from the date on which the Group ceases to hold effective control. A change in the
ownership interest of a subsidiary without obtaining or losing control is accounted for as an equity transaction.
All intercompany balances and transactions including unrealised profits arising from intra-group transactions have been eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Business combination and goodwill
On the acquisition of a subsidiary, the business combination is accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregated amount of the consideration transferred, measured at the date of acquisition. The consideration paid is
allocated to the assets acquired and liabilities assumed on the basis of fair values at the date of acquisition. Acquisition costs are
expensed when incurred and included in general and administrative expenses.
If the cost of acquisition exceeds the identifiable net assets attributable to the Group, the difference is considered as purchased goodwill,
which is not amortised but annually reviewed for impairment or in case of an indication of impairment. In the case that the identifiable net
assets attributable to the Group exceed the cost of acquisition, the difference is recognised in profit and loss as a gain on bargain
purchase. For each business combination, the Group measures the non-controlling interest in the acquiree either at fair value or at the
proportionate share of the acquiree’s identifiable net assets. If the initial accounting for a business combination cannot be completed by
the end of the reporting period in which the combination occurs, only provisional amounts are reported, which can be adjusted during the
measurement period of 12 months after acquisition date.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Details of the impairment testing are
disclosed in note 19.
Investments in associates
The Group’s investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the
Group has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post-acquisition
changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the
investment and is not amortised nor individually tested for impairment. After application of the equity method, the Group determines
whether it is necessary to recognise any additional impairment loss with respect to the Group’s investment in the associate.
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Note 2: Summary of significant accounting policies continued
The share of profit of an associate is shown on the face of the income statement. This is the profit attributable to the Group and therefore
is profit after tax and non-controlling interests in the subsidiaries of the associate. The reporting dates of the associates and Ferrexpo plc
are identical and the associates’ accounting policies are generally in conformity with those applied by the Group.
Functional and presentational currencies
Based on the economic substance of the underlying business transactions and circumstances relevant to the parent, the functional
currency of the parent has been determined to be the US Dollar, with each subsidiary determining its own functional currency based on
its own circumstances. The Group has chosen the US Dollar as its presentational currency. The functional currency of Ukrainian
subsidiaries, which is where the Group’s main operations are based, is the Ukrainian Hryvnia.
Foreign currency translation
For individual subsidiary company accounts, transactions in foreign currencies (i.e. other than the functional currency) are recorded at the
rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional
currency at the rate of exchange ruling at the reporting date and non-monetary assets and liabilities at the historic rate. Foreign exchange
differences arising on translation are recognised in the income statement.
For presentation of Group consolidated accounts, if the functional currency of a subsidiary is different to the presentational currency as at
the reporting date, the assets and liabilities of this entity are translated into the presentational currency at the rate ruling at the reporting
date and the income statement is translated using the average exchange rate for the period based on the officially published rates by the
National Bank of Ukraine (‘NBU’). The foreign exchange differences arising are taken directly to a separate component of equity. On
disposal of a foreign entity the deferred cumulative amount recognised in equity relating to the particular foreign operation is recognised
in the income statement.
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria must also be met before revenue is recognised:
Sale of goods including pellet sales
Revenue is recognised when the risks and rewards of ownership of the goods have passed to the buyer and can be reliably measured.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided
in the normal course of business, net of discounts, customs duties and sales taxes. Risks and rewards of the ownership of goods passes
when title for the goods passes to the customer as determined by the terms of the sales agreement. The sales are typically made under
the following terms:
• CIF (Cost Insurance and Freight);
• CFR (Cost and Freight);
• DAP (Delivery At Place); or
• FOB (Free on Board).
Under the CFR and FOB terms the title passes on the bill of lading date whereas under the other terms revenue is recognised when
goods arrive at agreed destination or at border crossing.
If the sales agreement allows for adjustment of the sales prices based on survey of the goods by the customer (e.g. ore content) the
revenue is recognised based on the most recent determined product specification.
Other sales
Other sales include the processing and sale of ore and ore concentrate, the sale of spare parts, materials and crushed rocks and the
repair and rental of railway wagons.
Logistic services
Revenue from logistic services rendered is recognised as the services are completed. Where services are invoiced in advance of
discharge, amounts attributable to the time between the end of the reporting period and the discharge date are deferred.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 2: Summary of significant accounting policies continued
Rendering of services
Revenue from the rendering of services is recognised when services are complete. Sales of services primarily include repairs, canteen
revenue and recharges to local customers for electricity consumption and railway usage.
Rental income
Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms.
Foreign exchange gains and losses
Foreign exchange gains and losses are reported on a net basis. Operating foreign exchange gains and losses are those resulting directly
from the Group’s operating activities. Non-operating gains and losses are predominately those associated with the sale of assets
(including monetary assets), the translation of interest-bearing loans and borrowings denominated in currencies different to the respective
functional currencies and transactional gains and losses from the conversion of cash balances in currencies different to the local
functional currencies at exchange rates different to those at the initial recognition date.
Finance income and expense
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in the income statement using
the effective interest method.
Finance expenses comprise the interest expense on borrowings and other financial liabilities. Finance expenses also comprise the effect
of the estimated discount of overdue VAT balances expected to be received after more than 12 months following the period end.
Taxes
Current income tax
Current tax assets and liabilities for the current and prior periods are measured at the amount estimated to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by
the reporting date. See notes 4 and 16 for further details.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, if it is probable that they become taxable, except:
• where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures,
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will
not reverse in the foreseeable future.
•
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilised, except:
• where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or
•
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures,
deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be utilised.
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Note 2: Summary of significant accounting policies continued
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised
deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Income tax on items recognised directly in equity is recognised in equity and not in the income statement.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax
liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value added tax
Revenues, expenses and assets are recognised net of the amount of value added tax (‘VAT’), except:
• where VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is recognised
as part of the cost of acquisition of the asset or as part of expense item as applicable; and
• receivables and payables are stated with the amount of VAT included.
VAT receivable balances are not discounted unless the overdue balances are expected to be received after more than 12 months
following the period end. Where intentions have been communicated that VAT repayments, which are due, are to be converted into bonds
or other financial instruments and management considers acceptance of such instruments as consideration for VAT due, these are valued
at the estimated market value of such instruments with any adjustment charged to the income statement. Further detailed information is
disclosed in note 26 to the financial statements.
Equity
Ordinary Shares
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares and share options are
recognised as a deduction from equity, net of any tax effects.
Employee benefit trust reserve
Ferrexpo plc shares held by the Group are classified in capital and reserves as the ‘employee benefit trust reserve’ and recognised at
cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale
and the original cost taken to revenue reserves. No gain or loss is recognised on the purchase, issue or cancellation of equity shares.
Treasury shares
Own equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is
recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference
between the carrying amount and the consideration is recognised in other capital reserves.
Financial instruments
Financial assets and financial liabilities are initially measured at fair value. Any transaction costs that are directly attributable to the
acquisition or issue of financial assets or financial liabilities are added or deducted from its fair value except for financial assets and
financial liabilities at fair value through profit or loss. For those financial assets and financial liabilities, the transactions costs are
recognised immediately in profit or loss.
The subsequent measurement is based on the classification of the financial asset and financial liability.
Financial assets
Derivative financial instruments
The Group does not hold any derivative financial instruments.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 2: Summary of significant accounting policies continued
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities (e.g. promissory notes), trade and other
receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative financial instruments are
recognised at fair value (being the fair value of the consideration given or received) plus any directly attributable transaction costs.
All regular way purchases and sales of financial assets are recognised on the trade date (i.e. the date that the Group commits to purchase
or sell the asset). Regular way purchases or sales are those that require delivery of assets within the period generally established by
regulation or convention in the marketplace.
The Group has not designated any financial assets as at fair value through profit or loss (‘FVTPL’).
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans
and receivables are derecognised or impaired along with the amortisation process. For trade and other receivables with normal payment
terms it is expected that their fair value is equal to the carrying value due to the short maturity.
Available-for-sale financial assets
All investments, except for investments in associates, are classified as available-for-sale. Available-for-sale financial assets are those
non-derivative financial assets that are designated as available-for-sale or are not classified as loans or receivables, held-to-maturity
investments or financial assets at FVTPL.
After initial measurement and if fair value can be reliably measured, available-for-sale financial investments are subsequently measured at
fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment
is derecognised. At this time, the cumulative gains or losses are recognised in other operating income, or determined to be impaired, at
which time the cumulative losses are recognised in the income statement in finance costs and removed from the available-for-sale
reserve.
The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid
prices at the close of business on the reporting date. For investments without an active market, the fair value is determined using other
valuation techniques including discounted cash flow models and reference to recent transaction prices. If the fair value of an available-for-
sale equity investment cannot be reliably measured, the investment is measured at cost less any impairment losses.
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.
Financial liabilities
Trade and other payables
Trade and other payables are recognised and initially measured at fair value which are approximately equal to their carrying amounts due
to the short maturity. Subsequently, instruments with a fixed maturity are remeasured at amortised cost using the effective interest rate
method. Amortised cost is calculated by taking into account any transaction costs and any discount or premium on settlement.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the
amortisation process.
Impairment of financial assets
The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired.
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Note 2: Summary of significant accounting policies continued
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the
effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an
allowance account. The amount of the loss is recognised in the income statement.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant,
and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets
with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of
impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an
impairment loss is recognised in the income statement to the extent that the carrying value of the asset does not exceed its amortised
cost at the reversal date.
Available-for-sale financial assets
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an
investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the
fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss (measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income
statement) is removed from other comprehensive income and recognised in the income statement.
Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are
recognised directly in other comprehensive income.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, i.e.
whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the
asset, even it that right is not specified in an arrangement.
Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are
capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases.
Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the
lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 2: Summary of significant accounting policies continued
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are
expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds. In the case of general borrowings used to fund the acquisition or construction costs of qualifying assets, the
borrowing costs to be capitalised are calculated based on a weighted average interest rate applicable to the relevant general borrowings
of the Group during a specific period.
The Group capitalises borrowing costs for all qualifying assets where construction was commenced on or after 1 January 2009. All other
borrowing costs are recognised in profit or loss in the period in which they are incurred.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost
includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the
recognition criteria are met. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion
of production overheads.
Major spare parts and stand-by equipment qualify as property, plant and equipment when they are expected to be used during more
than one period. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul
costs, are normally charged to the income statement in the period the costs are incurred. In situations where it can be clearly
demonstrated that the expenditure results in future economic benefits, the expenditure is capitalised as an additional cost.
Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value that
have different useful lives. Property, plant and equipment is depreciated over its estimated useful life which is calculated with due regard
to both its own physical life limitations and the present assessment of economically recoverable reserves of the mine property at which
the item is located. Estimates of remaining useful lives are made on a regular basis for all mine buildings, machinery and equipment, with
annual reassessments for major items. Changes in estimates, which affect unit of production calculations, are accounted for
prospectively.
Except for mining assets which are depreciated using the unit of production method, depreciation is calculated on a straight-line basis
over the estimated useful life of the asset, as follows:
• Buildings:
• Vessels:
• Plant and equipment:
• Vehicles:
• Fixtures and fittings:
20–50 years
30–40 years
3–15 years
7–15 years
2.5–10 years
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.
Assets in the course of construction are initially recognised in a separate category of property, plant and equipment. On completion, the
cost of construction is transferred to the appropriate category. Assets under construction are not depreciated.
On acquisition, the cost of property, plant and equipment is capitalised on the statement of financial position. Depreciation commences
when the item is available for use. Freehold land is not depreciated.
Major spare parts and servicing equipment that meet the definition of property, plant and equipment are included in this asset category of
the statement of financial position. See also note 3.
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Note 2: Summary of significant accounting policies continued
Stripping costs included in mining assets and assets under construction
Stripping costs in relation to mine exploration, evaluation and development costs incurred up to the commencement of the production are
included in assets under construction. Stripping work comprises overburden removal at the pre-production, mine extension and
production stages.
After the commencement of production, the respective capitalised pre-production stripping costs are transferred to mining assets and
depreciated using the unit of production method based on the estimated economically recoverable reserves to which they relate.
The production stripping costs are generally charged to the income statement as variable production costs. The production stripping
costs are only capitalised if the stripping activities result in improved access to a component ore body and the duration of the future
benefits is ascertained without a high degree of judgement. If capitalised, the production stripping costs are included in mining assets
and depreciated using the same methodology as for the capitalised pre-production stripping costs (see above).
The cost of removal of the waste material during a mine’s production phase is expensed as incurred.
Exploration and evaluation assets
Costs incurred in relation to the exploration and evaluation of potential iron ore deposits are capitalised and classified as tangible or
intangible assets depending on the nature of the expenditures. Costs associated with exploratory drilling, researching and analysing of
exploration data and costs of pre-feasibility studies are included in tangible assets whereas those associated with the acquisition of
licences are included in intangible assets.
Capitalised exploration and evaluation expenditures are carried forward as an asset as long as these costs are expected to be recouped
in full through successful development and exploration in a future period.
Exploration and evaluation assets included in intangible and tangible assets are measured at cost and neither amortised nor depreciated,
but monitored for indications of impairment. To the extent that the capitalised expenditures are not expected to be recouped the excess
is fully provided for in the financial year in which this is determined.
Upon reaching the development stage, exploration and evaluation assets are transferred to asset under construction.
Intangible assets
Goodwill
The policies applied for the initial recognition and subsequent measurement of goodwill are described under Goodwill and other
intangible assets on pages 102 and 113.
Other intangible assets
Other intangible assets acquired separately are measured on initial recognition at cost. The cost of other intangible assets acquired in a
business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less
accumulated amortisation and accumulated impairment losses. The useful lives of other intangible assets are assessed as either finite
or indefinite.
Amortisation
Other intangible assets, other than goodwill, primarily comprise capitalised software costs, which are amortised on a straight-line basis
over the estimated useful life of the asset, ranging between one and three years.
Capitalised mineral licences are amortised on a unit of production basis.
Impairment of assets (excluding financial assets)
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or
when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. If the carrying
amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In
assessing value-in-use, the estimated future cash flows are discounted to their present value using a market-determined pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of
continuing operations are recognised in the income statement. Refer to note 19 for details on the impairment testing of goodwill.
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Note 2: Summary of significant accounting policies continued
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment
loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last
impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal the depreciation
charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
• Raw materials – at cost on a first-in, first-out basis.
• Finished goods and work in progress – at cost of direct materials and labour and a proportion of manufacturing overheads based on
normal operating capacity, but excluding borrowing costs.
The net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
Major spare parts and servicing equipment that meet the definition of property, plant and equipment are, in accordance with IAS 16,
included in property, plant and equipment and not in inventory. See also note 3.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and on hand as well as short-term deposits with original maturity of 90 days or less.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, 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.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the
reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Where discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost. When some or all of the economic benefits
required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the receivable can be measured reliably.
Site restoration costs
Site restoration provisions are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation
costs (determined by an independent expert) in the accounting period when the related environmental disturbance occurs. The provision
is discounted, if material, and the unwinding of the discount is included in finance costs. At the time of establishing the provision,
a corresponding asset is capitalised where it gives rise to a future benefit and depreciated over future production from the mine to
which it relates.
The provision is reviewed on an annual basis for changes in cost estimates, discount rates or the life of operations.
Defined benefit pension liability
The defined benefit costs relating to the plans operated by the Group in the different countries are determined and accrued in the
consolidated financial statements using the projected unit credit method for those employees entitled to such payments. The underlying
assumptions are defined by the management and the defined benefit pension liability is calculated by independent actuaries at the end of
each annual reporting period.
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Note 2: Summary of significant accounting policies continued
Remeasurement, comprising actuarial gains and losses, effects of changes in asset ceiling and the return on plan assets (excluding
interest), is immediately reflected in the statement of financial position. The corresponding charge or credit is recognised in the other
comprehensive income of the period in which occurred and immediately reflected in retained earnings as not reclassified to profit or loss
in subsequent periods.
The net interest is calculated by applying the discount rate to the net defined benefit pension liability or plan assets. Any past service
costs are recognised in profit or loss at the earlier of when the plan amendment occurs or when related restructuring costs are
recognised.
The service costs (including current and past) are included in cost of sales, selling and distribution expenses and general and
administrative expenses in the consolidated income statement whereas the net finance expenses are included in finance expenses. The
effects from remeasurements are recognised in the other comprehensive income.
The defined benefit pension liability is the aggregate of the defined benefit obligation less plan assets of funded schemes. The Group
operates funded and unfunded schemes. Further details of the different schemes are provided in note 31.
Earnings per share
The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the weighted average of
shares held in treasury and employee benefit trust reserve.
For the current and prior year periods, basic EPS is calculated by dividing the net profit for the year attributable to ordinary equity
shareholders of Ferrexpo plc by the number of Ordinary Shares as defined above. The number of Ordinary Shares in issue excludes the
shares held by the Employee Benefit Trust and the treasury shares held by the Group. Diluted earnings per share are calculated by
adjusting the number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share
awards are potentially dilutive and are considered in the calculation of diluted earnings per share.
Share-based payments
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the grant date and is recognised as
an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair
value is determined by reference to the quoted closing share price on the grant date. In valuing equity-settled transactions, no account is
taken of any vesting conditions, except for market conditions.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is dependent upon a market condition.
In these cases, the awards are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other
performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated; representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity
instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the income
statement, with a corresponding entry in equity.
Long-Term Incentive Plans (‘LTIPs’)
The LTIPs are share-based schemes whereby certain senior management and executives receive rewards based on the relative Total
Shareholder Return (‘TSR’) outperformance of the Group compared with a group of companies, which operate within a similar
environment. The cost of equity-settled awards is measured as described above together with an estimate of future social security
contributions payable in respect of this value. Where the granting of an LTIP is subject to the satisfaction of certain market conditions, a
vesting charge is recognised irrespective of whether or not the market condition is satisfied, provided that all other performance
conditions are satisfied.
Where awards terminate before the performance period is complete, any unamortised expense is recognised immediately.
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Note 3: New accounting policies
The accounting policies and methods of computation adopted in the preparation of the consolidated financial statements are the same as
those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2012 except for the
adoption of new amendments and improvements to IFRSs effective as of 1 January 2013, noted below:
Standards adopted affecting reported results, financial position or disclosures
IAS 1 Financial statement presentation – presentation of items of other comprehensive income
The amended standard became effective for financial years beginning on or after 1 July 2012. The amendment requires the grouping of
items in other comprehensive income based on whether they will be potentially reclassifiable to profit or loss at a future point of time or
whether they will never be reclassified. The amendment did affect the presentation of the consolidated statement of comprehensive
income only and did not have an impact on the Group’s financial position or performance.
IAS 16 Property, plant and equipment
The improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are
not inventory and became effective for financial years beginning on or after 1 January 2013. The amendment affected presentation only
and did not have an impact on the Group’s financial position or performance. As a result of this improvement, major spare parts and
servicing equipment were reclassified from inventory to property, plant and equipment and previously disclosed balances for the
comparative period ended 31 December 2012 changed by US$5,524 thousand. The effect of this improvement as of 31 December 2013
is US$7,574 thousand without a material impact on the Group’s consolidated income statement and basic and diluted earnings per share.
IAS 19 Employee benefits
The most fundamental change of the numerous amendments made to IAS 19 is to remove the so-called ‘corridor-approach’ and to
require the recognition of all actuarial gains and losses from the remeasurement of the defined benefit obligation and the fair values of the
plan assets in other comprehensive income in the current period. In addition, finance income from scheme assets is now recognised as
part of the interest on the net defined benefit liability using the discount rate used to measure the defined benefit obligation; unvested past
service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or
termination costs are recognised; and scheme administration costs (other than costs of managing the plan assets) are recognised in
profit and loss as they are incurred. The amendments became effective for financial years beginning on or after 1 January 2013 and the
retrospective adoption requires to change the opening statement of financial position of the earliest comparative period presented. The
tables below provide the details of these effects:
US$000
Defined benefit pension liability as at 31 December 2011
Application of IAS 19 revised as at 31 December 2011
Defined benefit pension liability as at 1 January 2012/effect on deferred tax assets and equity
Defined benefit
pension liability
(13,329)
(51,669)
(64,998)
Tax effect
–
8,203
8,203
Equity effect
–
(43,466)
(43,466)
As a result of the retrospective application of IAS 19 revised, the total equity of the shareholders as of 31 December 2011 decreased from
US$1,393,129 thousand to US$1,349,663 thousand.
As a result of the retrospective adoption of the amendments to IAS 19, the defined benefit pension liability and costs of the comparative
period ended 31 December 2012 changed as follows:
US$000
Defined benefit pension liability as at 31 December 2012
Application of IAS 19 revised as at 31 December 2011
Change of the pension costs recorded in financial year 2012:
– Personnel costs included in cost of sales
– Finance expense
Unrecognised actuarial gains included in other comprehensive income
Foreign exchange translation adjustments
Change of non-controlling interest
Defined benefit pension liability as at 1 January 2013/effect on deferred tax assets and equity
Defined benefit
pension liability
(23,504)
(51,669)
Tax effect
–
8,203
Equity effect
–
(43,466)
3,847
(112)
21,244
(1)
–
(50,195)
(731)
21
(3,404)
–
–
4,089
3,116
(91)
17,840
(1)
(81)
(22,683)
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Note 3: New accounting policies continued
The application of IAS 19 revised did not have a material impact on the Group’s consolidated statement of cash flows, the basic and
diluted earnings per share of the comparative period ended 31 December 2012.
The effect of IAS 19 revised on the current year service costs is US$3,236 thousand without a material impact on the Group’s basic and
diluted earnings per share.
Further details in respect of the defined benefit pension liability are provided in note 31.
IFRS 13 Fair value measurement
The new standard became effective for financial years beginning on or after 1 January 2013 and provides guidance on how to measure
fair value under IFRS when fair value is required or permitted by other standards and requires additional specific disclosures. Other than
the additional disclosure requirements, the adoption of this new standard did not have an impact on the financial position or performance
of the Group. The additional disclosures are made in note 37.
Standards and interpretations adopted with no effect on reported results, financial position or disclosures
IFRS 1 First-time adoption of IFRS – government loans
The amendment requires first-time adopters to apply the requirements of IAS 20 Accounting for government grants and disclosure of
government assistance prospectively to government loans existing at the date of transition to IFRS. This amendment became effective for
financial years beginning on or after 1 January 2013. This amended standard is not relevant, as the Group is not a first-time adopter and
consequently did not have an impact on the financial position or performance of the Group.
IFRS 7 Financial instruments: disclosures – offsetting financial assets and financial liabilities
The amendment requires disclosure of information about rights of offset and related arrangements (e.g. collateral posting requirements)
for financial instruments under an enforceable master netting agreement or similar agreement. The amendments became effective for
financial years beginning on or after 1 January 2013 with retrospective disclosure for all comparative periods. The adoption of this
amended standard did not have an impact on the financial position or performance of the Group.
IFRIC 20 Stripping costs in the production phase of a surface mine
The new interpretation covers the accounting for the necessary removal of mine waste materials in order to gain access to the mineral ore
deposit during the production phase of a mine. The interpretation provides guidance on the accounting and separation of the costs of
stripping activities resulting in the production of inventory in the current period or improved access to further mineral ore deposits that will
be mined in future periods. The new interpretation applies to annual periods beginning on or after 1 January 2013. The adoption of this
new interpretation did not have an impact on the financial position or performance of the Group.
New standards and interpretations not yet adopted
The Group has elected not to early adopt the following revised and amended standards:
IFRS 9 Financial instruments
The standard has been issued as the IASB completes each phase of its project to replace IAS 39. The first elements of IFRS 9 were
issued in November 2009 and October 2010 to replace the parts of IAS 39 that relate to the classification and measurement of financial
instruments. In November 2013 an amendment was issued to address hedge accounting and to remove the previously determined
effective date of 1 January 2015. Instead, the IASB proposes to set the effective date of IFRS 9 when it completes the impairment phase
of the project. The Group will assess IFRS 9’s full impact and will determine the date to adopt IFRS 9 once it is endorsed for use in the
EU.
IFRS 10 Consolidated financial statements
The new standard provides additional guidance to assist in the determination of which entities are controlled and are required to be
consolidated. This standard replaces the portion of IAS 27 Consolidated and separate financial statements that addresses the accounting
for consolidated financial statements. The IASB implementation date is for periods beginning on or after 1 January 2013 whereas the
standard becomes mandatory in the EU only for annual periods beginning on or after 1 January 2014. The Group does not intend to take
advantage of the possibility of an early adoption. The impact on the accounting for the Group’s associated company TIS Ruda will be
assessed.
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Note 3: New accounting policies continued
IFRS 11 Joint arrangements
The new standard replaces IAS 31 Interests in joint ventures and SIC 13 Jointly-controlled entities – non-monetary contributions by
venturers. The IASB implementation date is for periods beginning on or after 1 January 2013 whereas the standard becomes mandatory
in the EU only for annual periods beginning on or after 1 January 2014. The standard defines contractually agreed sharing of control of an
arrangement and the accounting for joint operations and joint ventures. The Group does not intend to take advantage of the possibility of
an early adoption and will review its arrangements in place in order to evaluate the potential impact.
IFRS 12 Disclosure of involvement with other entities
The new standard covers the disclosures that were previously required in consolidated financial statements under IAS 27 Consolidated
and separate financial statements as well as those included in IAS 31 Interests in joint ventures and IAS 28 Investments in associates. The
IASB implementation date is for periods beginning on or after 1 January 2013 whereas the standard becomes mandatory in the EU only
for annual periods beginning on or after 1 January 2014. The Group does not intend to take advantage of the possibility of an early
adoption, but expects that a number of additional disclosures will be required under the new standard.
IAS 19 Employee benefits – defined benefit plans: employee contributions
The amendment to the standard was issued in November 2013 and becomes effective for financial years beginning on or after 1 July
2014. The amendment provides guidance in respect of the accounting for employee contributions set out in the formal terms of a defined
benefit plan. The Group does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place
in order to evaluate the potential impact.
IAS 32 Financial instruments: presentation – offsetting financial assets and financial liabilities
The amendments clarify existing application issues relating to the offset of financial assets and financial liabilities requirements. The
amendments are not effective until annual periods beginning on or after 1 January 2014 with retrospective application. No material effects
on the Group’s financial position and performance are expected from this amendment.
IAS 36 Impairment of assets – recoverable amount disclosures
The amendment to the standard was issued in May 2013 and becomes effective for financial years beginning on or after 1 January 2014.
The amendment removes the requirement to disclose recoverable amounts when there has been no impairment or reversal of
impairment. Further to that, the disclosure requirements have been aligned with those under US GAAP for impaired assets. The Group
does not intend to take advantage of the possibility of an early adoption and will review its arrangements in place in order to evaluate the
potential impact.
IFRIC 21 Levies
The new interpretation clarifies when to recognise a liability for a levy imposed by governments (including government agencies and
similar bodies) in accordance with laws and regulations. The new interpretation applies to annual periods beginning on or after 1 January
2014. The interpretation has not yet been endorsed by the EU and the effective date is not yet known. The Group is currently assessing
the potential effect on the Group’s accounting for production and similar taxes. Income taxes in accordance with IAS 12, fines and other
penalties and liabilities arising from trading schemes are not covered by this interpretation.
Note 4: Use of estimates and critical judgements
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on
information available as at the date of authorising the consolidated financial statements for issue. Actual results, therefore, could differ
from those estimates. In particular, information about significant areas of estimation, uncertainty and critical judgements made by
management in preparing the consolidated financial information are described in the following notes:
Impairment testing
The determination of fair value and value-in-use requires management to make estimates and assumptions about expected production
and sales volumes, commodity prices (considering current and historical prices, price trends and related factors), reserves, operating
costs, closure and rehabilitation costs and future capital expenditure. These estimates and assumptions are subject to risk and
uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable
amount of the assets. In such circumstances, some or all of the carrying value of the assets may be impaired and the impairment would
be charged against the income statement. The total of property, plant and equipment amounted to US$1,533,819 thousand as of 31
December 2013 (2012: US$1,347,563 thousand). See also note 18 for further information.
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Note 4: Use of estimates and critical judgements continued
As outlined in note 19 the impairment testing of goodwill is based on significant judgements and assumptions made by management
when performing the annual impairment testing of these non-current assets. Changes to be made to these assumptions may alter the
results of the impairment testing, the impairment charges recorded in profit or loss and the resulting carrying values of the non-current
assets tested. The carrying amount of the goodwill amounted to US$98,415 thousand as of 31 December 2013 (2012: US$98,413
thousand). Related disclosures are also made in note 19.
Capitalised stripping costs
Overburden and other mine waste materials have to be removed prior to the production of the mine in order to gain access to the iron ore
body. These activities are referred to as pre-production stripping costs and are capitalised under assets under construction. The
pre-production stripping costs are capitalised based on calculations which require the use of judgement and estimates in terms of
estimated tonnage of overburden and waste material to be removed during the lifetime of the mine and the expected recoverable reserves
that can be extracted. The change of the mine plan (life and design) in the future may result in changes to the expected stripping ratio
(waste to mineral reserves ratio) and require adjustment of the capitalised pre-production stripping costs. Production stripping costs are
capitalised when the stripping activities in the production phase of a mine result in improved access to components of the ore body.
An important area of judgement is the distinction between the pre-production and production phase of a mine together with the
identification of the components of the ore body and the allocation of the production stripping costs to the components of the ore body or
the inventory produced. At 31 December 2013, the carrying amount of capitalised pre-production stripping costs included in assets
under construction amounted to US$77,380 thousand (2012: US$36,794 thousand). No production stripping costs are capitalised as at
this date (2012: nil). See also note 18 for further information.
Fair value of financial instruments
Where the fair value of financial assets and liabilities recorded in the statement of financial position cannot be derived from active markets,
they are determined using valuation techniques including discounted cash flow models and reference to recent transaction prices. The
inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is
required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair value of financial instruments.
A judgement was made by management that an investment made during the financial year 2013 is fair valued at the recent transaction
price totalling US$82,382 thousand (2012: nil). Detailed information on the carrying amounts of the financial assets and liabilities is given in
note 37.
Taxes recoverable
Within Ukraine, the Group has limited domestic sales and exports the majority of its products so that VAT paid on purchases of goods
and capital equipment cannot be fully offset from VAT on domestic sales and the Group relies on refunds to be made by the Ukrainian
government tax authority. Since the financial year 2010, refunds have not been made on time by the Ukrainian government tax authority
and the gross recoverable balance increased to US$318,213 thousand as of 31 December 2013 (2012: US$301,535 thousand). Despite
the fact that the vast majority of this balance is due for immediate repayment, there is a risk that a large portion will be recovered in 2014
through the issue of a financial instrument and another portion only after more than 12 months from the period end. A provision of
US$60,116 thousand has been recorded as of 31 December 2013 (2012: US$20,000 thousand) to reflect management’s best estimate of
the discount to be expected on the financial instrument at the point of time of its issue and the time value of money based on
management’s best estimate of the anticipated timing of refunds. The issue of financial instrument and its discount as well as the exact
timing of recovery of the other portion of the VAT receivable balance is subject to uncertainties and outside of management’s control. A
change of the underlying assumptions and estimates may affect the balance of the recorded discount in future periods. Additional
disclosures are made in note 26.
During the financial year 2013, VAT refunds were received against corporate profit tax prepayments. As a result of such prepayments
made, the balance of prepaid corporate profit tax increased from US$24,869 thousand to US$87,475 thousand as of 31 December 2013.
The Group is of the view that the prepaid corporate profit tax will be recovered in future periods. However, the recovery depends on pellet
prices in the global market, the agreement with the Ukrainian government tax authorities in the future and the development of foreign
exchange rates which are outside of management’s control. See also notes 16 and 26 for further details.
Defined benefit pension liability
The valuation for defined benefit superannuation schemes requires management to make judgements as to the nature of benefits
provided by each scheme and thereby determine the classification of each scheme. For defined benefit schemes, management is
required to make annual estimates and assumptions about future returns on classes of scheme assets, future remuneration changes,
employee attrition rates, administration costs, changes in benefits, inflation rates, exchange rates, life expectancy and expected remaining
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Note 4: Use of estimates and critical judgements continued
periods of service of employees. In making these estimates and assumptions, management considers advice provided by external
advisers, such as actuaries. At 31 December 2013, the carrying amount of defined benefit pension liability was US$53,154 thousand
(2012: US$50,195 thousand). Detailed disclosure is made in note 31.
Provision for site restoration
The Group’s accounting policy for the recognition of site restoration provisions requires significant estimates and assumptions such as
requirements of the relevant legal and regulatory framework, the magnitude of possible contamination, and the timing, extent and
estimated future costs of required closure and rehabilitation activity. These uncertainties may result in future actual expenditure differing
from the amounts currently provided. At 31 December 2013, the carrying amount of the provision for site restoration amounted to
US$2,871 thousand (2012: US$2,368 thousand). See also note 32 for further information.
Deferred income tax
The Group’s accounting policy for taxation requires management’s judgement in assessing whether deferred tax assets and certain
deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from unrecouped
tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be
recovered, which is dependent on the expected generation of sufficient future taxable profits. A deviation between expected and effective
future taxable profits in the different local jurisdictions may have an adverse impact on the recognised deferred tax balances in the
consolidated financial statements of the Group.
Assumptions about the generation of expected future taxable profits depend on management’s estimates of future cash flows. These
depend on estimates of future production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation
costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of
income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in
circumstances will alter expectations, which may impact the amount of recognised deferred tax balances in the consolidated financial
statement of the Group and the amounts of other tax losses and temporary differences not yet recognised. In such circumstances, some,
or all, of the carrying amount of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or
charge to the income statement. At 31 December 2013, the Group’s consolidated financial statements showed deferred tax assets of
US$37,612 thousand (2012: US$33,220 thousand) and deferred tax liabilities of US$2,031 thousand (2012: US$2,581 thousand). See also
notes 3 and 22 for further information.
Note 5: Segment information
The Group is managed as a single entity which produces, develops and markets its principal product, iron ore pellets, for sale to the
metallurgical industry. While the revenue generated by the Group is monitored at a more detailed level, there are no separate measures of
profit reported to the Group’s Chief Operating Decision-Maker (‘CODM’). In accordance with IFRS 8 Operating segments, the Group
presents its results in a single segment which are disclosed in the income statement for the Group.
Management monitors the operating result of the Group based on a number of measures including EBITDA, ‘C1’ costs and the net
financial indebtedness.
EBITDA
The Group presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its
operating performance. The Group’s full definition of EBITDA is disclosed in the Glossary on page 150.
US$000
Profit before tax and finance
Write-down of VAT receivable
Write-offs and impairment losses
Share-based payments
Losses on disposal of property, plant and equipment
Depreciation and amortisation
EBITDA
Notes
26
13
38
Year ended
31.12.13
359,218
36,421
854
1,266
8,492
99,645
505,896
Year ended
31.12.12
344,716
–
836
1,608
4,067
54,169
405,396
As a result of the retrospective adoption of the amendments to IAS 19, the pension costs of the comparative period ended 31 December
2012 changed and had a positive effect of US$3,847 thousand on the previously disclosed EBITDA figures. See note 3 for further details.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 105
F I N A N C I A L
S T A T E M E N T S
Note 5: Segment information continued
‘C1’ costs
‘C1’ costs represents the cash costs of production of iron pellets from own ore divided by production volume of own ore, and excludes
non-cash costs such as depreciation, pension costs and inventory movements, costs of purchased ore and concentrate, and production
cost of gravel.
US$000
Cost of sales – pellet production
Depreciation and amortisation
Purchased concentrate and other items for resale
Inventory movements
Other non-C1 cost components
C1 cost
Own ore produced (tonnes)
C1 cash cost per tonne (US$)
Year ended
31.12.13
726,960
(78,690)
(34,805)
25,476
(13,213)
625,728
Year ended
31.12.12
638,807
(39,290)
(29,254)
9,029
(18,144)
561,148
10,465,606 9,408,662
59.6
59.8
Net financial indebtedness
Net financial indebtedness as defined by the Group comprises cash and cash equivalents, term deposits, interest-bearing loans and
borrowings and amounts payable for equipment.
US$000
Cash and cash equivalents
Current borrowings
Non-current borrowings
Net financial indebtedness
Notes
27
29
29
Year ended
31.12.13
390,491
(101,043)
(928,196)
(638,748)
Year ended
31.12.12
596,560
(26,846)
(993,139)
(423,425)
Disclosure of revenue and non-current assets
The Group does not generate significant revenues from external customers attributable to the Company’s country of domicile. The
information on the revenues from external customers attributed to the individual foreign countries is given in note 6.
The Group does not have any significant non-current assets that are located in the country of domicile of the Company. The vast majority
of the non-current assets are located in Ukraine.
Note 6: Revenue
Revenue for the year ended 31 December 2013 consisted of the following:
US$000
Revenue from sales of iron ore pellets and concentrate:
Export
Ukraine
Total revenue from sale of iron ore pellets and concentrate
Revenue from logistics and bunker business
Revenue from services provided
Revenue from other sales
Total revenue
Year ended
31.12.13
Year ended
31.12.12
–
1,494,899 1,329,728
331
1,494,899 1,330,059
81,845
3,202
8,924
1,581,385 1,424,030
76,321
1,155
9,010
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 106
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 6: Revenue continued
Export sales of iron ore pellets and concentrate by geographical destination were as follows:
US$000
China
Austria
Turkey
Japan
Slovakia
Czech Republic
Germany
Serbia
India
Russia
Romania
Hungary
Total exports
Year ended
31.12.13
435,471
381,675
184,234
130,429
127,029
123,600
80,814
31,647
–
–
–
–
Year ended
31.12.12
529,664
339,725
73,180
33,389
141,765
112,623
40,486
19,723
23,068
8,875
5,167
2,063
1,494,899 1,329,728
During the year ended 31 December 2013 sales made to three customers accounted for 47.2% of the revenues from export sales of ore
pellets (2012: 44.7%).
Sales to customers that individually represented more than 10% of total sales in either current or prior year are as follows:
US$000
Customer A
Customer B
Customer C
Note 7: Cost of sales
Cost of sales for the year ended 31 December 2013 consisted of the following:
US$000
Materials
Purchased concentrate and other items for resale
Electricity
Personnel costs
Spare parts and consumables
Depreciation and amortisation
Fuel
Gas
Repairs and maintenance
Royalties and levies
Cost of sales from logistics business
Bunker fuel
Inventory movements
Other
Total cost of sales
US$000
Cost of sales – pellet production
Cost of sales – logistics and bunker business
Total cost of sales
Year ended
31.12.13
381,675
184,234
127,029
Year ended
31.12.12
339,725
73,180
141,765
Year ended
31.12.13
107,530
34,805
158,849
66,194
15,921
78,690
74,653
82,028
72,299
23,162
16,531
29,731
(25,476)
38,304
773,221
Year ended
31.12.13
726,960
46,261
773,221
Year ended
31.12.12
89,296
29,254
141,939
69,092
26,563
39,290
56,038
79,082
78,022
12,375
22,342
29,580
(9,028)
26,884
690,729
Year ended
31.12.12
638,807
51,922
690,729
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
107
F I N A N C I A L
S T A T E M E N T S
Year ended
31.12.13
114,366
108,159
31,084
13,121
32,991
12,192
14,135
9,670
335,718
Year ended
31.12.12
113,538
93,442
31,891
18,611
27,495
9,643
9,805
7,539
311,964
Year ended
31.12.13
31,972
2,571
184
6,715
4,022
1,328
1,584
982
2,506
497
2,478
54,839
Year ended
31.12.12
30,569
2,597
1,465
4,699
4,636
1,144
2,033
1,542
2,062
2,296
3,286
56,329
Note 8: Selling and distribution expenses
Selling and distribution expenses for the year ended 31 December 2013 consisted of the following:
US$000
International freight for pellets
Railway transportation
Port charges
Other pellet transportation costs
Costs of logistics business
Advertising
Depreciation
Other
Total selling and distribution expenses
Note 9: General and administrative expenses
General and administrative expenses for the year ended 31 December 2013 consisted of the following:
US$000
Personnel costs
Buildings and maintenance
Taxes other than income tax and other charges
Professional fees
Depreciation and amortisation
Communication
Vehicle maintenance and fuel
Repairs
Audit and non-audit fees
Security
Other
Total general and administrative expenses
Auditor remuneration
Auditor remuneration paid in respect of the audit of the financial statements of the Group and its subsidiary companies and for the
provision of other services not in connection with the audit is disclosed below:
US$000
Audit services
Ferrexpo plc Annual Report
Subsidiary entities
Total audit services
Non-audit services
Tax advisory
Assurance related services
Other services
Total non-audit services
Total auditor remuneration
Year ended
31.12.13
Year ended
31.12.12
1,252
354
1,606
125
708
67
900
2,506
823
766
1,589
23
203
247
473
2,062
Assurance related services include fees paid for services provided in relation to raising of new debt for the Group.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 108
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 10: Other income
Other income for the year ended 31 December 2013 consisted of the following:
US$000
Sale of surplus maintenance spares
Lease income
Other income
Total other income
Note 11: Other expenses
Other expenses for the year ended 31 December 2013 consisted of the following:
US$000
Community support donations
Movements in allowance for doubtful receivables and prepayments made
Research
Other personnel costs
Other
Total other expenses
Note 12: Foreign exchange gains and losses
Foreign exchange gains and losses for the year ended 31 December 2013 consisted of the following:
US$000
Operating foreign exchange gains
Revaluation of trade receivables
Revaluation of trade payables
Revaluation of cash and cash equivalents
Other
Total operating foreign exchange gains
Non-operating foreign exchange gains
Revaluation of interest-bearing loans
Conversion of cash and cash equivalents
Other
Total non-operating foreign exchange gains
Year ended
31.12.13
–
942
5,720
6,662
Year ended
31.12.12
1,276
3,050
7,021
11,347
Year ended
31.12.13
10,116
661
429
2,469
9,782
23,457
Year ended
31.12.12
20,810
721
680
2,339
5,611
30,161
Year ended
31.12.13
Year ended
31.12.12
1
30
512
79
622
7
23
339
284
653
2,892
7,329
(466)
9,755
1,986
5,046
(410)
6,622
The non-operating foreign exchange gains in 2013 relates to income received from the conversion of US Dollars for the settlement of
liabilities denominated in Ukrainian Hryvnia at an exchange rate higher than the one applicable upon initial recognition.
Note 13: Write-offs and impairment losses
Impairment losses relate to adjustments made against the carrying value of assets where this is higher than the recoverable amount.
Write-offs and impairment losses for the year ended 31 December 2013 consisted of the following:
US$000
Write-off of inventories
Write-off of property, plant and equipment
Impairment of available-for-sale financial assets
Total write-offs and impairment losses
Notes
20
Year ended
31.12.13
528
326
–
854
Year ended
31.12.12
215
191
430
836
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 109
F I N A N C I A L
S T A T E M E N T S
Note 14: Investments in associates
As at 31 December 2013 investments in associates comprised:
TIS Ruda1
Principal activity
Country of
incorporation
Ownership
%
As at
31.12.13
US$000
As at
31.12.12
US$000
Port development
Ukraine
48.6
20,546
16,995
For the year ended 31 December 2013 the summarised financial information for the associate was as follows:
US$000
TIS Ruda1
1 Based on preliminary and unaudited financial information.
Total assets
Total liabilities
Revenue
Net profit
As at
31.12.13
As at
31.12.12
27,503
20,500
As at
31.12.13
1,740
As at
31.12.12
2,498
Year ended
31.12.13
Year ended
31.12.12
Year ended
31.12.13
Year ended
31.12.12
23,335
22,401
7,116
5,555
The information above is for 100% of the associate named and not as a percentage based on Group’s ownership. The movement in the
investment in the year represents the Group’s share of profit of US$3,551 thousand in TIS Ruda (2012: US$2,772 thousand). During the
comparative period ended 31 December 2012, TIS Ruda paid a dividend amounting to US$4,963 thousand. No dividend was paid during
the financial year 2013 to the Group.
TIS Ruda operates a port on the Black Sea which the Group uses as part of its distribution channel.
Note 15: Finance income and expense
Finance income and expense for the year ended 31 December 2013 consisted of the following:
US$000
Finance income
Interest income
Other finance revenue
Total finance income
Finance expense
Interest expense on financial liabilities measured at amortised cost
Effect from capitalised borrowing costs
Interest on defined benefit plans
Bank charges
Other finance costs
Total finance expenses
Net finance expense
Year ended
31.12.13
Year ended
31.12.12
2,062
310
2,372
(53,340)
8,966
(5,487)
(10,976)
(5,116)
(65,953)
(63,581)
2,454
144
2,598
(54,749)
1,508
(6,933)
(6,880)
(21,149)
(88,203)
(85,605)
Bank charges include arrangement fees charged in relation to the Group’s major bank debt facility.
Other finance costs include the effect from the increase of the recorded discount of US$3,695 thousand (2012: US$20,000 thousand) to
reflect the time value of money on the outstanding VAT receivable balances in Ukraine that are expected to be recovered after more than
one year of the period end. Further information is provided in note 26.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
110
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 16: Income tax expense
The income tax expense for the year ended 31 December 2013 consisted of the following:
US$000
Current income tax
Current income tax charge
Amounts related to previous years
Total current income tax
Deferred income tax
Origination and reversal of temporary differences
Effect from changes in tax laws and rates
Total deferred income tax
Total income tax expense
Notes
Year ended
31.12.13
Year ended
31.12.12
45,878
684
46,562
(7,266)
2,312
(4,954)
41,608
48,797
2,929
51,726
(12,053)
7,462
(4,591)
47,135
22
Other comprehensive income contained taxes on the following items charged or credited to it for the year ended 31 December 2013:
US$000
Exchange differences arising on hedging of foreign operations
Net losses on available-for-sale investments
Remeasurement gains on defined pension liability
Total income taxes charged to other comprehensive income
A breakdown of the deferred tax balances is contained in note 22.
Year ended
31.12.13
–
30
(58)
(28)
Year ended
31.12.12
32
62
(3,404)
(3,310)
The effective income tax rate differs from the corporate income tax rates. The weighted average statutory rate was 8.3% for 2013 (2012:
9.3%). This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the
profits and losses before tax of the subsidiaries in the respective countries, as included in the consolidated financial information. The
effective tax rate is 13.6% (2012: 17.8%). The decrease is a result of the reduction of the statutory tax rate in Ukraine and the change in
the profit mix between the different local jurisdictions.
A reconciliation between the income tax charged in the accompanying financial information and income before taxes multiplied by the
weighted average statutory tax rate for the year ended 31 December 2013 is as follows:
US$000
Profit before tax
Notional tax computed at the weighted average statutory tax rate of 8.3% (2012: 9.3%)
Derecognition of deferred tax asset
Effect from changes in local tax rates
Effect from utilisation of non-recognised deferred tax assets
Expenses not deductible for tax purposes
Tax exempted income
Non-recognition of deferred taxes on current year losses
Tax related to prior years
Other
Total income tax expense
Year ended
31.12.13
305,392
25,329
101
2,312
94
8,485
(1,396)
4,084
2,011
588
41,608
Year ended
31.12.12
265,733
24,770
264
7,462
(318)
8,818
(422)
3,684
2,929
(52)
47,135
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 111
F I N A N C I A L
S T A T E M E N T S
Note 17: Earnings per share and dividends paid and proposed
Basic earnings per share (‘EPS’) is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of Ferrexpo
plc by the weighted average number of Ordinary Shares.
Profit for the year attributable to equity shareholders:
Basic earnings per share (US cents)
Diluted earnings per share (US cents)
The calculation of the basic and diluted earnings per share is based on the following data:
Thousand
Weighted average number of shares
Basic number of Ordinary Shares outstanding
Effect of dilutive potential Ordinary Shares
Diluted number of Ordinary Shares outstanding
Year ended
31.12.13
Year ended
31.12.12
44.76
44.69
37.14
37.08
Year ended
31.12.13
Year ended
31.12.12
585,294
926
586,220
585,060
973
586,033
The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the weighted average
shares held in treasury and employee benefit trust reserve (refer to note 28).
Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of
conversion of all potentially dilutive Ordinary Shares. All share awards are potentially dilutive and are considered in the calculation of
diluted earnings per share.
Dividends paid and proposed
US$000
Dividends proposed
Final dividend for 2013: 3.3 US cents per Ordinary Share
Special dividend for 2013: 6.6 US cents per Ordinary Share
Total dividends proposed
Dividends paid during the year
Interim dividend for 2013: 3.3 US cents per Ordinary Share
Final dividend for 2012: 3.3 US cents per Ordinary Share
Special dividend for 2012: 6.6 US cents per Ordinary Share
Total dividends paid
US$000
Dividends proposed
Final dividend for 2012: 3.3 US cents per Ordinary Share
Special dividend for 2012: 6.6 US cents per Ordinary Share
Total dividends proposed
Dividends paid during the year
Interim dividend for 2012: 3.3 US cents per Ordinary Share
Final dividend for 2011: 3.3 US cents per Ordinary Share
Total dividends paid
Year ended
31.12.13
19,317
38,633
57,950
19,692
19,441
38,749
77,882
Year ended
31.12.12
19,309
38,618
57,927
19,312
19,340
38,652
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 112
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 18: Property, plant and equipment
As at 31 December 2013 property, plant and equipment comprised:
US$000
Cost:
At 1 January 2012
Additions
Transfers
Disposals
Application of IAS 16
Translation differences
At 31 December 2012
Additions
Transfers
Disposals
Translation differences
At 31 December 2013
Depreciation:
At 1 January 2012
Depreciation charge
Disposals
Transfers
Impairment
Translation differences
At 31 December 2012
Depreciation charge
Disposals
Transfers
Impairment
Translation differences
At 31 December 2013
Net book value at:
31 December 2012
31 December 2013
Exploration
and evaluation
Land
Mining
assets
Buildings
Vessels
Plant and
equipment
Vehicles
Fixtures
and fittings
Assets under
construction
Total
–
3,078
–
–
–
–
3,078
127
–
–
–
3,205
7,860
–
1,754
–
–
73
9,687
17
193
–
142
10,039
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,346
–
326,015
(914)
–
(9)
345,438
–
26,637
(177)
–
371,898
1,506
5,479
–
–
–
(1)
6,984
26,935
–
–
–
–
33,919
177,538
–
54,256
(3,329)
–
(67)
228,398
1,492
42,942
(4,526)
8
268,314
38,535
10,008
(1,310)
4
16
(18)
47,235
16,372
(1,361)
–
(195)
16
62,067
69,612
21,696
19,009
(1,291)
–
1,587
110,613
–
2,537
(342)
3,245
116,053
4,240
4,566
–
–
–
97
8,903
7,359
–
–
–
365
16,627
276,058
39
74,290
(3,334)
–
(106)
346,947
249
83,398
(14,019)
12
416,587
113,864
28,367
(2,868)
2
–
(44)
139,321
34,242
(8,227)
15
416
7
165,774
238,210
979
140,231
(4,698)
–
(95)
374,627
4
29,362
(6,853)
2
397,142
48,504
24,052
(3,981)
(3)
–
(20)
68,552
30,561
(3,927)
–
52
1
95,239
5,325
175
1,509
(78)
–
2
6,933
100
1,573
(181)
11
8,436
2,671
1,430
(73)
(3)
–
1
4,026
1,208
(152)
(15)
(3)
5
5,069
339,091 1,134,040
496,728
470,761
–
(617,064)
(14,903)
(1,259)
5,524
5,524
1,301
(84)
1,622,690
196,969
319,320
317,331
–
(186,642)
(32,782)
(6,684)
3,448
28
321,002 1,912,676
30
–
–
–
76
–
106
–
–
–
56
–
162
209,350
73,902
(8,232)
–
92
15
275,127
116,677
(13,667)
–
326
394
378,857
3,078
3,205
9,687
10,039
338,454
337,979
181,163
206,247
101,710
99,426
207,626
250,813
306,075
301,903
2,907
3,367
196,863 1,347,563
320,840 1,533,819
Assets under construction consist of ongoing capital projects amounting to US$243,622 thousand (2012: US$154,545 thousand) and
capitalised pre-production stripping costs of US$77,380 thousand (2012: US$36,794 thousand). Once production commences, stripping
costs are transferred to mining assets. The accounting policy for mine stripping costs is outlined in note 2.
Property, plant and equipment includes capitalised borrowing costs on qualifying assets of US$8,966 thousand (2012: US$1,508
thousand). The capitalised borrowing costs on general borrowings were determined based on the capitalisation rate of 5.8% (2012: 5.8%),
which is the average effective interest rate on general borrowings during the period. The Group has no specific borrowings in relation to
qualifying assets during either reporting period.
The carrying value of equipment held under finance leases and hire purchase contracts at 31 December 2013 was US$25,544 thousand
(2012: US$18,549 thousand). During the comparative period ended 31 December 2012, the Group entered into sale and lease-back
transactions for rail cars and mining equipment, which were considered to be finance leases. No gain or loss was realised on the sale of
the assets subject to these finance leases. Leased assets and assets under hire purchase contracts are pledged as security for the
related finance leases and hire purchase liabilities.
US$227,460 thousand of property, plant and equipment have been pledged as security for liabilities (2012: US$220,053 thousand).
The gross value of fully depreciated property, plant and equipment that is still in use is US$47,992 thousand (2012: US$45,994 thousand).
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 113
F I N A N C I A L
S T A T E M E N T S
Goodwill
Exploration
and evaluation
98,453
–
–
(40)
98,413
–
–
2
98,415
–
–
–
–
–
–
–
–
–
98,413
98,415
–
3,607
–
–
3,607
5,562
–
–
9,169
–
–
–
–
–
1,196
–
–
1,196
3,607
7,973
Other
intangible
assets
6,654
6,304
(53)
51
12,956
1,706
(111)
122
14,673
1,867
980
(53)
11
2,805
1,226
(111)
55
3,975
Total
105,107
9,911
(53)
11
114,976
7,268
(111)
124
122,257
1,867
980
(53)
11
2,805
2,422
(111)
55
5,171
10,151
10,698
112,171
117,086
Note 19: Goodwill and other intangible assets
As at 31 December 2013 goodwill and other intangible assets comprised:
US$000
Cost:
At 1 January 2012
Additions
Disposals
Translation differences
At 31 December 2012
Additions
Disposals
Translation differences
At 31 December 2013
Accumulated amortisation and impairment:
At 1 January 2012
Amortisation charge
Disposals
Translation differences
At 31 December 2012
Amortisation charge
Disposals
Translation differences
At 31 December 2013
Net book value at:
31 December 2012
31 December 2013
The goodwill acquired through business combinations in previous periods has been allocated for impairment purposes to one cash-
generating unit, as the Group only has one operating segment, being the production and sale of iron ore. This represents the lowest level
within the Group at which goodwill is monitored for internal management purposes.
Goodwill from business combinations is not amortised, but reviewed for impairment at every balance sheet date and whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment testing was performed at 31 December 2013 based on a value-in-use calculation using cash flow projections over the
remaining estimated life of the Gorishne-Plavninskoye and Lavrikovskoye mine (‘GPL’), which is expected to expire in 2038 according to
the current approved mine plan. The estimated production volumes are based on this mine plan and do not take into account the effects
of expected future mine life extension programmes. The cash flow projection is based on the financial budget covering the next five years
and approved by senior management. The production capacity remains at a fixed level until full capacity is reached and therefore no
perpetual growth rate is applied for the cash flow projections beyond the budgeted four years.
The major component of other intangible assets comprises mining licences and purchased software.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 19: Goodwill and other intangible assets continued
Key assumptions
The key assumptions are:
Estimates/assumptions
Future production:
Commodity prices:
Cost of raw materials and other production/distribution costs:
Exchange rates:
Discount rates:
Basis
Proved and probable reserves and resource estimates
Contract prices and longer-term price estimates
Expected future costs
Current market exchange rates
Cost of capital risk adjusted for the resource concerned
Cash flows are projected based on management’s expectations regarding the development of the iron ore and steel market and the cost
of producing and distributing the pellets.
The Group takes into account two key assumptions, selling price and total production costs. Within this, both macro and local factors
which influence these are considered.
In determining the future long-term selling price, the Group takes into account external and internal analysis of the longer-term and
shorter-term supply and demand dynamics in the local region and throughout the world along with costs of production of competitors
and the marginal cost of incremental production in a particular market. The Group considers local supply demand balances affecting its
major customers and the effects this could have on the longer-term price. The assumptions for iron ore prices ranged from US$90 per
tonne to US$120 per tonne of Fe 62% fines CFR North China (2012: US$85 per tonne to US$128 per tonne).
Cost of production and shipping is considered taking into account local inflationary pressures, major exchange rate developments
between local currency and the US Dollar, and the longer-term and shorter-term trends in energy supply and demand and the effect on
costs along with the expected movements in steel-related commodity prices which affect the cost of certain production inputs.
For the purpose of the goodwill impairment test, the future cash flows were discounted using the real pre-tax discount rate of 10% (2012:
10%) per annum. These rates reflect the time value of money and risk associated with the asset, and is in line with the rates used by
competitors with a similar background.
Sensitivity to changes in assumptions
Management believes that due to the high value of the projects and resulting reserve base no reasonable change in the above key
assumptions would cause the carrying value of the unit to materially exceed its value-in-use.
Note 20: Available-for-sale financial assets
As at 31 December 2013 available-for-sale financial assets comprised:
US$000
Non-current
Investments available-for-sale – equity investments:
Ferrous Resources
PJSC Stakhanov Railcar Company
Vostok Ruda LLC
LLC Atol
CJSC AMA
CJSC Amtek
Total non-current
Ownership
Carrying value
As at
31.12.13
As at
31.12.12
As at
31.12.13
As at
31.12.12
15.51%
1.10%
1.10%
9.95%
9.00%
9.00%
–
1.10%
1.10%
9.95%
9.00%
9.00%
82,382
396
–
–
–
–
82,778
–
534
–
–
–
–
534
The Group acquired between January and September 2013 a 15.5% strategic stake in Ferrous Resources, a producing iron ore company
operating in the iron ore quadrangle of the Minas Gerais region of Brazil. The other investments listed above relate to companies
incorporated in Ukraine.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 115
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Note 20: Available-for-sale financial assets continued
Details in respect of the valuation of these available-for-sale financial assets are provided in note 37. See also notes 13 and 34 for
further details.
Impairment testing
Ferrous Resources
The investment in Ferrous Resources is reviewed for indication of impairment at least at the end of each reporting period that is
published. Considering the short period of time since the acquisition of Ferrous Resources and taking into account the current market
situation, there are no indications of an impairment as of 31 December 2013.
PJSC Stakhanov Railcar Company
The value of PJSC Stakhanov Railcar Company decreased due to a lower quoted market price for its shares on the Ukrainian stock
exchange (‘PFTS’) as of 31 December 2013. The decrease of the fair value in the amount of US$138 thousand (2012: decrease of US$326
thousand) has been recorded against the net unrealised gains reserve. The decrease of the fair value is not considered to be a significant
or prolonged decline and therefore not an objective evidence of impairment.
Vostok Ruda LLC
The investment in Vostok Ruda LLC was fully impaired during the financial year 2012. There are no indications at 31 December 2013 that
could require a reversal of the previously booked impairment losses.
Ferrexpo Petroleum
The unquoted equity investments in LLC Atol, CJSC AMA and CJSC Amtek, companies engaged in the exploration and development of
oil and gas fields in the Poltava Region of Ukraine, were fully impaired during previous financial years based on a discounted cash flow
projection. The key assumptions used in this calculation were gas/condensate prices, gas/oil/condensate conversion rates, production
volumes, production costs, tax rates, projected capital expenditure, the Ukrainian Hryvnia to US Dollar exchange rate and the discount
rate. There are no indications at 31 December 2013 that require a reversal of any impairment losses booked in previous periods.
Note 21: Other non-current assets
As at 31 December 2013 other non-current assets comprised:
US$000
Prepayments for property, plant and equipment
Prepaid bank arrangement fees
Other non-current assets
Total other non-current assets
As at
31.12.13
19,185
7,978
7,412
34,575
As at
31.12.12
35,711
3,760
2,339
41,810
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 116
F I N A N C I A L
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 22: Deferred income tax
Deferred income tax assets and liabilities at 31 December 2013 relate to the following:
US$000
Trade and other receivables
Inventories
Accrued income and prepaid expenses
Property, plant and equipment
Intangible assets
IPO costs netted against share premium
Tax losses recognised
Other financial assets
Trade and other payables
Accrued expenses
Defined benefit pension liability
Provision for site restoration
Other financial liabilities
Other items
Total deferred tax assets/change
Thereof netted against deferred tax liabilities
Total deferred tax assets as per the statement of financial position
Trade and other receivables
Inventories
Accrued income and prepaid expenses
Property, plant and equipment
Other non-current assets
Other financial assets
Employee benefit trust
Trade and other payables
Accrued expenses
Lease obligations
Defined benefit pension liability
Total deferred tax liabilities/change
Thereof netted against deferred tax assets
Total deferred tax liabilities as per the statement of financial position
Net deferred tax assets/net change
Consolidated statement
of financial position
Consolidated income statement
As at
31.12.13
51
1,311
–
26,993
187
–
1,291
174
26
1,658
8,451
372
–
–
40,514
(2,902)
37,612
(703)
(264)
(745)
(2,069)
(866)
(171)
–
(93)
(10)
(12)
–
(4,933)
2,902
(2,031)
35,581
As at
31.12.12
496
229
12
23,091
53
33
1,060
56
1
1,585
7,856
353
9
2
34,836
(1,616)
33,220
(759)
(267)
(159)
(1,678)
(615)
(185)
–
(521)
–
(1)
(12)
(4,197)
1,616
(2,581)
30,639
Year ended
31.12.13
(445)
1,082
(12)
3,881
134
(33)
231
118
25
74
595
19
(9)
(2)
5,658
55
4
(587)
(391)
(251)
14
–
428
(10)
(11)
12
(737)
Year ended
31.12.12
423
(77)
12
5,880
59
(194)
(962)
(20)
1
100
802
(104)
(1)
–
5,919
370
(267)
59
(726)
(615)
71
305
(520)
–
7
(12)
(1,328)
4,921
4,591
As a result of the retrospective adoption of the amendments to IAS 19, deferred taxes on the defined benefit pension liability of the
comparative period ended 31 December 2012 increased by US$4,089 thousand. See note 3 for further details.
The movement in the deferred income tax balance is as follows:
US$000
Opening balance
Income statement credit
Charges booked outside of profit or loss
Foreign currency exchange rate adjustment
Closing balance
Year ended
31.12.13
30,639
4,954
(28)
16
35,581
Year ended
31.12.12
29,397
4,591
(3,404)
55
30,639
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 117
F I N A N C I A L
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Note 22: Deferred income tax continued
As at 31 December 2013, the Group had deductible temporary differences on available tax loss carry forwards in the amount of
US$100,226 thousand (2012: US$80,582 thousand) for which no deferred tax assets were recognised. The vast majority of the available
tax loss carry forwards relates to the acquired logistics business in Austria and Hungary during the financial year 2010. Tax loss carry
forwards in both tax jurisdictions do not expire. Temporary differences associated with investments in subsidiaries for which deferred tax
liabilities have not been recognised amount to US$826,470 thousand (2012: US$660,683 thousand).
Note 23: Inventories
As at 31 December 2013 inventories comprised:
US$000
Raw materials and consumables
Finished ore pellets
Work in progress
Other
Provision for slow-moving and obsolete inventory items
Total inventories – current
Raw materials and consumables
Total inventories – non-current
Inventory is held at the lower of cost or net recoverable amount.
Inventories classified as non-current comprise ore stockpiles that are not planned to be processed within one year.
Note 24: Trade and other receivables
At 31 December 2013 trade and other receivables comprised:
US$000
Trade receivables
Other receivables
Allowance for doubtful receivables
Total trade and other receivables
As at
31.12.13
120,087
33,969
25,206
2,775
(1,174)
180,863
58,303
58,303
As at
31.12.12
93,561
28,142
5,178
7,876
(646)
134,111
12,362
12,362
As at
31.12.13
100,723
3,854
(2,079)
102,498
As at
31.12.12
116,135
1,967
(1,549)
116,553
Trade receivables at 31 December 2013 includes US$1,181 thousand (2012: US$826 thousand) owed by related parties. The detailed
related party disclosures are made in note 34.
The movement in the provision for doubtful receivables during the period under review was:
US$000
Opening balance
Recognition
Reversal
Closing balance
Year ended
31.12.13
1,549
752
(222)
2,079
Year ended
31.12.12
1,484
1,080
(1,015)
1,549
The following table shows the Group’s receivables at the reporting date that are subject to credit risk and the ageing and impairment
profile thereon:
As at 31.12.13
US$000
Trade receivables
Other receivables
Gross
amount
100,723
3,854
Receivables
past due and
impaired
1,767
312
Receivables
neither past
due nor
impaired
92,969
3,275
Receivables past due but not impaired
Less than
45 days
2,210
19
45 to 90
days
887
22
Over 90
days
2,890
226
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 118
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 24: Trade and other receivables continued
As at 31.12.12
US$000
Trade receivables
Other receivables
Gross
amount
116,135
1,967
Receivables
past due and
impaired
1,465
84
Receivables
neither past
due nor
impaired
88,792
891
Receivables past due but not impaired
Less than
45 days
21,978
20
45 to 90
days
1,008
531
Over 90
days
2,892
441
The Group’s exposures to credit and currency risks are disclosed in note 37.
Note 25: Prepayments and other current assets
As at 31 December 2013 prepayments and other current assets comprised:
US$000
Prepayments to suppliers:
Electricity and gas
Materials and spare parts
Services
Other prepayments
Prepaid bank arrangement fees
Accrued income
Other
Total prepayments and other current assets
As at
31.12.13
As at
31.12.12
5,009
2,208
4,990
286
2,793
9,334
453
25,073
4,094
3,289
4,588
67
1,410
22,176
844
36,468
Prepayments at 31 December 2013 include US$322 thousand (2012: US$1,482 thousand) made to related parties. The detailed related
party disclosures are made in note 34.
Note 26: Taxes payable, recoverable and prepaid
The income tax receivable balance as of 31 December 2013 is shown below:
US$000
Opening balance
Income statement charge
Tax paid
Reclassification
Foreign exchange adjustment
Closing balance
Split by:
US$000
Income tax receivable balance – current
Income tax receivable balance – non-current
Income tax payable balance
Net income tax receivable
As at 31 December 2013 taxes recoverable and prepaid comprised:
US$000
VAT receivable
Other taxes prepaid
Total taxes recoverable and prepaid – current
VAT receivable
Total taxes recoverable and prepaid – non-current
As at
31.12.13
11,197
(46,562)
108,321
1,876
89
74,921
As at
31.12.12
(36,290)
(51,727)
99,771
–
(557)
11,197
As at
31.12.13
33,233
54,242
(12,554)
74,921
As at
31.12.12
24,869
–
(13,672)
11,197
As at
31.12.13
182,628
235
182,863
78,281
78,281
As at
31.12.12
186,900
346
187,246
97,895
97,895
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 119
F I N A N C I A L
S T A T E M E N T S
Note 26: Taxes payable, recoverable and prepaid continued
The vast majority of the outstanding VAT receivable balance is related to Ukraine and a result of VAT paid on domestic Ukrainian
purchases of goods, capital equipment and services and on the import of goods, capital equipment and services into Ukraine to the
extent that this cannot be offset on VAT paid on domestic sales in Ukraine. Ferrexpo currently has limited domestic sales and exports the
majority of its products. As a result, VAT has to be recovered from the government tax authority and Ferrexpo is reliant on the normal
functioning of this system. During the financial year 2013, the Group received VAT refunds in respect of 2012 and 2013 amounting to
US$170,967 thousand and paid Ukrainian VAT amounting to US$219,024 thousand. This was reduced by VAT incurred on domestic
product sales of US$31,380 thousand. As a result, the gross recoverable balance increased from US$301,536 thousand to US$318,213
thousand (UAH2,543 million).
Management expects this amount to be fully recovered in local currency. However, the exact timing of recovery and method of settlement
is subject to uncertainties, along with the prevailing exchange rate to the US Dollar at the time of repayment. In the past, VAT has been
recovered in cash and by the issuance of domestic local currency bonds. Alternative methods of settlement have been proposed, but not
adopted, including offset of amounts recoverable against current and future corporate profit tax. A financial loss could result, for example,
from the issuance of bonds or treasury promissory notes which trade at a discount at the time of issue; continued late repayment as a
result of government fiscal constraints diminishing the present value of the receivable; or the conversion to US Dollar of local currency
received at a different exchange rate to that recorded at the time of payment; or adverse decision in the courts regarding VAT balances in
dispute, which management believe is fully recoverable. In October 2013, the cabinet of ministers of Ukraine confirmed that outstanding
VAT liabilities incurred prior to 2013 will be settled with bonds or treasury promissory notes instead of cash repayment. As of the date of
the publication of these accounts no such financial instruments have been issued.
Management has assessed the considerable uncertainties regarding the method of repayment of VAT and uncertainties relating to the
timing of recovery of the VAT due. Currently the Group has amounts repayable in respect of 2013 under normal terms which is being
recovered fully and promptly in the normal course of its business. During the financial year 2013 this was in exchange for a 50%
prepayment of corporation tax. As a result of this, the prepaid balance of prepaid corporate profit tax increased from US$24,869
thousand to US$87,475 thousand as of 31 December 2013. It is the management’s view that this balance will be offset with future profits.
At the end of the reporting period, the Group also has US$101,977 thousand in the court system which management believes will be fully
recovered. The protracted procedures involved and the complexity of the system will, however, result in a delay in repayment and it is the
best estimate of management that at the current time it will take two years before all the court processes are completed and payment in
full will be received. A discount of US$23,695 thousand (2012: US$20,000 thousand) to reflect the time value of money during this period
has been made and this asset has been disclosed net of provision as non-current.
The Group has US$145,685 thousand of VAT outstanding from the financial year 2012 and earlier which management believe will be
recovered in the next year through the issue of financial instruments as has been the practice in the past. There is no fully reliable way to
estimate the ultimate financial recovery which can ultimately be at par value, however it is the best estimate of management, based on
past practice, that the financial instruments would if issued trade at a discount of 25% for which a provision of US$36,421 thousand
(2012: nil) has been made as of 31 December 2013.
The total provision recorded in respect of the outstanding VAT receivable balances is US$60,116 thousand as of 31 December 2013
(2012: US$20,000 thousand). Further information on the Ukrainian VAT situation is provided in the Principal Risks section on page 29.
As at 31 December 2013 other taxes payable comprised:
US$000
Withholding tax
Environmental tax
Royalties
Source tax
VAT payable
Other taxes
Total taxes payable
As at
31.12.13
501
3,225
3,822
116
1,734
2,571
11,969
As at
31.12.121
540
496
2,931
10
1,697
2,691
8,365
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 120
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 27: Cash and cash equivalents
As at 31 December 2013 cash and cash equivalents comprised:
US$000
Cash at bank and on hand
Short-term deposit
Total cash and cash equivalents
Year ended
31.12.13
355,364
35,127
390,491
Year ended
31.12.12
304,994
291,566
596,560
The Group’s exposure to liquidity, counterparty and interest rate risk as well as a sensitivity analysis for financial assets and liabilities are
disclosed in note 37. See also note 34 for further information in respect of transactional banking arrangements.
Note 28: Share capital and reserves
Balance at 31 December 2013 and 2012
US$000
Number of
shares
121,628
613,967,956
Share capital represents the nominal value on issue of the Company’s equity share capital, comprising £0.10 Ordinary Shares.
The fully paid share capital of Ferrexpo plc at 31 December 2013 was 613,967,956 Ordinary Shares (2012: 613,967,956) at a par value of
£0.10 paid for in cash, resulting in share capital of US$121,628 thousand (2012: US$121,628 thousand) per the statement of financial
position.
The closing balance as of 31 December 2013 and 2012 includes 25,343,814 shares which are held in treasury and 3,275,435 shares held
in the employee benefit trust reserve (2012: 3,504,523 shares).
As at 31 December 2013 other reserves attributable to equity shareholders of Ferrexpo plc comprised:
US$000
At 1 January 2012
Foreign currency translation differences
Loss on available-for-sale investments
Tax effect
Total comprehensive income for the period
Share-based payments
At 31 December 2012
Foreign currency translation differences
Loss on available-for-sale investments
Tax effect
Total comprehensive income for the period
Share-based payments
At 31 December 2013
Uniting of
interest reserve
31,780
–
–
–
–
–
31,780
–
–
–
–
–
31,780
Treasury
share
reserve
(77,260)
–
–
–
–
–
(77,260)
–
–
–
–
–
(77,260)
Employee
benefit trust
reserve
(9,416)
–
–
–
–
1,608
(7,808)
–
–
–
–
1,266
(6,542)
Net
unrealised
gains
reserve
1,084
–
(326)
62
(264)
–
820
–
(138)
30
(108)
–
712
Translation
reserve
(294,791)
(829)
–
32
(797)
–
(295,588)
(428)
–
–
(428)
–
(296,016)
Total
other
reserves
(348,603)
(829)
(326)
94
(1,061)
1,608
(348,056)
(428)
(138)
30
(536)
1,266
(347,326)
Uniting of interest reserve
The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in OJSC Ferrexpo Poltava Mining
to gain control of the subsidiary in 2005 and the net assets acquired, which under the pooling of interests method of accounting are
consolidated at their historic cost, less non-controlling interests.
Treasury share reserve
During September 2008, Ferrexpo plc completed a buyback of 25,343,814 shares for a total cost of US$77,260 thousand. These shares
are currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights)
and the payment of dividends in respect of treasury shares.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 121
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Note 28: Share capital and reserves continued
Employee benefit trust reserve
This reserve represents the treasury shares held by Ferrexpo AG setting up an employee benefit trust reserve. The reserve is used to
satisfy future grants for senior management incentive schemes.
Net unrealised gains reserve
This reserve records fair value changes on available-for-sale investments.
Translation reserve
The translation reserve represents exchange differences arising on the translation of non-US Dollar (e.g. Ukrainian Hryvnia) functional
currency operations within the Group into US Dollars.
Share premium
Share premium represents the premium paid by subscribers for the share capital issues, net of costs directly attributable to the
share issue.
Subsequent increases in the stake have been accounted for using the parent extension concept method of accounting as described in
the accounting policy section of the financial statements (note 2).
Note 29: Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at
amortised cost. All loans are in US Dollars. For more information about the Group’s exposure to interest rate, foreign currency and
liquidity risk, see note 37.
US$000
Current
Syndicated bank loans – secured
Other bank loans – secured
Obligations under finance leases
Interest accrued
Total current interest-bearing loans and borrowings
Non-current
Eurobond issued
Syndicated bank loans – secured
Other bank loans – secured
Obligations under finance leases
Total non-current interest-bearing loans and borrowings
Total interest-bearing loans and borrowings
Notes
As at
31.12.13
As at
31.12.12
37
37
37
37
37
37
37
37
70,000
16,775
4,523
9,745
101,043
–
13,321
3,729
9,796
26,846
493,810
350,000
66,129
18,257
928,196
491,438
420,000
62,232
19,469
993,139
1,029,239 1,019,985
As at 31 December 2013 the Group has a syndicated US$420 million revolving pre-export finance facility in place and a US$500 million
Eurobond.
The revolving pre-export finance facility was drawn in full on 7 October 2011. This finance facility is available for 60 months including a
commitment amortisation over the final 24 months. The maturity is 31 August 2016.
As at 31 December 2013 the major bank debt facility was guaranteed and secured as follows:
• Ferrexpo AG and Ferrexpo Middle East FZE assigned the rights to revenue from certain sales contracts;
• OJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the pellets sales to Ferrexpo AG and Ferrexpo
Middle East FZE; and
• the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which all proceeds from the sale of certain iron
ore pellet contracts are received.
The unsecured US$500 million Eurobond was issued on 7 April 2011 and is due for repayment on 7 April 2016. The bond has a 7.875%
coupon and interest is payable on a semi-annual basis.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 122
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 29: Interest-bearing loans and borrowings continued
On 2 September 2013 the Group secured an additional US$315 million revolving pre-export finance facility, which is undrawn as of
31 December 2013. In November 2013, the facility was increased to US$350 million. The new facility becomes effective when the Group
declares the effective date within one year after the signing and matures four years after this date. As at 31 December 2013 US$280
million from this new facility would have been available for draw down if the effective date had been declared. The Group has no other
committed credit lines as of 31 December 2013 (2012: nil).
Note 30: Trade and other payables
As at 31 December 2013 trade and other payables comprised:
US$000
Materials and services
Payables for equipment
Dividends payable
Other
Total current trade and other payables
As at
31.12.13
40,437
8,676
86
802
50,001
As at
31.12.12
50,736
9,889
87
1,897
62,609
Trade and other payables at 31 December 2013 includes US$3,374 thousand (2012: US$1,816 thousand) due to related parties (see note 34).
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 37.
Note 31: Defined benefit pension liability
The Group operates defined benefit plans for qualifying employees of its subsidiaries in Ukraine, Switzerland and Austria. The effects
from the retrospective application of IAS 19 revised are disclosed in note 3. Details of the plans in the different countries are
provided below:
Ukraine
The Group makes defined contributions to the Ukrainian State Pension scheme at statutory rates based on gross salary payments for the
employees of OJSC Ferrexpo Poltava Mining and LLC Ferrexpo Yeristovo GOK. Such expenses are charged to the income statement in
the period the related salaries are earned. The Group also has a legal obligation to compensate the Ukrainian State Pension Fund for
additional pensions paid to certain categories of the current and former employees of the Group. Costs relating to this plan are accrued
using the projected unit credit method in respect of those employees entitled to such payments.
Additionally, the Group has a legal obligation to its employees (in the form of a collective agreement) to make a one-off payment on
retirement to employees with a long-term of service; this has also been included in the provision.
All pension schemes in Ukraine are unfunded and the defined benefit pension liabilities are calculated by an independent actuary
applying accepted actuarial techniques. At 31 December 2013, this defined benefit plan covered 7,089 current employees (2012: 5,030
people). There are 1,116 former employees currently in receipt of pensions (2012: 1,135 people).
Switzerland
The employees of the Group’s Swiss operation are covered under a collective pension plan (multiemployer plan), which is governed in
accordance with the requirements of Swiss law. The funding, of which two-thirds is contributed by the employer and one-third by the
employees, is based on the regulations of the pension scheme and Swiss law. The assets of the pension scheme are held separately
from those of the Group and are invested with an insurance company. The accumulated capital of the employees is subject to interests
determined by the local legislation and defined in the regulations of the pension scheme.
On retirement, employees are entitled to receive either a lump sum or an annual proportion of their accumulated capital as a pension
underpinned by certain guarantees. The Group, and in certain cases the employees, makes contributions to the pension scheme as a
percentage of the insured salaries and depending on the age of the employees.
The pension scheme in Switzerland is funded and covered 19 people as at 31 December 2013 (2012: 20 people). The annual pension
costs and the defined benefit obligation as well as the fair value of the plan assets are assessed annually by an independent
professionally qualified actuary.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 123
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Note 31: Defined benefit pension liability continued
Austria
The Group has an unfunded retirement benefit obligation covering the Austrian employees of Helogistics. All payments under the scheme
are made by the employer as a lump sum in cases of retirement, occupational disability and death in service or redundancy. The amount
payable is dependent on the years of service up to a maximum of a full annual salary. The annual costs relating to this plan are accrued
using the projected unit credit method. The annual costs and the defined benefit obligation are assessed annually by an independent
professionally qualified actuary.
At 31 December 2013, one current employee (2012: three employees) is covered by this pension scheme. The annual costs and the
defined benefit obligation are assessed annually by an independent professionally qualified actuary.
The principal assumptions used in determining the defined benefit obligation are shown below:
Discount rate
Retail price inflation
Expected future salary increase
Expected future benefit increase
Female life expectancy (years)
Male life expectancy (years)
Year ended 31.12.13
Year ended 31.12.12
Ukrainian
scheme
12.90%
4.44%
4.55%
4.44%
76.1
66.5
Swiss
scheme
2.20%
1.25%
3.00%
0.00%
86.0
82.9
Ukrainian
Austrian
scheme
scheme
3.50% 11.90%
4.70%
2.50%
5.28%
2.50%
0.00%
0.00%
74.5
n/a
63.5
n/a
Swiss
scheme
1.90%
1.25%
3.00%
0.00%
86.0
82.9
Austrian
scheme
3.50%
2.50%
2.50%
0.00%
n/a
n/a
As a result of the retrospective adoption of the amendments to IAS 19, the defined benefit pension obligation and costs for the
comparative period ended 31 December 2012 changed. Details in respect of the effects of the adoption are disclosed in note 3.
US$000
Present value of funded defined benefit
obligation
Fair value of plan assets
Funded status
Present value of unfunded defined benefit
obligation
Defined benefit pension liability
Year ended 31.12.13
Year ended 31.12.12
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Total
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
–
–
51,876
51,876
4,017
(2,806)
1,211
–
1,211
–
–
–
67
67
4,017
(2,806)
1,211
–
–
–
51,943
53,154
48,509
48,509
4,050
(2,473)
1,577
–
1,577
Total
4,050
(2,473)
1,577
–
–
–
109
109
48,618
50,195
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 124
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 31: Defined benefit pension liability continued
Amounts recognised in profit or loss or other comprehensive income are as follows:
Year ended 31.12.13
Year ended 31.12.12
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Total
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
US$000
Defined benefit cost charged to profit or loss:
Current service cost
Termination benefits
Interest cost on defined benefit obligation
Interest income on plan assets
Administration cost
Other
Total defined benefit cost charged to profit
or loss
Remeasurement (gains)/losses in OCI:
Remeasurement from demographic
assumptions
Remeasurement from financial assumptions
Experience adjustment
Return on plan assets
Total remeasurement (gains)/losses in
2,640
–
5,494
–
–
–
8,134
3
5,205
(5,255)
–
485
–
71
(48)
9
–
517
–
(159)
(171)
(120)
other comprehensive income
(47)
(450)
Changes in the present value of the defined benefit obligation are as follows:
1
–
3
–
–
(1)
3
–
–
(1)
–
(1)
3,126
–
5,568
(48)
9
(1)
4,353
–
6,731
–
–
–
8,654
11,084
464
–
79
(54)
6
–
495
3
5,046
(5,427)
(120)
(22,104)
624
–
392
(175)
1
(498)
(21,480)
218
Total
4,826
1,022
6,817
(54)
6
(60)
9
1,022
7
–
–
(60)
978
12,557
12
66
–
78
(21,700)
515
1
(21,184)
US$000
Opening defined benefit obligation
Current service cost
Interest cost on defined benefit obligation
Termination benefits
Remeasurement (gains)/losses
Translation differences
Contributions paid by employer
Contributions paid by employee
Benefits paid through pension assets
Closing defined benefit obligation
Thereof for active employees
Thereof for vested terminations
Thereof for pensioners
Year ended 31.12.13
Year ended 31.12.12
Ukrainian
scheme
48,509
2,640
5,494
–
(47)
1
(4,721)
–
–
51,876
30,731
7,522
13,623
Swiss
scheme
4,050
485
71
–
(330)
100
–
127
(486)
4,017
4,017
–
–
Austrian
scheme
109
1
3
–
(2)
3
(47)
–
–
67
67
–
–
Total
52,668
3,126
5,568
–
(379)
104
(4,768)
127
(486)
55,960
34,815
7,522
13,623
Ukrainian
scheme
63,452
4,353
6,731
–
(21,480)
(21)
(4,526)
–
–
48,509
29,482
7,015
12,012
Swiss
scheme
3,551
464
79
–
217
126
–
135
(522)
4,050
4,050
–
–
Austrian
scheme
168
9
7
1,022
18
–
(1,115)
–
–
109
109
–
–
Total
67,171
4,826
6,817
1,022
(21,185)
45
(5,641)
135
(522)
52,668
33,641
7,015
12,012
The duration of the defined benefit obligation for the different schemes as at 31 December 2013 is 12.9 years (Ukraine), 20.0 years
(Switzerland) and 12.5 years (Austria).
Contributions to the defined benefit plans in the next financial year are expected to be US$5,007 thousand for the schemes in Ukraine
and US$401 thousand in Switzerland. There is no contribution expected for the scheme in Austria.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 125
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Note 31: Defined benefit pension liability continued
Changes in the fair values of the plan assets are as follows:
Year ended 31.12.13
Year ended 31.12.12
US$000
Opening fair value of plan assets
Interest income
Contributions paid by employer
Contributions paid by employee
Benefits paid through pension assets
Return on plan assets
Administration cost
Translation differences
Closing fair value of plan assets
Ukrainian
scheme
–
–
–
–
–
–
–
–
–
Swiss
scheme
2,473
48
458
127
(486)
120
(9)
75
2,806
Austrian
scheme
–
–
–
–
–
–
–
–
–
Total
2,473
48
458
127
(486)
120
(9)
75
2,806
The asset allocation of the plan assets of the Swiss scheme is as follows:
US$000
Scheme assets at fair value
Equities
Bonds
Properties
Other
Fair value of scheme assets
Ukrainian
scheme
–
–
–
–
–
–
–
–
–
As at
31.12.13
%
21.1
44.0
10.3
24.6
100.0
Swiss
scheme
2,173
54
564
135
(522)
(1)
(6)
76
2,473
As at
31.12.13
592
1,235
289
690
2,806
Austrian
scheme
–
–
–
–
–
–
–
–
–
As at
31.12.12
%
24.4
42.6
10.5
22.5
100.0
Total
2,173
54
564
135
(522)
(1)
(6)
76
2,473
As at
31.12.12
603
1,053
260
557
2,473
Reasonable changes of the significant assumptions would have the following effects on the defined benefit obligation:
US$000
Change
Discount rate (%)
Future salary increases (%)
Indexation of pension (%)
Life expectancy (years)
US$000
Change
Discount rate (%)
Year ended 31.12.13
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Increase by
Decrease by
1.00% or
1 year
(3,754)
1,980
1,350
698
1.00% or
1 year
(607)
121
455
47
1.00% or
1 year
(7)
10
n/a
n/a
1.00% or
1 year
4,283
(1,882)
(1,334)
(824)
1.00% or
1 year
831
(112)
–
(46)
1.00% or
1 year
11
(7)
n/a
n/a
Year ended 31.12.12
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Ukrainian
scheme
Swiss
scheme
Austrian
scheme
Increase by
Decrease by
1.00%
(3,668)
0.25%
(204)
0.25%
(3)
1.00%
4,216
0.25%
220
0.25%
3
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 126
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 31: Defined benefit pension liability continued
For the presentation of the effects of the changes of the significant assumptions shown on the previous page, the present value of
the defined benefit obligation has been calculated based on the projected unit credit method at the end of the reporting period, which
is the same as the one applied for the calculation of the defined benefit obligation recognised in the statement of financial position as
at 31 December 2013. The methods and assumptions used for the sensitivity analysis for the prior year are unchanged.
Note 32: Provision for site restoration
The costs of restoration of the different deposits in the Group’s open pit mines are based on amounts determined by an independent and
credited institute taking into account the codes of practice and laws applicable in Ukraine. The useful lives of the different pits and mines
are determined by the same institute based on expected annual stripping and production volumes having taken into account the
expected timing and effect of future mine-life extension programmes. It is expected that the restoration works of the GPL mine will start
after the years 2020, 2038 and 2055 depending on the different areas within the mine. The first restoration work of the Yeristovo mine is
expected to start after 2035.
The provision represents the discounted value of the estimated costs of decommissioning and restoring the mines at the dates when the
deposits are expected to be depleted in the relevant areas within the mine. The present value of the provision has been calculated using a
nominal pre-tax discount rate of 12.3% (2012: 11.7%) and the costs are expected to be incurred once the restoration works begin in the
different areas of the mines.
Uncertainties in estimating the provision include potential changes in regulatory requirements, decommissioning and reclamation
alternatives and the discount and inflation rates to be used in the calculations.
US$000
Opening balance
Unwind of the discount
Arising during the year
Translation adjustments
Closing balance
Note 33: Accrued liabilities and deferred income
As at 31 December 2013 accrued liabilities and deferred income comprised:
US$000
Accrued expenses
Accrued employee costs
Advances from customers
Deferred income
Total accrued liabilities and deferred income
As at
31.12.13
2,368
301
202
–
2,871
As at
31.12.12
3,015
289
(935)
(1)
2,368
As at
31.12.13
10,851
21,164
1,271
2,222
35,508
As at
31.12.12
6,249
19,726
23,938
1,372
51,285
Note 34: Related party disclosure
During the periods presented, the Group entered into arm’s length transactions with entities under the common control of the majority
owner of the Group, Kostyantin Zhevago, with associated companies and with other related parties. Management considers that the
Group has appropriate procedures in place to identify, control and properly disclose transactions with the related parties.
Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refers to TIS Ruda LLC, in
which the Group holds an interest of 48.6%. This is the only associated company of the Group. Other related parties are principally those
entities controlled partially by Anatoly Trefilov. Anatoly Trefilov is a member of the supervisory board of OJSC Ferrexpo Poltava Mining.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 127
F I N A N C I A L
S T A T E M E N T S
Note 34: Related party disclosure continued
Related party transactions entered into by the Group during the periods presented are summarised in the following tables:
Revenue, expenses, finance income and expense
US$000
Other salesa
Total related party transactions within revenue
Materialsb
Purchased concentrate and other items for resalec
Spare parts and consumablesd
Fuele
Gase
Total related party transactions within cost of sales
Selling and distribution expensesf
General and administration expensesg
Total related party transactions within expenses
Finance incomeh
Finance expensesh
Net related party finance income/(expenses)
Entities under common control
Year ended 31.12.13
Year ended 31.12.12
Entities
under
common
control
647
647
13,897
7,053
2,838
–
33,581
57,369
11,183
1,747
70,299
1,673
(184)
1,489
Associated
companies
–
–
–
–
–
–
–
–
22,582
–
22,582
–
–
–
Other
related
parties
491
491
43
–
2
–
–
45
8,335
12
8,392
–
–
–
Entities
under
common
control
1,198
1,198
5,984
21,948
7,859
1,373
9,646
46,810
9,377
1,644
57,831
917
(733)
184
Associated
companies
–
–
–
–
–
–
–
–
20,493
–
20,493
–
–
–
Other
related
parties
88
88
24
–
–
–
–
24
8,367
72
8,463
–
–
–
The Group entered into various related party transactions with entities under common control. A description of the most material transactions which are in aggregate over US$200 thousand in
the current or comparative period is given below. All transactions were carried out on an arm’s length basis in the normal course of business.
a Sales of power, steam and water and other materials to Kislorod PCC for US$149 thousand (2012: US$234 thousand) and metal scrap to AutoKraZ Holding Co. for US$127 thousand
(2012: US$106 thousand). Income from premises lease to Kislorod PCC of US$238 thousand (2012: US$224 thousand) and US$58 thousand (2012: US$58 thousand) to Vorskla Steel Ltd.
Revenue of US$3 thousand was received from Vorskla Steel Ltd. for the sale of sand and other materials (2012: US$448 thousand).
b Purchases of compressed air and oxygen and metal scrap from Kislorod PCC for US$5,988 thousand (2012: US$5,506 thousand);
b Purchases of cast iron balls from AutoKraZ Holding Co. for US$6,865 thousand (2012: US$5,255 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US$711 thousand (2012: nil); and
b Purchases of ferromarganese from Raw and Refined Commodities AG for US$354 thousand (2012: US$347 thousand).
c Purchases of concentrate and other items for resale from Vostok Ruda Ltd. amounting to US$7,053 thousand (2012: US$21,948 thousand).
d Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant (‘KSRSSZ’) in the amount of US$864 thousand (2012: US$805 thousand);
d Purchases of spare parts from OJSC Berdichev Machine-Building Plant Progress of US$45 thousand (2012: US$595 thousand); and
d Purchases of spare parts from Valsa GTV of US$1,226 thousand (2012: US$736 thousand).
e Procurement of gas for US$33,581 thousand (2012: US$9,646 thousand) from OJSC Ukrzakordongeologia. No procurement of fuel from OJSC Ukrzakordongeologia during the financial
year 2013 (2012: US$1,373 thousand).
f
Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$11,000 thousand (2012: US$9,301 thousand).
g
Insurance premiums of US$728 thousand (2012: US$686 thousand) paid to ASK Omega for workmen’s insurance and other insurances;
g Fees of US$373 thousand (2012: US$113 thousand) paid to F&C Lex and Legal Partners for legal services. Both companies were under the control of Kostyantin Zhevago until 30 June
2012. All transactions taking place up to 30 June 2013, being one year after the change of the control, are considered to be related party transactions; and
g Fees of US$433 thousand (2012: US$448 thousand) paid to Bank Finance & Credit (Bank F&C) for bank services.
h Transactional banking services are provided to certain subsidiaries of the Group by Bank F&C. Finance income and expense relate to these transactional banking services. Further
information is provided under transactional banking arrangements on page 129.
Associated companies
The Group entered into related party transactions with its associated company TIS Ruda LLC, which were carried out on an arm’s length basis in the normal course of business for the
members of the Group (see note 1). These are described below:
f
Purchases of logistics services in the amount of US$22,582 thousand (2012: US$20,493 thousand) relating to port operations, including port charges, handling costs, agent commissions
and storage costs.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 34: Related party disclosure continued
Other related parties
The Group entered into various transactions with related parties other than those under the control of the majority owner of the Group. Descriptions of the material transactions are below:
a Sales of material and services to Slavutich Ruda Ltd. for US$491 thousand (2012: US$88 thousand).
f
Purchases of logistics management services from Slavutich Ruda Ltd. relating to customs clearance services and the coordination of rail transit. Total billings amounted to US$8,335
thousand (2012: US$8,367 thousand). Slavutich Ruda Ltd. earned commission income of US$979 thousand on these services (2012: US$906 thousand).
g Purchases of legal services from Kuoni Attorneys at Law Ltd. amounting to US$12 thousand (2012: US$72 thousand).
Purchases of property, plant and equipment
The table below details the transactions of a capital nature which were undertaken between Group companies and entities under
common control, associated companies and other related parties during the periods presented.
US$000
Purchases with independent fair and reasonable confirmation
Purchases with shareholder approval
Other purchases
Total purchase of property, plant and equipment i
Year ended 31.12.13
Year ended 31.12.12
Entities
under
common
control
–
18,141
3,741
21,882
Associated
companies
–
–
–
–
Other
related
parties
–
–
–
–
Entities
under
common
control
2,659
55,026
1,044
58,729
Associated
companies
–
–
–
–
Other
related
parties
–
–
–
–
i Effective 1 October 2012, the UK Listing Rules have been amended to require only independent fair and reasonable confirmation for transactions that are not in the ordinary course of
business, irrespective of the nature of the transaction.
During the financial year 2013, the Group entered into various transactions with related parties totalling US$3,741 thousand. These transactions were in the ordinary course of business and
on an arm’s length basis and did not require independent fair and reasonable confirmation as a result of the amended UK Listing Rules becoming effective on 1 October 2012. Individual
transactions of a capital nature which exceeded US$200 thousand are listed below:
•
•
•
In January 2013, the Group procured three railway platforms in the amount of US$218 thousand from PJSC Stakhanov Railcar Company.
In April 2013, the Group entered into a contract with OJSC Berdichev Machine-Building Plant Progress and OJSC Uzhgorodsky Turbogas for the production and supply of deslimers
for a new floatation section in the amount of US$585 thousand.
In June and September 2013, the Group procured metal works from OJSC Berdichev Machine-Building Plant Progress in the amount of US$1,297 thousand and US$1,054 thousand
in connection with the construction of a new crushing section.
In addition to the transactions above, the Group obtained on 24 May 2012 shareholder approval for an option to purchase up to 500 rail cars from PJSC Stakhanov Railcar Company
between the date of the approval and 31 December 2014. In February 2013, the Group exercised the right under this option to order 267 rail cars. These rail cars, amounting to US$18,141
thousand, were delivered and taken into operation during the financial year 2013 and increased the total fleet of rail cars from 1,933 units to 2,200 units as of 31 December 2013. In
February 2014, the Group ordered another 300 rail cars from PJSC Stakhanov Railcar Company, of which 233 rail cars were under this authority. These rail cars are expected to be
delivered between February and June 2014.
During the financial year 2012, the Group entered into the following transactions with related parties:
• During the period from October to December 2012, the Group entered in various transactions with related parties totalling US$653 thousand. These transactions were in the ordinary
course of business and on an arm’s length basis and did not require independent fair and reasonable confirmation as result of the amended UK Listing Rules becoming effective on
1 October 2012.
•
•
•
•
•
In September 2012, the Group procured metal works from OJSC Berdichev Machine-Building Plant Progress in the amount of US$1,019 thousand in connection with the construction
of the flotation equipment. The transaction was subject to an independent fair and reasonable confirmation.
In July and August 2012, the Group entered in various smaller transactions with related parties totalling US$391 thousand. No independent fair and reasonable confirmation was
required as these transactions did not exceed the relevant aggregated threshold at the point of time of the transactions.
In July 2012, the Group procured design documentation services in the amount of US$194 thousand from OJSC DIOS in relation to replacement of mixers at the pellet plant complex
and the construction of a dust aspiration system. Deslimer equipment in the amount of US$668 thousand was procured from CJSC Kyiv Shipbuilding and Ship Repair Plant
(‘KSRSSZ’) and OJSC Berdichev Machine-Building Plant Progress for a beneficiation plant. The transactions were subject to an independent fair and reasonable confirmation.
In March 2012, project management services in the amount of US$140 thousand were procured from Vorskla Steel Ltd. in connection with the construction of service facilities and
technical design documentation amounting to US$618 thousand from OJSC DIOS related to the update of the beneficiation plant. The transaction was subject to an independent fair
and reasonable confirmation.
In February 2012, the Group procured design documentation from OJSC DIOS in the amount of US$21 thousand in relation to the construction of roads and loading facilities. The
transaction was subject to an independent fair and reasonable confirmation.
On 15 March 2011, the shareholders of the Group approved the purchase of 400 rail cars, with an option to purchase an additional 600 rail cars, from PJSC Stakhanov Railcar Company.
712 rail cars were ordered under the authority of this shareholder approval during the financial year 2011 and 288 rail cars in 2012, bringing the total ordered to 1,000 units. As of 31
December 2012, all rail cars have been delivered bringing the total fleet of own rail cars to 1,933 units. 788 rail cars amounting to US$55,026 thousand were put into operation during the
financial year 2012.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
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Note 34: Related party disclosure continued
Balances with related parties
The outstanding balances, as a result of transactions with related parties, for the periods presented are shown in the table below:
US$000
Investments available-for-salej
Other non-current assetsk
Prepayments for property, plant and equipmentl
Total non-current assets
Trade and other receivablesm
Prepayments and other current assetsn
Cash and cash equivalentso
Total current assets
Trade and other payablesp
Current liabilities
Entities under common control
Year ended 31.12.13
Year ended 31.12.12
Entities
under
common
control
396
7,438
1,548
9,382
1,150
136
143,005
144,291
3,099
3,099
Associated
companies
–
–
–
–
–
1,172
–
1,172
–
–
Other
related
parties
–
–
–
–
31
186
–
217
275
275
Entities
under
common
control
530
2,085
625
3,240
823
162
141,424
142,409
1,694
1,694
Associated
companies
–
–
–
–
–
1,302
–
1,302
–
–
Other
related
parties
–
–
–
–
3
18
–
21
122
122
A description of the most material balances which are over US$200 thousand in the current or comparative period is given below.
j
The balance of the investments available-for sale comprised shareholdings in PJSC Stakhanov Railcar Company (1.10%) and Vostok Ruda Ltd. (1.10%). The ultimate beneficial owner of
these companies is Kostyantin Zhevago. PJSC Stakhanov Railcar Company is further listed on the Ukrainian stock exchange. The changes of the values in the table above are related to
fair value adjustments recorded during the respective reporting periods. The shareholdings for all investments remained unchanged during the periods disclosed above. During the
financial year 2012, the investment in Vostok Ruda Ltd. was subject to an impairment of US$430 thousand.
k As of 31 December 2013, other non-current assets related to a deposit of US$7,438 thousand with Bank F&C (2012: US$2,085 thousand) as security in respect of loans made to
employees under the Group’s social loyalty programme. Further information is provided under transactional banking arrangements below.
l
As of 31 December 2013, prepayments of US$1,397 thousand were made to OJSC Berdichev Machine-Building Plant Progress (2012: US$289 thousand).
m As of 31 December 2013, trade and other receivables included outstanding amounts due from Vorskla Steel Ltd. of US$387 thousand (2012: US$277 thousand) in relation to other sales
and US$540 thousand (2012: US$461 thousand) from Kislorod PCC for the sale of power, steam and water.
o As of 31 December 2013, cash and cash equivalents with Bank F&C were US$143,005 thousand (2012: US$141,424 thousand). Further information is provided under transactional banking
arrangements below.
p Trade and other payables amounting to US$639 thousand for compressed air and oxygen purchased from Kislorod PCC (2012: US$599 thousand) and US$1,690 thousand for the
procurement of fuel and gas from OJSC Ukrzakordongeologia (2012: US$642 thousand) and US$215 thousand (2012: nil ) and US$258 thousand (2012: US$53 thousand) for spare parts
procured from AutoKraZ Holding Co. and OJSC Berdichev Machine-Building Plant Progress.
Associated companies
n Prepayments and other current assets relate to prepayments of US$1,172 thousand (2012: US$1,302 thousand) made to TIS Ruda LLC for transshipment services.
Other related parties
p Trade and other payables amounting to US$275 thousand as of 31 December 2013 are in respect of distribution services provided by Slavutich Ruda Ltd. (2012: US$99 thousand).
Transactional banking arrangements
The Group has transactional banking arrangements with Bank Finance & Credit (Bank F&C) in Ukraine which is under common control of
the majority shareholder of Ferrexpo plc. Finance income and expense are disclosed in the table on page 127.
The transactional banking services provided by Bank F&C include also the conversion of US Dollar receipts into Ukrainian Hryvnia for the
settlement of liabilities incurred in local currency.
The Group had an uncommitted multicurrency revolving loan facility agreement with Bank F&C which expired on 16 April 2013. The
maximum limit of this facility amounted to UAH80 million (US$10,009 thousand at exchange rate as of 31 December 2012) and the terms
and conditions of the facility were subject of an independent fair and reasonable confirmation at its inception and renewal dates. The loan
facility remained undrawn for the entire period of time since its inception.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 34: Related party disclosure continued
On 26 April 2013, the Group entered into a new uncommitted multicurrency revolving loan facility agreement and a documentary credit
facility agreement with Bank F&C which will expire on 26 April 2016. The aggregate maximum limit of these facilities amounts to UAH80
million (US$10,009 thousand at the exchange rate as of 31 December 2013) and, as required under Ukrainian legislation, fixed assets are
pledged. The total value of pledges under the terms of the loan facility agreements is US$8,702 thousand as of 31 December 2013. The
terms and conditions of both facilities were the subject of an independent fair and reasonable confirmation.
US$000
Loan facilities
Amount drawn
Letter of credit facility outstanding
Bank guarantee facility outstanding
Year ended
31.12.13
10,009
–
153
–
Year ended
31.12.12
10,009
–
7,179
1,081
Bank F&C provides mortgages and loans to employees of the Group for the acquisition, construction and renovation of apartments in
Ukraine. This is part of a social loyalty programme started by the Group in December 2011 allowing certain employees of the Group to
borrow at preferential interest rates. OJSC Ferrexpo Poltava Mining and LLC Ferrexpo Yeristovo GOK act as guarantors for the bank’s
loans to the employees of the Group and have deposited US$7,438 thousand at Bank F&C as security for loans granted or to be granted
by Bank F&C to employees of the Group (2012: US$2,085 thousand). The interest rate margin earned by Bank F&C covers the costs of
administrating the mortgages and loans. Detailed information on the social loyalty programme is provided in the Corporate Responsibility
section of this Annual Report and Accounts.
Cash and cash equivalent balances held with Bank F&C are in the normal course of business and are held on call or from time to time on
overnight deposit. Interest is paid on balances held on current accounts and overnight deposits. The interest rates received by the Group
were in line with relevant comparable market rates throughout the year.
Note 35: Employee benefits expenses
Employee benefits expenses for the year ended 31 December 2013 consisted of the following:
US$000
Wages and salaries
Social security costs
Post-employment benefits
Other employee costs
Share-based payments
Total employee benefits expenses
Average number of employees was as follows:
Production
Marketing and distribution
Administration
Other
Total average number of employees
Compensation for key management was as follows:
US$000
Wages and salaries
Social security costs
Other employee costs
Total compensation for key management
Year ended
31.12.13
76,661
26,277
2,938
4,574
1,266
111,716
Year ended
31.12.12
76,057
25,449
8,276
2,927
1,608
114,317
Year ended
31.12.13
7,797
172
911
816
9,696
Year ended
31.12.12
7,189
171
1,244
954
9,558
Year ended
31.12.13
6,352
557
263
7,172
Year ended
31.12.12
6,299
604
260
7,163
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 131
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Note 35: Employee benefits expenses continued
Share-based payments amounting to US$1,266 thousand (2012: US$984 thousand) are included in wages and salaries.
The balances included in the table on the previous page cover compensation for Non-executive and Executive Directors as well as for
other key management personnel. The details of compensation relating to Non-executive and Executive Directors are disclosed in the
table below:
US$000
Salary and fees
Bonus
Benefits
Pension
Gains made on exercise of nil cost share options under the LTIP
Total compensation to Non-executive and Executive Directors
Note 36: Commitments, contingencies and legal disputes
Operating lease commitments – Group as lessee
Future minimum rentals payable under non-cancellable operating leases as at 31 December 2013 are as follows:
US$000
Less than one year
Between one and five years
More than five years
Total minimum rentals payable
Year ended
31.12.13
2,424
828
181
94
292
3,819
Year ended
31.12.12
2,399
694
228
53
362
3,736
As at
31.12.13
2,049
7,339
56,167
65,555
As at
31.12.12
3,078
8,249
71,475
82,802
During the year ended 31 December 2013, US$2,762 thousand was recognised as an expense in the income statement in respect of
operating leases (2012: US$3,063 thousand).
The Group leases land and buildings under operating leases. The leases on land typically run for 48 years and with a lease period of 5 to
10 years on buildings.
Operating lease commitments – Group as lessor
The Group does not have any commitments from lease agreements acting as lessor.
Finance lease commitments
Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:
US$000
Less than one year
Between one and five years
More than five years
Total minimum lease payments
Less: amounts representing finance charges
Present value of minimum lease payments
As at 31.12.13
Minimum
payments
6,100
19,158
2,358
27,616
(4,836)
22,780
Present value
of payments
4,523
16,125
2,132
22,780
–
22,780
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 36: Commitments, contingencies and legal disputes continued
US$000
Less than one year
Between one and five years
More than five years
Total minimum lease payments
Less: amounts representing finance charges
Present value of minimum lease payments
Other
US$000
Capital commitments on purchase of property, plant and equipment
As at 31.12.12
Minimum
payments
5,421
17,616
5,940
28,977
(5,779)
23,198
Present value
of payments
3,729
13,865
5,604
23,198
–
23,198
As at
31.12.13
102,958
As at
31.12.12
162,665
Legal
In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if
any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future
operations of the Group.
The Group is currently involved in a share dispute which commenced in 2005 and which was disclosed and, as appropriate, updated in
the Group’s 2007 IPO prospectus and subsequent Interim and Annual Report and Accounts as well as in its Eurobond prospectuses.
In 2005 a former shareholder (the claimant) in OJSC Ferrexpo Poltava Mining (‘FPM’) brought proceedings in the Ukrainian courts,
seeking to invalidate the share sale and purchase agreements pursuant to which a 40.19% stake in FPM was sold to nominee companies
that were previously ultimately controlled by Kostyantin Zhevago, amongst other parties. This 40.19% stake has subsequently been
diluted to 14% following share issues by FPM.
Following various court rulings in favour of the defendant and the claimant, on 10 April 2010 the High Commercial Court of Ukraine
granted the cassation complaint of the former shareholder and invalidated the respective share sale and purchase agreements without
ruling on any consequences of such invalidity.
On 6 October 2011, the former shareholder filed a new claim in Ukraine alleging that as a result of the invalidity of the share sale and
purchase agreements with respect to the 40.19% stake in FPM, their rights were infringed by the capital increases approved at FPM’s
general shareholder meeting on 20 November 2002 and all other general meetings relating to changes to FPM’s charter capital.
Accordingly, the claimants asked that the court invalidate the decisions taken at FPM’s general shareholder meetings and to restore their
status as 40.19% shareholders of FPM as of 20 November 2002 and to cancel all share issues that took place after 20 November 2002.
On 22 November 2011, Ferrexpo AG (‘FAG’) filed a claim against the claimants at the High Court of Justice in London seeking a
confirmation of ownership in FPM shares. The claim was launched in order to take an active step outside Ukraine to resolve the long-
running dispute. By a judgement dated 3 April 2012, the proceedings in the UK were stayed while the case continues in Ukraine.
On 26 March 2013, the Kyiv City Commercial Court issued an injunction to suspend trading of FPM shares during the court case.
The case is currently being heard at the Kyiv City Commercial Court and as of the date of the publication of these financial statements for
the year ended 31 December 2013, there has been no decision on merits passed by the Kyiv City Commercial Court.
After having taken Ukrainian legal advice, the management of the Group believes that risks related to these court proceedings are
remote. Neither the final decision by the High Commercial Court of Ukraine nor any subsequent claims entitles claimants to direct
enforcement rights to the shares of FPM in the form claimed by the claimants. In addition, the restitution of the status quo ante of the
shareholding position as sought by claimants is not completely in line with Ukrainian law for various legal, technical and practical reasons.
It follows that no provision was recorded for this dispute as of 31 December 2013. At the same time, in light of the risks surrounding the
operation and independence of Ukrainian courts, including the risks associated with the Ukrainian legal system in general, the claimants
may ultimately prevail in this dispute and the Group’s ownership of the relevant interest in FPM may be successfully challenged in the
future.
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Note 36: Commitments, contingencies and legal disputes continued
Tax and other regulatory compliance
Ukrainian legislation and regulations regarding taxation and customs continue to evolve. Legislation and regulations are not always clearly
written and are subject to varying interpretations and inconsistent enforcement by local, regional and national authorities, and other
governmental bodies. Instances of inconsistent interpretations are not unusual. The uncertainty of application and the evolution of
Ukrainian tax laws, including those affecting cross-border transactions, create a risk of additional tax payments having to be made by the
Group, which could have a material effect on the Group’s financial position and results of operations. This includes also a new transfer
pricing law which significantly increased the power of the tax authorities. The Group does not believe that these risks are any more
significant than those of similar enterprises in Ukraine.
We are disputing several tax claims by domestic tax authorities following inspections for the fiscal years 2011 and 2012 and continue to
dispute in the court system amounts resulting from audits in relation to 2009 and 2010. Corporate profit tax claims are, among other
things, claims related to the deductibility of expenses for tax purposes, adjustments in respect of prices charged on the export of
products and payments of additional environmental and other taxes and duties. The aggregate amount claimed by the Ukrainian tax
authorities relating to these matters, together with applicable fines and penalties, is approximately US$16,962 thousand (2012:
US$16,900 thousand). As we believe the tax authorities’ claims are unlikely to be enforced no provision has been made for these known
claims, although there is no guarantee the tax authorities’ challenges will not succeed.
Recoverable VAT amounting to US$101,977 thousand (2012: US$103,208 thousand) outstanding at 31 December 2013 is in the process of
being considered by the Ukrainian court system in several different cases. As the VAT is fully recoverable under the relevant Ukrainian
legislation, the Group expects to ultimately receive positive court decisions for these ongoing court proceedings. Consequently, the VAT is
recorded at its full amount in the financial statements, net of an estimated discount to reflect the time value of money as disclosed in note 26.
No provision has been made for any related penalties and fines, which would in the case of a final negative ruling become payable.
Note 37: Financial instruments
The accounting classification of each category of financial instruments, and their carrying amounts, are set out below:
US$000
Financial assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale investments
Other financial assets
Total financial assets
Financial liabilities
Trade and other payables
Accrued liabilities
Interest-bearing loans and borrowings
Total financial liabilities
Notes
Loans and
receivables
Available-for-
sale financial
assets
As at 31.12.13
At fair value
through
profit or
loss
Financial
liabilities
measured at
amortised
cost
390,491
102,498
–
15,054
508,043
–
–
82,778
–
82,778
–
–
–
–
–
–
–
–
–
–
Total
390,491
102,498
82,778
15,054
590,821
–
–
–
–
–
–
–
–
50,001
32,015
50,001
–
–
32,015
– 1,029,239 1,029,239
– 1,111,255 1,111,255
27
24
20
30
33
29
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 37: Financial instruments continued
US$000
Financial assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale investments
Other financial assets
Total financial assets
Financial liabilities
Trade and other payables
Accrued liabilities
Interest-bearing loans and borrowings
Total financial liabilities
Notes
Loans and
receivables
Available-for-
sale financial
assets
27
24
20
30
33
29
596,560
116,553
–
860
713,973
–
–
–
–
–
–
534
–
534
–
–
–
–
As at 31.12.12
At fair value
through
profit or
loss
Financial
liabilities
measured at
amortised
cost
–
–
–
–
–
–
–
–
–
–
Total
596,560
116,553
534
860
714,507
62,609
25,976
62,609
–
–
25,976
– 1,019,985 1,019,985
– 1,108,570 1,108,570
Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
• credit risk
•
• market risk – including currency and commodity risk
liquidity risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for
measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements. The Board has overall responsibility for the establishment and oversight of the Group’s risk
management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in
its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and
procedures, the results of which are reported to the Audit Committee and the CFO.
The Group operates a centralised financial risk management structure under the management of the Executive Committee, accountable
to the Board. The Executive Committee delegates certain responsibilities to the CFO. The CFO’s responsibilities include authority for
approving all new physical, commercial or financial transactions that create a financial risk for the Group. Additionally, the CFO controls
the management of treasury risks within each of the business units in accordance with a Board-approved Treasury Policy.
Financial instrument risk exposure and management
Natural hedges that can be identified and their effectiveness quantified are used in preference to financial risk management instruments.
Derivative transactions may be executed for risk mitigation purposes only – speculation is not permitted under the approved Treasury
Policy – and are designed to have the effect of reducing risk on underlying market or credit exposures. Appropriate operational controls
ensure operational risks are not increased disproportionately to the reduction in market or credit risk.
The Group has not used any financial risk management instruments that are derivative in nature, or other hedging instruments, in this or
prior periods.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 135
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Note 37: Financial instruments continued
Credit risk
Trade and other receivables
The Group through its trading operations enters into binding contracts which contain obligations that create exposure to credit,
counterparty and country risks. It is the primary objective of the Group to manage such risks to reduce uncertainty of collection from
buyers. A secondary objective is to minimise the cost of reducing risks within acceptable parameters.
Trade finance is used to balance risk and payment. These risks include the creditworthiness of the buyer, and the political and economic
stability of the buyer’s country. Trade finance generally refers to the financing of individual transactions or a series of revolving transactions
and are often self-liquidating, whereby the lending bank stipulates that all sales proceeds to be collected are applied to settle the loan, the
remainder returned to the Group. Trade finance transactions are approved by the Group Treasurer. The primary objective is to ensure that
the margins paid and conditions applicable should be the same as, or better than, those which other organisations with similar credit
worthiness would achieve, and compared with other financing available to the Group.
Credit risk is the risk associated with the possibility that a buyer will default, by failing to make required payments in a timely manner or to
comply with other conditions of an obligation or agreement. Where appropriate, the Group uses letters of credit to assist in mitigating
such risks.
Counterparty risk crystallises when a party to an agreement defaults. Where letters of credit are used to minimise this risk, the Group
uses a confirming bank with a similar or higher credit rating to mitigate country and/or credit risk of the issuing bank.
Country risk is the potential volatility of foreign assets, whether receivables or investments, that is due to political and/or financial events in
a given country.
Group treasury monitors the concentration of all outstanding risks associated with any entity or country, and reports to the Group CFO on
a timely basis.
Investment securities
The Group limits its cash exposure to credit, counterparty and country risk by only investing in liquid securities and with counterparties
outside Ukraine that are incorporated in an A+ or better (S&P) rated OECD country. A ratings approach is used to determine maximum
exposure to each counterparty. Cash not required within three months for production, distribution and capital expenditures is invested
with counterparties rated by S&P or Moody’s at a level of long-term BBB (S&P) or short-term A3 (S&P) or better.
Recognising that the principal activities of the Group are predominantly in Ukraine, special consideration is given to Ukrainian
transactional banking counterparties where the sector is small and constrained by the sovereign credit rating. Exceptions may be made
under the following conditions:
• the counterparty is resident in Ukraine; and
• the counterparty is included in the top 15 financial institutions in Ukraine based on the Group’s assessment of the creditworthiness of
the financial institution.
Cash and deposits are held with the Group’s transactional bank in Ukraine, which is a related party financial institution. This bank is
registered with the National Bank of Ukraine for receiving and disbursing payments under Group intercompany loans, and is an approved
Ukrainian counterparty. The Group is therefore exposed to Ukraine country risk in this respect as well as in relation to certain of its other
activities. Note 34 provides further information.
Guarantees
The Group’s policy is to provide financial guarantees under limited circumstances only for the benefit of wholly-owned or substantially
wholly-owned subsidiaries. At 31 December 2013 Ferrexpo AG and Ferrexpo Finance plc were jointly and severally liable under a US$420
million revolving pre-export finance facility having an outstanding balance of US$420 million (2012: US$420 million). Additionally, Ferrexpo
AG, Ferrexpo Finance plc and Ferrexpo Middle East FZE were jointly and severally liable under a new US$350 million revolving pre-export
finance facility which was undrawn as of 31 December 2013.
Ferrexpo plc, Ferrexpo AG and Ferrexpo Middle East FZE are guarantors to the US$500 million Eurobond (‘Notes’) issued by Ferrexpo
Finance plc, which is due for repayment on 7 April 2016. Additionally the Notes benefit from a surety agreement provided by OJSC
Ferrexpo Poltava Mining.
Ferrexpo AG acts as a guarantor for several finance facilities provided to Ukrainian subsidiaries amounting to US$96,080 thousand (2012:
US$150,600 thousand).
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 37: Financial instruments continued
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was:
US$000
Cash and cash equivalents
Trade and other receivables
Other financial assets
Total maximum exposure to credit risk
As at
31.12.13
390,491
102,498
15,054
508,043
As at
31.12.12
596,560
116,553
860
713,973
Of the total maximum exposure to credit risk, US$158,197 thousand (2012: US$156,885 thousand) related to Ukraine.
The total receivables balance relating to the Group’s top three customers was US$25,210 thousand (2012: US$37,383 thousand) making
up 24.6% of the total amounts receivable (2012: 32.2%).
Impairment profile
The Group’s exposure to credit risk relating to trade and other receivables is disclosed in note 24.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach is to ensure
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation by holding surplus cash or undrawn committed credit facilities.
The Group prepares detailed rolling cash flow forecasts, which assist it in monitoring cash flow requirements and optimising its cash
return on investments. Typically the Group ensures that it has sufficient cash on demand and/or lines of credit to meet expected
operational expenses for a period of 30 days, including the servicing of financial obligations; this excludes the potential impact of extreme
circumstances that cannot reasonably be predicted, such as natural disasters.
The following are the contractual maturities of financial liabilities by interest type:
US$000
Interest-bearing
Eurobond issued
Syndicated loans – secured
Other banks – secured
Obligation under finance lease
Interest accrued
Future interest payable
Total interest-bearing
Non-interest-bearing
Trade and other payables
Accrued liabilities
Total non-interest-bearing
Total financial liabilities
As at 31.12.13
Less than
1 year
Between
1 to 2 years
Between
2 to 5 years
More than
5 years
Total
–
70,000
16,775
4,523
9,745
52,818
153,861
50,001
32,015
82,016
235,877
–
210,000
17,088
4,641
–
48,206
279,935
–
–
–
279,935
493,810
140,000
23,880
11,485
–
24,462
693,637
–
–
–
693,637
–
–
25,161
2,131
–
442
493,810
420,000
82,904
22,780
9,745
125,928
27,734 1,155,167
–
–
–
50,001
32,015
82,016
27,734 1,237,183
Net financial liabilities for amounts maturing in less than one year and between one to two years can be reduced by US$70,000 thousand
and US$210,000 thousand respectively from utilising the undrawn committed PXF facility of US$350,000 thousand. See also note 29 for
further information.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 137
F I N A N C I A L
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Note 37: Financial instruments continued
US$000
Interest-bearing
Eurobond issued
Syndicated loans – secured
Other banks – secured
Obligation under finance lease
Interest accrued
Future interest payable
Total interest-bearing
Non-interest-bearing
Trade and other payables
Accrued liabilities
Total non-interest-bearing
Total financial liabilities
As at 31.12.12
Less than
1 year
Between
1 to 2 years
Between
2 to 5 years
More than
5 years
Total
–
–
13,321
3,729
9,796
53,323
80,169
62,609
25,926
88,535
168,704
–
70,000
13,300
3,870
–
52,560
139,730
–
50
50
139,780
491,438
350,000
37,864
15,600
–
71,559
966,461
–
–
–
966,461
–
–
11,068
–
–
607
491,438
420,000
75,553
23,199
9,796
178,049
11,675 1,198,035
–
–
–
62,609
25,976
88,585
11,675 1,286,620
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective
functional currencies of the Group. Functional currencies for the Group are primarily the Ukrainian Hryvnia, but also US Dollars, Swiss
Francs, Euro and UK Pounds Sterling.
The Group’s major lines of borrowings and the majority of its sales are denominated in US Dollars, with costs of local Ukrainian
production mainly in Hryvnia. The value of the Hryvnia is managed by the National Bank of Ukraine (‘NBU’).
The Group has gross recoverable VAT balances of US$318,213 thousand (UAH2,542 million) and prepaid corporate profit tax of
US$87,475 thousand (UAH594,5 million) to be recovered from the Ukraine government tax authority and is reliant on the normal
functioning of this system. The exact timing of recovery is subject to uncertainties, along with the prevailing exchange rate to the US
Dollar at the time of repayment. A devaluation of the Ukrainian Hryvnia will negatively affect the expected cash flows from the refunds in
US Dollars irrespective of whether received in cash or in the form of bonds or treasury promissory notes.
A devaluation of the Ukrainian Hryvnia will reduce the operating costs of the production unit in US Dollar terms and the value of Hryvnia
payables recorded in the statement of financial position at the year end in US Dollars. As the majority of sales and receivables are
denominated in US Dollars, a devaluation in the local currency will result in operating exchange gains recorded in the income statement.
With a devaluation of the local currency, US Dollar-denominated loans held by the Ukrainian subsidiary will result in non-operating
exchange losses to the extent these are not matched by US Dollar-denominated assets. Fixed assets are similarly held in local currency
amounts and a devaluation in the currency will result in reduced net asset values which are recorded in reserves.
The NBU manages and determines the official exchange rates. An interbank market for exchange of currencies exists in Ukraine and is
monitored by the NBU. The Group, through financial institutions, exchanges currencies at bank offered market rates.
Trade receivables are predominately in US Dollars and are not hedged. Trade payables denominated in US Dollars are also not hedged
on the market, but are matched against US Dollar currency receipts. This includes the interest expense which is principally payable in US
Dollars. Trade receivables and trade payables in Ukrainian Hryvnia are not hedged as a forward market for the currency is generally not
available.
Other Group monetary assets and liabilities denominated in foreign currencies are considered immaterial as the exposure to currency risk
mainly relates to corporate costs within Switzerland and the United Kingdom.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 138
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 37: Financial instruments continued
The Group’s exposure to foreign currency risk was as follows based on notional amounts:
US$000
Financial assets
Financial liabilities
Other banks – secured
Obligation under finance lease
Interest accrued
Total borrowings
Trade and other payables
Accrued liabilities
Total financial liabilities
Net financial assets/(liabilities)
US$000
Financial assets
Financial liabilities
Other banks – secured
Obligation under finance lease
Interest accrued
Total borrowings
Trade and other payables
Accrued liabilities
Total financial liabilities
Net financial assets/(liabilities)
As at 31.12.13
Ukrainian
Hryvnia
4
US
Dollar
89,898
–
–
–
–
–
–
–
4
(56,215)
(4,146)
(426)
(60,787)
(2,844)
–
(63,631)
26,267
Euro
1,026
(382)
–
(2)
(384)
(1,018)
–
(1,402)
(376)
As at 31.12.12
Ukrainian
Hryvnia
4
US
Dollar
112,515
–
–
–
–
–
–
–
4
(39,066)
(2,364)
(425)
(41,855)
(4,219)
–
(46,074)
66,441
Euro
612
(467)
–
(2)
(469)
(1,754)
–
(2,223)
(1,611)
Swiss
Franc
685
–
–
–
–
(142)
(18)
(160)
525
Swiss
Franc
835
–
–
–
–
(384)
(14)
(398)
437
Other
currencies
454
–
–
–
–
(360)
(554)
(914)
(460)
Total
92,067
(56,597)
(4,146)
(428)
(61,171)
(4,364)
(572)
(66,107)
25,960
Other
currencies
1,036
Total
115,002
–
–
–
–
(489)
(348)
(837)
199
(39,533)
(2,364)
(427)
(42,324)
(6,846)
(362)
(49,532)
65,470
Interest rate risk
The Group predominantly borrows bank funds that are at floating interest rates and is exposed to interest rate movements. The interest
rate exposure to US Dollars remained relatively low during the period, and no interest rate swaps have been entered into in this or prior
periods.
Commodity risk
The Group is exposed to longer-term movements in the price of iron ore, but does not have a commodity risk exposure to its financial
assets and liabilities once the sale has been made. Trade receivables are based on a fixed contract price, and so do not fluctuate with
iron ore market prices. Similarly, finished goods are held at cost, with revaluation to a spot price not applicable for iron ore pellets, there
being no tradable exchange in the product to ascertain its market value.
Sensitivity analysis
A 20% strengthening of the US Dollar against the following currencies at 31 December would have increased/(decreased) income
statement and equity by the amounts shown below. This assumes that all other variables, in particular interest rates, remain constant.
US$000
Ukrainian Hryvnia
Euro
Swiss Franc
Total
Year ended
31.12.13
Income
statement/
equity
4,379
(63)
88
4,404
Year ended
31.12.12
Income
statement/
equity
11,074
(269)
73
10,878
A 20% weakening of the US Dollar against the above currencies would have an equal but opposite effect to the amounts shown above,
on the basis that all the other variables remain constant.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 139
F I N A N C I A L
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Note 37: Financial instruments continued
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not
hold any derivatives (e.g. interest rate swaps). Therefore a change in interest rates at the reporting date would not affect profit or loss.
Cash flow sensitivity for variable rate instruments
An increase of 100 basis points (‘bps’) in interest rates would have increased/(decreased) equity and profit or loss by the amounts shown
below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
US$000
Net finance charge
Year ended
31.12.13
2,705
Year ended
31.12.12
1,619
A decrease of 100bps would increase equity and profit by US$827 thousand for the year ended 31 December 2013 (2012: increase of
US$2,215 thousand). This is on the basis that all the other variables remain constant.
Set out below are the carrying amounts and fair values of the Group’s financial instruments that are carried in the consolidated statement
of financial position:
US$000
Financial assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale investments
Other financial assets
Total financial assets
Financial liabilities
Trade and other payables
Accrued liabilities
Interest-bearing loans and borrowings
Total financial liabilities
Carrying amount
Fair value
As at
31.12.13
As at
31.12.12
As at
31.12.13
As at
31.12.12
390,491
102,498
82,778
15,054
590,821
596,560
116,553
534
860
714,507
390,491
102,498
82,778
15,054
590,821
596,560
116,553
534
860
714,507
62,609
25,976
50,001
32,015
62,609
25,976
1,029,239 1,019,985 1,035,933 1,026,084
1,111,255 1,108,570 1,117,949 1,114,669
50,001
32,015
Fair values
The fair values of cash and cash equivalents, trade and other receivables and payables are approximately equal to their carrying amounts
due to their short maturity.
The available-for-sale equity investment in PJSC Stakhanov Railcar Company in the amount of US$396 thousand (2012: US$534
thousand) is fair valued based on the quoted market price for its shares on the Ukrainian Stock exchange (‘PFTS’).
The 15.5% equity investment in Ferrous Resources totalling US$82,382 thousand (2012: nil) was made in March and September 2013.
The unquoted shares are not traded in an organised financial market. The most recent transaction price is considered to reflect the best
fair value as of 31 December 2013 in the absence of any significant events since the acquisition of the last tranche.
The fair values of interest-bearing loans and borrowings are based on the discounted cash flows using market interest rates except for the
fair value of the Eurobond issued, which is based on the market price quotation at the reporting date.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013
140
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 37: Financial instruments continued
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable.
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
US$000
Financial assets
Available-for-sale financial assets
Total available-for-sale financial assets
US$000
Financial assets
Available-for-sale financial assets
Total available-for-sale financial assets
There were no transfers between Level 1 and Level 2 in the period.
Reconciliation of Level 3 fair value measurements of financial assets
US$000
Opening balance
Additions
Total gains or losses:
– in profit or loss
– in other comprehensive income
Transfer out of Level 3
Closing balance
As at 31.12.13
Level 1
Level 2
Level 3
Total
396
396
–
–
82,382
82,382
82,778
82,778
As at 31.12.12
Level 1
Level 2
Level 3
Total
534
534
–
–
–
–
534
534
As at 31.12.13
Available-
for-sale
financial
assets
–
82,382
As at 31.12.12
Available-
for-sale
financial
assets
430
–
–
–
–
82,382
(430)
–
–
–
Capital management
The Board’s policy is to maintain a strong capital base. The Board of Directors monitors both the demographic spread of shareholders,
as well as the return on capital, which the Group defines as total shareholders’ equity, excluding non-controlling interests, and the level of
dividends to Ordinary Shareholders. Please refer to the Statement of Changes in Equity for details of the capital position of the Group.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and
advantages and security afforded by a sound capital position. The Board continues to support maintaining a sound capital base
balanced against these market constraints.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 141
F I N A N C I A L
S T A T E M E N T S
Note 37: Financial instruments continued
The Board maintains a dividend policy consistent with the Group’s profile, reflecting the investment activities the Group is making
on major projects for future production growth and the cash generated by existing operations, whilst maintaining a prudent level of
dividend cover.
Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements other than a bank covenant
requirement to maintain consolidated equity of the Group of US$500,000 thousand including non-controlling interests and excluding the
translation reserve. Compliance is ensured by balancing dividend payments against the earnings of the Group.
For more information about the Group’s interest-bearing loans and borrowings see note 29.
Note 38: Share-based payments
Long-term incentive plan (‘LTIP’)
The following share awards were granted under the LTIP in the previous financial years. The LTIP vesting period is three years.
No. (’000)
Year ended 31.12.13
Year ended 31.12.12
Year ended 31.12.11
2013 LTIP
450
–
–
2012 LTIP
–
485
–
2011 LTIP
–
–
415
Total
450
485
415
The LTIP is subject to a performance condition based on the Total Shareholder Return (‘TSR’) compared to a comparator group,
measured over the vesting period, as described in the Director’s Remuneration Report.
The following expenses have been recognised in 2013 and 2012 in respect of the LTIP:
US$000
Year ended 31.12.13
Year ended 31.12.12
2013 LTIP
210
–
2012 LTIP
528
693
2011 LTIP
528
592
2010 LTIP
–
323
Total
1,266
1,608
The fair value of these awards was assessed at their grant date using a simulation or ‘Monte Carlo’ model consistent with the
mathematics underlying the standard Black-Scholes options pricing model, extended to allow for the performance conditions. Each
simulation of the model projects the Company’s and comparator’s share prices (with reinvested dividends) over the vesting period,
allowing for the volatilities and correlations between the shares as estimated from historical data. From this projection the proportion of
awards vesting, and the value to employees, is calculated. 100,000 simulations were run to calculate the fair values. The fair value is set
as the average value over all the simulations.
LTIP
Beginning of the year
Awards granted during the year
Lapsed during the year
Vested during the year
Outstanding at 31 December
Year ended
31.12.13
WAFV (US$)
Year ended
31.12.12
WAFV (US$)
Year ended
31.12.13
No. (’000)
Year ended
31.12.12
No. (’000)
3.23
1.40
3.42
3.28
2.59
3.38
2.32
–
1.94
3.23
1,150
450
(30)
(250)
1,320
905
485
–
(240)
1,150
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 142
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S continued
Note 39: Operating profit by function
US$000
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Other income
Other expenses
Operating foreign exchange gain
Operating profit
Share of profit of associates
Total profit from operations and associates
Summary of adjusted items:
US$000
Operating adjusting items
Write-down of VAT receivable
Write-offs and impairment losses
Losses on disposal of property, plant and equipment
Total operating adjusting items
Notes
3/7
8
Before
adjusting
items
6 1,581,385
(773,221)
808,164
(335,718)
(54,839)
6,662
(23,457)
622
401,434
3,551
404,985
9
10
11
12
14
Adjusted
items
Year ended
31.12.13
Before
adjusting
items
– 1,581,385 1,424,030
(690,729)
–
733,301
–
(311,964)
–
(56,329)
–
11,347
–
(30,161)
(45,767)
653
–
346,847
(45,767)
2,772
–
349,619
(45,767)
(773,221)
808,164
(335,718)
(54,839)
6,662
(69,224)
622
355,667
3,551
359,218
Adjusted
items
Year ended
31.12.12
– 1,424,030
(690,729)
–
733,301
–
(311,964)
–
(56,329)
–
11,347
–
(35,064)
(4,903)
653
–
341,944
(4,903)
2,772
–
344,716
(4,903)
Notes
Year ended
31.12.13
Year ended
31.12.12
26
13
(36,421)
(854)
(8,492)
(45,767)
–
(836)
(4,067)
(4,903)
Note 40: Events after the reporting period
Since the balance sheet date, the Ukrainian Hryvnia has devalued by 15.6% compared to the US Dollar; from 7.993 as of 31 December
2013 to 9.236 as of date of the publication of these accounts. The Group has assets and liabilities denominated in this currency, which
when translated at the current prevailing rates would reduce the net assets of the Group. A devaluation of 1% of the Ukrainian Hryvnia
reduces the Group’s net assets by approximately US$24,000 thousand.
Subsequent to the year end, the Group proposed dividends as disclosed in note 17. Other than disclosed above, no material adjusting or
non-adjusting events have occurred.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 143
F I N A N C I A L
S T A T E M E N T S
Notes
As at
31.12.13
As at
31.12.12
2
147,496
147,496
147,496
147,496
863,114
2,207
–
240
865,561
4
5
369
812
1,456
50
2,687
1,010,370
3
3
3
121,628
185,112
(77,260)
(6,542)
787,432
3
3 1,010,370
3
792,180
2,055
2
700
794,937
332
1,013
1,112
–
2,457
939,976
121,628
185,112
(77,260)
(7,808)
718,304
939,976
P A R E N T C O M P A N Y B A L A N C E S H E E T
US$000
Fixed assets
Non-current investments
Subsidiary undertakings
Total fixed assets
Current assets
Debtors – amounts falling due within one year:
Amounts due from subsidiaries
Prepayments and other current assets
Other taxes recoverable and prepaid
Cash at bank and in hand
Total current assets
Creditors – amounts falling due within one year:
Trade and other creditors
Accruals and deferred income
Income taxes payable
Other taxes payable
Total creditors
Net assets
Represented by:
Capital and reserves
Share capital
Share premium
Treasury share reserve
Employee benefit trust reserve
Retained earnings
Total capital and reserves
All liabilities held by the Company are current in nature.
The financial statements were approved by the Board of Directors on 11 March 2014.
Kostyantin Zhevago
Chief Executive Officer
Christopher Mawe
Chief Financial Officer
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 144
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S
Note 1: Parent company accounting policies
Basis of preparation
The Parent Company financial statements of Ferrexpo plc are presented as required by the Companies Act 2006 and were approved for
issue on 11 March 2014. The financial statements are prepared under the historical cost convention and are prepared in accordance with
applicable UK accounting standards. No profit and loss account is presented by the Company as permitted by Section 408 of the
Companies Act 2006. The Company has taken advantage of the exemption granted by FRS 1 Cash flow statements (revised), whereby it
is not required to publish its own cash flow statement.
The Company is exempt from the disclosure requirements of FRS 29 Financial instruments, under its section 2D (a) as the entity is
included in publicly available consolidated financial statements, which include disclosures that comply with FRS 29/IFRS 7. Disclosures
and narratives have not included information required by that standard, as the Group’s consolidated financial statements, in which the
Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial instruments: Disclosures.
Investments
Equity investments in subsidiaries are carried at cost less any provision for impairments.
Deferred income tax
Deferred income tax is recognised in respect of all timing differences that have originated but not reversed at the reporting date where
transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax,
with the following exceptions:
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates and
joint ventures only to the extent that, at the reporting date, dividends have been accrued as receivable; and
• deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an
undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates
and laws enacted or substantively enacted at the reporting date.
Foreign currencies
The Company’s functional currency and presentation currency is US Dollars. Transactions in foreign currencies are initially recorded in the
functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value
was determined.
Financial instruments
Derivative financial instruments
The Company does not hold any derivative financial instruments.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities (promissory notes), trade and other receivables,
cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative financial instruments are recognised at
fair value (being the fair value of the consideration given or received) plus any directly attributable transaction costs.
All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase
or sell the asset. Regular way purchases or sales are those that require delivery of assets within the period generally established by
regulation or convention in the marketplace.
The Company has not designated any financial asset as financial assets at fair value through profit or loss.
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 145
F I N A N C I A L
S T A T E M E N T S
Note 1: Parent company accounting policies continued
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do
not qualify as trading assets and have not been designated as either fair value through profit or loss or available-for-sale. Such assets are
carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in
income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Impairment of financial assets
The Company assesses at each reporting date whether a financial asset or a group of financial assets is impaired. Investments in
subsidiaries’ undertakings are held at cost. The Company assesses investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of an investment may not be recoverable. If any such indication of impairment exists, the
Company makes an estimate of its recoverable amount (valuation). Where the carrying amount of an investment exceeds its recoverable
amount, the investment is considered impaired and is written down to its recoverable amount.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of
the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the
effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, with the amount of the loss recognised
in administration costs. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any
subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the asset
does not exceed its amortised cost at the reversal date.
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires. Where 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 a derecognition of the original liability and the recognition of a
new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognised in profit
or loss.
Share-based payments
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the grant date and is recognised as
an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair
value is determined by reference to the quoted closing share price on the grant date.
In valuing equity-settled transactions, no account is taken of any vesting conditions, except for market conditions. No expense is
recognised for awards that do not ultimately vest.
At each reporting date before vesting, the cumulative expense is calculated; representing the extent to which the vesting period has
expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity
instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the income
statement, with a corresponding entry in equity.
All costs related to the share-based payments of the Group are recorded in Ferrexpo plc. Note 38 to the consolidated financial
statements provides further information on the valuation related to the share-based payments and the costs recorded.
Employee benefit trust reserve
Ferrexpo plc shares held by the Company are classified in capital and reserves as ‘employee benefit trust reserves’ and recognised at
cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale
and the original cost taken to revenue reserves. No gain or loss is recognised on the purchase, sale issue or cancellation of equity shares.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 146
F I N A N C I A L
S T A T E M E N T S
N O T E S T O T H E P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S
continued
Note 2: Investments
US$000
Non-current investments
As at
31.12.13
147,496
As at
31.12.12
147,496
The balance above relates to the Company’s investment in Ferrexpo AG which is a 100% owned subsidiary based in Switzerland.
Note 3: Capital and reserves
US$000
At 1 January 2012
Profit for the period
Total comprehensive income for the year
Equity dividends paid to shareholders
Share-based payments
At 31 December 2012
Profit for the period
Total comprehensive income for the year
Equity dividends paid to shareholders
Share-based payments
At 31 December 2013
Issued
capital
121,628
–
–
–
–
121,628
–
–
–
–
121,628
Share
premium
185,112
–
–
–
–
185,112
–
–
–
–
185,112
Treasury
share reserve
(77,260)
–
–
–
–
(77,260)
–
–
–
–
(77,260)
Employee
benefit trust
reserve
(9,416)
–
–
–
1,608
(7,808)
–
–
–
1,266
(6,542)
Retained
earnings
518,036
238,928
238,928
(38,660)
–
718,304
146,429
146,429
Total
equity
738,100
238,928
238,928
(38,660)
1,608
939,976
146,429
146,429
(77,301)
–
(77,301)
1,266
787,432 1,010,370
Note 4: Trade and other creditors
Trade and other creditors at 31 December 2013 relate to the following:
US$000
Trade and other creditors:
Falling due within one year
Total trade and other creditors
Note 5: Accrued liabilities and deferred income
Accrued liabilities and deferred income at 31 December 2013 relate to the following:
US$000
Accrued liabilities and deferred income:
Falling due within one year
Total accrued liabilities and deferred income
As at
31.12.13
As at
31.12.12
369
369
332
332
As at
31.12.13
As at
31.12.12
812
812
1,013
1,013
Note 6: Related party disclosures
There are no related party transactions and balances to be disclosed. All transactions and balances are with subsidiaries, which are
wholly-owned.
Note 7: Events after the reporting period
No material adjusting or non-adjusting events have occurred subsequent to the year end other than the proposed dividends disclosed in
note 17 to the consolidated financial statements.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 147
F I N A N C I A L
S T A T E M E N T S
A P P E N D I X 1 – S U B S I D I A R Y R I S K S
The list of subsidiary risks and uncertainties facing the Group’s
business that follows below is based on the Board’s current
understanding. Due to the very nature of risk it cannot be expected
to be completely exhaustive. New risks may emerge, and the severity
or probability associated with known risks may change over time.
The Group’s principal risks are disclosed on pages 28 to 31.
R I S K S R E L A T I N G T O T H E G R O U P ’ S O P E R A T I O N S
Licences
Possible impact
See also ‘Risk relating to the Group’s strategy – government
approvals of expansion’ on page 31.
Mitigation
– The Group complies with commitments under its various licences in
order to ensure that the conditions contained within the licences are
fulfilled or, if appropriate, waivers are obtained.
Mining and land allotment licences are critical to the Group’s
operations, and there can be no guarantee that they will be
renewed or that additional licences will be obtained. This could
adversely affect the Group’s operations and its ability to develop in
the future.
Relocation of communities
Possible impact
Certain small rural settlements will have to be relocated in order to
allow us to proceed with some of our mine expansion projects.
Potential solutions have been explored, and progress has been
made during the recent months.
Mitigation
– The resolution of the issue is supported by strong activity at the
local level including timely meetings and dialogue with community
representatives, in order to reach consensus on the benefits of
relocation in terms of improved accommodation and utilities and
better access to transport infrastructure and social services.
Communities are paid a fair price for their land and compensation
for disruption. As it is included in the approved funding of the
Capital Project, the topic is under constant review, including weekly
meetings at site, and when necessary at monthly Executive
Committee meetings.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 148
F I N A N C I A L
S T A T E M E N T S
A P P E N D I X 1 – S U B S I D I A R Y R I S K S continued
R I S K S R E L A T I N G T O F I N A N C E
Exchange rate risk
Possible impact
The Group receives the majority of its income in US Dollars while a
large proportion of its costs are denominated in Ukrainian Hryvnia.
An appreciation of the Ukrainian Hryvnia against the US Dollar
could have a negative impact on the profitability of the Group.
Mitigation
– Historical weakness of the Ukrainian Hryvnia in times of low
commodity prices has provided a natural hedge during downturns
in the commodity cycle. All of the Group’s revenues and associated
debt are denominated in US Dollars.
Interest rate risk
Possible impact
A portion of the Group’s finance facility is linked to US Dollar LIBOR
rates. An increase in interest rates will have a negative impact on
the Group’s financial costs, thus affecting profitability.
Mitigation
– The Group has optimised its debt structure, maintaining low
balance sheet gearing. As a result, its interest costs are a low
proportion of its profitability.
Financing risk
Possible impact
The Group’s development projects may be funded using debt
secured with financial guarantees. There is a risk that cancellation
of contracts as a result of force majeure events and/or lower iron
ore pellet prices would limit the amount of funding available to the
Group, and could prompt lenders of existing finance facilities to
require Ferrexpo to assign additional contracts to meet agreed
ratios.
Mitigation
– The Group’s financing risk has been mitigated by the issue of a
US$500 million Eurobond and a US$420 million bank facility.
– The average debt maturity at 31 December 2013 was three years.
– The Group has minimal debt repayments of US$24 million in 2014.
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 149
F I N A N C I A L
S T A T E M E N T S
G L O S S A R Y
Act
AGM
The Companies Act 2006
The Annual General Meeting of the Company
Articles
Articles of Association of the Company
Audit Committee
The Audit Committee of the Company’s Board
Belanovo or Belanovskoye An iron ore deposit located immediately to the north of Yeristovo
Benchmark price
International seaborne traded iron ore pricing mechanism understood to be offered to the market by major
iron ore producers under long-term contracts
Beneficiation process
A number of processes whereby the mineral is extracted from the crude ore (see page 5)
BIP
Board
bt
C1 costs
Capesize
Business Improvement Programme, a programme of projects to increase production output and efficiency
at FPM
The Board of Directors of the Company
Billion tonnes
Represents the cash costs of production of iron pellets from own ore, divided by production volume from
own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements,
costs of purchased ore, concentrate and production cost of gravel
Capesize vessels are typically above 150,000 tonnes deadweight. Ships in this class include oil tankers,
supertankers and bulk carriers transporting coal, ore, and other commodity raw materials. Standard
capesize vessels are able to transit through Suez Canal
Capital employed
The aggregate of equity attributable to shareholders, non-controlling interests and borrowings
CFR
CIF
CIS
Code
CODM
Delivery including cost and freight
Delivery including cost, insurance and freight
The Commonwealth of Independent States
The UK Corporate Governance Code published in 2012
The Executive Committee is considered to be the Group’s Chief Operating Decision Maker
Company
Ferrexpo plc, a public company incorporated in England and Wales with limited liability
CPI
CRU
CSR
Consumer Price Index
The CRU Group provides market analysis and consulting advice in the global mining industry
(see www.crugroup.com)
Corporate Social Responsibility
CSR Committee
The Corporate Safety and Social Responsibility Committee of the Board of the Company
DAP
DFS
Delivery at place
Detailed feasibility study
Directors
The Directors of the Company
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 150
F I N A N C I A L
S T A T E M E N T S
G L O S S A R Y continued
EBITDA
EBT
EPS
The Group calculates EBITDA as profit from continuing operations before tax and finance plus depreciation
and amortisation and non-recurring exceptional items included in other income and other expenses,
share-based payment expenses and the net of gains and losses from disposal of investments and
property, plant and equipment
Employee Benefit Trust
Earnings per share
Executive Committee
The Executive Committee of management appointed by the Company’s Board
Executive Directors
The Executive Directors of the Company
FBM
Fe
Ferrexpo Belanovo Mining, also known as BGOK, a company incorporated under the laws of Ukraine
Iron
Ferrexpo
Ferrexpo plc and its subsidiaries
Ferrexpo AG Group
Ferrexpo AG and its subsidiaries, including FPM
Fevamotinico
Fevamotinico S.a.r.l., a company incorporated with limited liability in Luxembourg
First-DDSG
First-DDSG Logistics Holding GmbH (formerly Helogistics Holding GmbH) and its subsidiaries, an inland
waterway transport group operating on the Danube/Rhine corridor
FOB
FPM
FRMC
FTSE 250
FYM
Group
Delivered free on board, which means that the seller’s obligation to deliver has been fulfilled when the
goods have passed over the ship’s rail at the named port of shipment, and all future obligations in terms of
costs and risks of loss or damage transfer to the buyer from that point onwards
Ferrexpo Poltava Mining, also known as Ferrexpo Poltava GOK Corporation or PGOK, a company
incorporated under the laws of Ukraine
Financial Risk Management Committee, a sub-committee of the Executive Committee
Financial Times Stock Exchange top 250 companies
Ferrexpo Yeristovo Mining, also known as YGOK, a company incorporated under the laws of Ukraine
The Company and its subsidiaries
Growth markets
These are predominantly in Asia and have the potential to deliver new and significant sales volumes to the
Group
HSE
IAS
IASB
IFRS
IPO
Health, safety and environment
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Standards, as adopted by the EU
Initial public offering
Iron ore concentrate
Product of the beneficiation process with enriched iron content
Iron ore pellets
Balled and fired agglomerate of iron ore concentrate, whose physical properties are well suited for
transportation to and reduction within a blast furnace
Iron ore sinter fines
Fine iron ore screened to -6.3mm
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 151
F I N A N C I A L
S T A T E M E N T S
JORC
K22
KPI
kt
LIBOR
LLC
LTIFR
LTIP
m3
Australasian Joint Ore Reserves Committee – the internationally accepted code for ore classification
GPL ore has been classified as either K22 or K23 quality, of which K22 ore is of higher quality (richer)
Key Performance Indicator
Thousand tonnes
The London Inter Bank Offered Rate
Limited Liability Company
Lost-Time Injury Frequency Rate
Long-Term Incentive Plan
Cubic metre
Majority shareholder
Fevamotinico S.a.r.l., The Minco Trust and Kostyantin Zhevago (together)
mm
mt
mtpa
Millimetre
Million tonnes
Million tonnes per annum
Natural markets
These include Turkey, the Middle East and Western Europe and are those markets where Ferrexpo has
a competitive advantage over more distant producers, but where market share remains relatively low
Nominations Committee The Nominations Committee of the Company’s Board
Non-executive Directors Non-executive Directors of the Company
NOPAT
Net operating profit after tax
OHSAS 18001
International safety standard ‘Occupational Health & Safety Management System Specification’
Ordinary Shares
Ordinary Shares of 10 pence each in the Company
Ore
Panamax
A mineral or mineral aggregate containing precious or useful minerals in such quantities, grade and
chemical combination as to make extraction economic
Modern panamax ships typically carry a weight of between 65,000 to 90,000 tonnes of cargo and can
transit both Panama and Suez canals
PPI
Ukrainian producer price index
Probable reserves
Those measured and/or indicated mineral resources which are not yet ‘proved’, but of which detailed
technical and economic studies have demonstrated that extraction can be justified at the time of
determination and under specific economic conditions
Proved reserves
Measured mineral resources of which detailed technical and economic studies have demonstrated that
extraction can be justified at the time of determination and under specific economic conditions
Rail car
Railway wagon used for the transport of iron ore concentrate or pellets
Relationship agreement
The relationship agreement entered into among Fevamotinico S.a.r.l., Kostyantin Zhevago, The Minco Trust
and the Company
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 152
F I N A N C I A L
S T A T E M E N T S
G L O S S A R Y continued
Remuneration Committee The Remuneration Committee of the Company’s Board
Reserves
Sinter
Spot price
Sterling/£
STIP
Tailings
Tolling
Ton
Those parts of mineral resources for which sufficient information is available to enable detailed or
conceptual mine planning and for which such planning has been undertaken. Reserves are classified as
either proved or probable
A porous aggregate charged directly to the blast furnace which is normally produced by firing fine iron ore
and/or iron ore concentrate, other binding materials, and coke breeze as the heat source
The current price of a product for immediate delivery
Pound Sterling, the currency of the United Kingdom
Short-Term Incentive Plan
The waste material produced from ore after economically recoverable metals or minerals have been
extracted. Changes in metal prices and improvements in technology can sometimes make the tailings
economic to process at a later date
The process by which a customer supplies concentrate to a smelter and the smelter invoices the customer
the smelting charge, and possibly a refining charge, and then returns the metal to the customer
A US short ton, equal to 0.9072 metric tonnes
Tonne or t
Metric tonne
Traditional markets
These lie within Central and Eastern Europe and include steel plants that were designed to use Ferrexpo
pellets. Ferrexpo has been supplying some of these customers for more than 20 years. Ferrexpo has
well-established logistics routes and infrastructure to these markets by both river barge and rail. These
markets include Austria, Czech Republic, Hungary and Slovakia
Treasury shares
A company’s own issued shares that it has purchased but not cancelled
TSF
TSR
UAH
Tailings storage facility
Total shareholder return. The total return earned on a share over a period of time, measured as the
dividend per share plus capital gain, divided by initial share price
Ukrainian Hryvnia, the currency of Ukraine
Ukr SEPRO
The quality certification system in Ukraine, regulated by law to ensure conformity with safety and
environmental standards
US$/t
US Dollars per tonne
Value-in-use
The implied value of a material to an end user relative to other options, e.g. evaluating, in financial terms,
the productivity in the steel-making process of a particular quality of iron ore pellets versus the productivity
of alternative qualities of iron ore pellets
VAT
WAFV
WMS
Value Added Tax
Weighted average fair value
Wet magnetic separation
Yeristovo or Yeristovskoye The deposit being developed by FYM
FERREXPO PLCANNUAL REPORTAND ACCOUNTS2013 S H A r e Ho l D e r I N F o rM A T IoN
registered office
2–4 King Street
London
SW1Y 6QL
www.ferrexpo.com
Advisers
Share registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Financial
J.P. Morgan Cazenove Ltd
25 Bank Street
London
E14 5JP
corporate Brokers
J.P. Morgan Cazenove Ltd
25 Bank Street
London
E14 5JP
Deutsche Bank AG
Winchester House
1 Great Winchester Street
London
EC2N 2DB
legal
Herbert Smith Freehills
Exchange House
Primrose Street
London
EC2A 2EG
Auditors
Ernst & Young LLP
1 More London Place
London
SE1 2AF
Ferrexpo plc
2–4 King Street
london
SW1Y 6Ql
Tel: +44 (0)20 7389 8300
www.ferrexpo.com