Ferrexpo
Annual Report 2020

Plain-text annual report

DELIVERING SUSTAINABLE GROWTH Ferrexpo plc Annual Report & Accounts 2020 F e r r e x p o p l c A n n u a l R e p o r t & A c c o u n t s 2 0 2 0 Ferrexpo plc is the third largest exporter of iron ore pellets in the world, with high grade iron ore pellets enabling Ferrexpo’s steel producing customers to reduce carbon emissions by 40%1. The Group is listed on the London Stock Exchange, a member of the FTSE 250 and FTSE4Good Indices, and has a BBB rating from ESG ratings agency MSCI, placing Ferrexpo in the top 40% of companies assessed in the steel sector. The Group is a major contributor to the Ukrainian economy, generating 3% of the country’s export revenues in 2020. The Group is entering into a new growth phase of its development, with increased production and new high grade product offerings, whilst simultaneously cutting the Group’s carbon footprint per tonne. SAFET Y FIRST GROWING OUTPUT Lost time injury frequency rate of 0.79 2019: 0.58 Total iron ore production of 11.2MT 7% increase on 2019 RESILIENT FINANCIAL PERFORMANCE 13% increase in revenues to US$1.7 BN 58% increase in diluted earnings per shareA to 107.9 US cents per share REINVESTING FOR THE FUTURE Capital investmentA US$206M increasing total investment since IPO to over US$2.75 billion 46% increase in underlying EBITDA A to US$859M 26% growth in dividends paid in 2020 to US$195 M (33.0 US cents per share) BALANCE SHEET STRENGTH Net cash position From a net debt position of US$281 million at the end of the comparative year. Footnote: Alternative performance measures: words with the symbol A are defined in the Alternative Performance Measures section of the Annual Report on pages 186 to 188. In this report, the terms “Ferrexpo”, the “Company”, the “Group”, our “business”, “organisation”, “we”, “us”, “our” and “ourselves” refer to Ferrexpo plc and, except where the context otherwise requires, its subsidiaries as defined in on page 185. 1 Source: CRU. SAFETY Safety is at the heart of Ferrexpo’s operations, with every worker entitled to a safe working environment to carry out their day-to-day activities. P28-29•] GROWTH 2020 represented the start of an exciting new phase of growth for Ferrexpo. The conclusion of an expansion in 2020 delivered increased volumes, whilst the Group also pivoted into its next phase of investments for tomorrow’s growth. P24-25 PREMIUM New high grade products developed in 2020 are enabling the Company to engage with additional premium customers in new regions of the world. P22-23 MODERN Using modern technologies to position for the future. In 2020, Ferrexpo became the first mining company in Europe to deploy large scale autonomous haul trucks. P8 SUSTAINABLE Sustainability is essential for any company in the modern era, including a consideration of all stakeholders, with companies expected to deliver much more than just financial results. P26-27 Ferrexpo plc Annual Report & Accounts 2020 Strategic Report At a Glance Chair’s Statement CEO’s Review Response to COVID-19 Market Review Strategic Framework Key Performance Indicators Business Model Financial Review Operational Review HSEC Committee Chair’s Review Health and Safety Environmental Stewardship Social Engagement Governance Non-Financial Information Statement Workforce and Workforce Engagement Stakeholder Engagement Activities Section 172 Statement Risk Management Principal Risks Viability Statement Corporate Governance Chair’s Introduction Board of Directors Executive Committee Corporate Governance Compliance Corporate Governance Report Audit Committee Report Nominations Committee Report Remuneration Report Directors’ Report Statement of Directors’ Responsibilities Financial Statements 02 04 06 09 10 12 14 16 18 22 26 28 30 34 36 37 38 40 44 46 48 61 62 64 66 68 69 76 82 86 108 113 128 115 127 Independent Auditor’s Report to the Members of Ferrexpo plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position 129 Consolidated Statement of Cash Flows 130 Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Additional Disclosures Alternative Performance Measures Glossary 182 185 186 189 180 132 181 131 01 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 At a Glance Ferrexpo is an iron ore pellet producer with mines in Ukraine, as well as marketing and corporate offices around the world. We have been mining, processing and selling high quality iron ore pellets to the global steel industry for over 40 years. 3. INVESTMENTS YIELDING SUSTAINABLE GROWTH The Company has invested over US$2.75 billion since its IPO in 2007, and as a result Ferrexpo has grown to become the third largest exporter of iron ore pellets in the world. Find out more P22-25 1. LONG LIFE ASSETS Ferrexpo’s operations have supplied the global steel industry for over 40 years. The Group’s world class asset base will see a further +50 years of production if current output levels are maintained. Find out more P22-23 Mineral Resources at FPM and FYM increased by 12% in 2020, with the Company now having over 6.1 billion tonnes of JORC-compliant Mineral Resources across its three mines, including 1.7 billion tonnes of Ore Reserves. 12% Increase in Mineral Resources at FPM and FYM in 2020. Additionally, the Group saw a 3% increase in Ore Reserves in 2020. 7 % Growth in production in 2020 Increasing output following successful expansion of the Group’s concentrator in 2020. Further growth in volumes and pellet quality are expected in 2021. 2. GENERATING VALUE THROUGH HIGH QUALITY PELLETS Iron ore pellets are a premium product for steelmakers, and command a premium price as they enable steelmakers to enhance mill productivity whilst also offering the opportunity to reduce carbon emissions. Find out more P18-21 02 Ferrexpo plc Annual Report & Accounts 2020 4. WORLD CLASS STEELMAKERS Ferrexpo’s marketing team has developed a global network of customers that produce the highest quality steel, including types of steel used in renewable energy generation. Find out more P16-17 99% Proportion of production represented by Ferrexpo’s high grade pellets in 2020 (grading 65% Fe and above). 5. POSITIONED FOR A LOW CARBON FUTURE 2020 represented a significant year in the Group addressing its carbon footprint per tonne, with a 16% reduction in CO2e emissions per tonne in a single year. Find out more P26-39 67 % Fe Direct reduction (“DR”) pellets Through investing in its production process, Ferrexpo is now able to produce higher grade DR pellets, which represent the pathway to carbon-free steel production (Green Steel). 40% less CO2 Independent research by CRU shows that steel mills produce 40% less CO2 for each tonne of iron ore pellets used in a blast furnace, compared to the more commonly used sinter fines. 03 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Chair’s Statement 2020 HIGHLIGHTS AND LOOKING FORWARD 2020 has been a significant year in the evolution of the Ferrexpo business, ranging from resilience in our response to the global COVID-19 pandemic, shifting into a new phase in growth of the business, renewed focus on our Responsible Business activities and further efforts to strengthen corporate governance. COVID-19 presented us with a unique set of challenges in 2020 – from day-to-day activities being restricted at our operations, through to temporarily shifting global demand for iron ore pellets away from the status quo and towards China. But despite all this, we grew production by 7% in 2020, showing our flexibility and resilience as a business. As a further demonstration of our resilience, we increased our percentage of Ukrainian exports to 3% of the country’s total exports in 2020 (2019: 2%), delivering consistent export revenues to the national government throughout the pandemic. Our workforce remains our strongest asset, and it is their safety and wellbeing that is key to all of our future plans. That is why we have made every effort to insulate and protect our workforce during the global pandemic, and I would like to thank them for their achievements this year. They represent Ferrexpo’s DNA and their safety and wellbeing is key to all of our future plans, and I am proud to report that to date, production at Ferrexpo’s operations has continued largely unaffected despite 3,000 employees, representing nearly 40% of our workforce in Ukraine, working remotely during the pandemic. Our management team evolved in 2020, with a renewed focus on our operations, delivering on our growth and carbon reduction strategies, whilst also increasing stakeholder engagement. On engagement, this is evidenced through our recent 04 View inside Ferrexpo’s concentrator expansion project, referred to as Section 9, which was completed in 2020. Dividends paid 2020 2019 2018 US$195M US$155M US$97M KPIs P14 For further information, please see the Responsible Business Section, pages 26–39. appointment of Liberum as our corporate broker and financial adviser, and also through more regular and broader updates on the business via our social media channels, which collectively represent a key opportunity for modern companies to communicate with their stakeholders. As we enter into the next phase of the Group’s development, it is important that we continue to communicate effectively around our strategy, from our plans to expand production volumes and pellet quality, to cutting our carbon footprint per tonne for our customers who are actively targeting production of Green Steel. Through continued investment in our operating base, we have demonstrated our ability to evolve and adapt for the future, including the recent deployment of large scale autonomous trucks at our Yeristovo mine, making Ferrexpo the first mine in Europe to utilise this technology. Our strategy and purpose remain the same however: we continue to invest in both our assets and our people, produce the highest quality iron ore products for the global steel industry, and operate a business model that provides both sustainable growth and returns to shareholders. Corporate governance At Board level, in addition to my appointment as Chair of the Company we appointed Ann-Christin Andersen as an additional Independent Non-executive Director to the Board in March 2021, who brings over 30 years of experience in the oil and gas industry. The Ferrexpo Board also conducted a process of shareholder engagement following the 2020 Annual General Meeting, and we are taking steps Lucio Genovese, Chair, Ferrexpo plc. Ferrexpo plc Annual Report & Accounts 2020 to act on the feedback received as part of this process, including increased levels of shareholder engagement and greater levels of disclosure with proxy advisory firms. In March 2021, the Committee of Independent Directors (“CID”) concluded its previously disclosed review into the Group’s sponsorship arrangements with the football club FC Vorskla, with arrangements having been made for the repayment in full of the c.US$17 million loaned by FC Vorskla to Collaton Limited. For further information regarding the conclusion of the CID’s review, please see page 36 (Governance), page 76 (Audit Committee Report) and Notes 30 and 34 to the Consolidated Financial Statements. Responsible business In January 2020 we reformed our CSR Committee with a renewed focus on safety and the environment, with Independent Non-executive Director Fiona MacAulay appointed as Chair. Details of the work undertaken by the newly formed Health, Safety, Environment and Community (“HSEC”) Committee are detailed in the Responsible Business section of this report (pages 26 to 39). Shareholder returns Through strong operating performance, prudent financial management, and continued investment in our operations, we have consistently returned profits to shareholders in the form of dividends since IPO. Dividends paid in the 2020 calendar year grew by 26% to US$195 million, reflecting the Group’s strong balance sheet and growth in our operations. Furthermore, the Board is pleased to announce a special interim dividend of 39.6 US cents per share (2019: 3.3 US cents per share), meaning that the total dividend declared in respect of the 2020 financial year will be a record 72.6 US cents per share (total dividend declared in respect of 2019: 19.8 US cents per share). This record dividend reflects the Group’s strong operational and financial performance, transition to net cash position and continued healthy iron ore prices. The Board will consider, as appropriate, whether or not to propose a final dividend in respect of 2020, which if proposed will be put to the Group’s AGM in May 2021. A final thank you to our workforce for the hard work and dedication shown to achieve the result for 2020 presented in this report, which is a significant achievement in light of the social difficulties faced across the globe. The year ahead marks a new phase for Ferrexpo, one which we are very much looking forward to developing with all of our stakeholders. Lucio Genovese Chair, Ferrexpo plc 05 Strategic ReportCorporate GovernanceFinancial Statements+7 % Production growth of 7% in 2020 to total iron ore production of 11.2 million tonnes. 50% Growth in underlying EBITDA A margins to 50% in 2020 through investment and new pellet types (2019: 39%). Ferrexpo plc Annual Report & Accounts 2020 CEO’s Review TAKING A LOOK AT KEY EVENTS OF 2020 Despite the headwinds facing the world in 2020 due to the global COVID-19 pandemic, we are pleased to be able to report today that our business has shown strength in its ability to grow and adapt to shifting market conditions. Ferrexpo is a multi-faceted business that is focused on providing stakeholder value beyond its financial results in any given year, and the following review aims to provide an overview of our key achievements in 2020, as well as our goals for the year ahead. 0.79 Group LTIFR of 0.79 recorded in 2020, a level 22% below five-year trailing average rate. 16% Reduction in the Group’s combined CO2e emissions footprint (comprising 8% reduction in Scope 1 CO2e emissions footprint and 21% reduction in Scope 2 CO2e). 06 Jim North, Acting Chief Executive Officer. Ferrexpo plc Annual Report & Accounts 2020 Safety continues to be the number one priority at our operations. We strive to ensure that all employees and contractors are able to return home safely at the end of each shift, and it is our aim to provide clear and transparent reporting around safety. Whilst the Group has recorded a second successive year with its lost time injury frequency rate (“LTIFR”) materially below the Group’s five-year trailing average, it is with regret that we report the fatality of a contractor at our operations in 2020, whereby a maintenance contractor was fatally injured during maintenance work being conducted in the beneficiation plant. We strive to learn from these terrible events and further details of the investigation and key learnings from this incident are provided on page 28. We also continue to benchmark our safety performance against our peers and can report a LTIFR in 2020 significantly lower than the major iron ore miners in the Pilbara region of Australia1. Given the difficulties facing the world related to the global COVID-19 pandemic in 2020, we note the importance of our role in keeping our workforce safe, protecting local communities and also increasing our efforts in terms of workforce wellbeing. Further details of these initiatives in relation to COVID-19 are provided on pages 9 and 34-35. Growth through a well invested asset base has been a cornerstone of our business since IPO, and 2020 marks the culmination of a multi-year expansion plan to grow production volumes and product quality. In 2020, we saw production volumes grow by 7%, whilst we also added sales of a new product – direct reduction (“DR”) pellets – to our marketing offering. This growth in volumes and product quality has helped to deliver one of the best annual financial results Ferrexpo has achieved since listing in 2007, details of which are provided in the Financial Review on pages 18 to 21. Furthermore, DR pellets are particularly important as they position us for the future of carbon-free Green Steel, as well as enable us to reduce our Scope 3 carbon emissions footprint. Further details of our expansion plans are available on pages 22 to 25, Green Steel on page 31 and our Scope 3 footprint on page 32. Producing high grade, premium iron ore pellets enables us to generate higher margins through selling to premium customers. In 2020, we realised an underlying EBITDA A margin of 50% on our pellets, up from the five-year trailing average of 39%. Through selling our premium products to the world’s best steelmakers, we also add resilience to our business. Viewing platform overlooking Ferrexpo’s Poltava Mine. KEY RECENT DEVELOPMENTS Board changes: Lucio Genovese appointed Chair, leading Company into new phase of development and growth. Jim North appointed as an Executive Director. Additional Independent Non-executive Director Ann-Christin Andersen appointed to the Board in March 2021. Management changes: Jim North appointed Acting CEO; stepping into role after six years as COO. Sustainable growth: Completion of concentrator expansion, resulting in growth in production. Advancing additional projects such as concentrate stockyard to provide operational flexibility. New products: Trial shipments of higher grade DR pellets; growing into new markets, new premium customers. DR pellets represent future of pellet market and Green Steel. Resilience: In the midst a of global pandemic; increasing sales to China in response to shifting markets. Safety: LTIFR of 0.79, second successive year of rate being materially below the five-year trailing average (1.01). Net cash position: Delivering a US$285 million reduction in net debt in 2020, resulting in a net cash position of US$4 million as at year end, down from peak levels of net debt of over US$850 million seen at the end of 2015. US$859M Strong cash generation with underlying EBITDA A of US$859M, a 46% increase on 2019. Investments yielding growth 50% Underlying EBITDA A margin of 50% in 2020 (five-year trailing average: 39%). Shareholder returns US$195M Total of US$195 million paid in dividends in 2020 (2019: US$155 million). 1 Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_ Reports_SafetyPerfWA_2019-20.pdf 07 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 CEO’s Review continued Underlying EBITDA 2020 2019 2018 US$859M US$586M US$503M KPIs P14 1 Carrara, S., Alves Dias, P., Plazzotta, B. and Pavel, C., Raw materials demand for wind and solar PV technologies in the transition towards a decarbonised energy system, EUR 30095 EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-16225-4 (online), doi:10.2760/160859 (online), JRC119941. 08 CASE STUDY AUTONOMOUS LARGE SCALE HAUL TRUCKS – A FIRST FOR MINING IN EUROPE Ferrexpo recorded a first in December 2020, becoming the first mine to deploy a large scale autonomous haul truck in both Ukraine and Europe. Fleet autonomy represents state of the art modern technology for modern mining operations, and has been shown to offer mining companies significant improvements in both safety and productivity, through removing individuals from hazardous working environments, whilst also enabling trucks to operate 24/7. Automation of the Group’s CAT 793 haul trucks at the Yeristovo mine is under way, with additional trucks expected to be deployed throughout 2021. Fleet automation represents industry best practice and is an important step in the Group’s long-term growth ambitions. This milestone represents the latest step in the Group’s drive to modernise its operations, with a similar project to automate the Group’s drilling operations successfully implemented back in 2017. Our work over the years to develop a customer presence in China enabled us to efficiently pivot to this market in 2020 when demand in the rest of the world declined as a result of the global COVID-19 pandemic. We are also proud to sell our pellets to steelmakers that produce high end steels for green sectors such as renewable power generation, with steel representing up to 85% of the construction of a typical wind turbine, as well as steel representing the single largest component by weight in the construction of solar PV technologies1. Technology helps us to maintain our profitability and resilience, as well as offer safety benefits. In December 2020, we successfully deployed autonomous trucks in our Yeristovo mine, becoming the first mine in Europe to successfully invest in this modern technology. We have seen significant safety improvements through our investments in other areas of technology, such as our autonomous drill rigs and drone surveys, which have been in use since 2017 and 2018 respectively. We expect to see similar benefits throughout our mining department as further automation investments are realised. High ESG standards are expected of all mining companies, and we aim to be no exception. We worked hard to reduce our carbon emissions footprint per tonne in 2020, achieving an 8% reduction in Scope 1 and 21% reduction in Scope 2. We began reporting our Scope 3 emissions in 2019 and have further developed our thinking in terms of reporting and assurance in this year’s report. We continue to work in a range of assistance projects in our neighbouring communities, which have been particularly focused on helping medical institutions during the global pandemic in 2020, with US$2.5 million of funding made available in March 2020 through our dedicated COVID-19 Response Fund, in addition to a further US$1 million of funding approved in 1Q 2021. For further details of our ESG work, please see the Responsible Business section, pages 26 to 39, as well as our Responsible Business Reports, which are available on the Ferrexpo website. Our strong operational performance, delivery of investments and expertise in marketing have enabled us to deliver a 46% increase in underlying EBITDA A to US$859 million in 2020, which will enable us to reinvest in our operations to further develop the business, in addition to delivering further shareholder value. I would like to thank all of our stakeholders in achieving the result presented in this report, from our workforce’s collective hard work and determination, to our local communities in Ukraine, and the continued support of our customers and shareholders around the world. We have much to look forward to at Ferrexpo in 2021, and I would like to thank everyone for their support going into the year ahead. Jim North Acting Chief Executive Officer COVID-19 FERREXPO’S RESPONSE TO COVID-19 Throughout the global COVID-19 pandemic in 2020, Ferrexpo has taken significant measures to protect its workforce and local communities. Throughout the year, the Group has continued to operate with minimal disruption due to COVID-19. In response to the global pandemic, Ferrexpo has implemented a range of measures at various levels of its organisation to raise awareness and change behaviours in order to reduce the spread of COVID-19, as well as clear messaging around the effectiveness of the Group’s actions. Across the business, Ferrexpo has enabled remote working, with over 3,000 employees working remotely during the peak of the global pandemic in April and May 2020, representing nearly 40% of the Group’s workforce at its operations in Ukraine. For those who cannot work remotely, social distancing, face masks and staggered shifts are all examples of the significant measures that have been implemented, along with the Group’s own in-house testing equipment, with the capacity to conduct over 1,000 tests a month. However, no community has been unaffected by COVID-19, and Ferrexpo’s workforce is no exception. As of the end of 2020, one Ferrexpo employee sadly passed away having contracted COVID-19. Where the Group registers a positive test result in its testing, extensive measures are implemented in each instance to both look after the affected individual and to minimise the risk of onward transmission of the virus. The Group has its own specialist teams in place to isolate and support affected individuals, as well as conduct contact tracing exercises. Donated equipment for local hospital during global COVID-19 pandemic, July 2020. Furthermore, the Group has periodically implemented increased measures whereby external visitors are prohibited from visiting Ferrexpo’s operations, aimed at further reducing the transmission risk at times of heightened infection rates within Ukraine. In addition to the efforts undertaken to protect the Group’s workforce, Ferrexpo has made significant efforts to protect its local communities in 2020, including the approval in March 2020 of a US$2.5 million dedicated COVID-19 Response Fund for medical donations to support local hospitals. In light of the ongoing pandemic in 2021, the Group has approved a further US$1 million of funding for this initiative, to sustain its support efforts into 2021. Further details of this work are provided on pages 34 to 35 of this report. Ferrexpo plc Annual Report & Accounts 2020 40% Nearly 40% of workforce demobilised from operations at the peak of the pandemic. 09 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Market Review 2020 was a year of shifting supply and demand within the markets, with the main factors being (1) COVID-19 temporarily shifting relative demand for iron ore towards China, and (2) disruptions in iron ore supply from Brazil and Australia. Ferrexpo’s diverse customer portfolio, central geographic location and flexibility in its logistics capacity helped the Group to adapt quickly to these changing conditions. The following market review focuses on the high grade fines index (65% Fe), as this is the basis for pricing Ferrexpo’s iron ore products, which are predominantly grade 65% Fe or above. Iron ore fines indices Global iron ore fines prices showed resilience in the first half of 2020, amid the onset of the global pandemic, with the high grade (65% Fe) iron ore fines index rising 9% through to the end of June 20201. This upward trend reflected the speed and scale of the Chinese government’s intervention in its economy in the first half of the year, with China ending the year as the only developed economy in the world to report overall growth in 20202. China alone typically represents approximately 70% of total global iron ore fines consumption3, and therefore this acceleration is directly attributable to the strength in iron ore fines prices in the first half of 2020. In the second half of the year, iron ore fines prices continued their upward trajectory. This was driven by strong demand in China, particularly high grade ores, but also by returning demand from steel mills in the rest of the world. This increase in pricing was further exacerbated by supply side disruptions from Brazilian iron ore exports, related to ongoing permitting issues following two high profile breaches of tailings dams in 2015 and 2019. Supply constraints were also seen in Australia due to short term shortages of benchmark material. These factors led to a 53% rise in iron ore prices in the second half of the year, to close the year with an iron ore price of US$174 per tonne1. Expectations for the fines index in 2021 are that fines supply from Brazil will begin to return to previous levels, whilst overall output from Australia will be maintained at broadly similar levels to those seen in 2020. It is, however, understood that the overall chemistry of benchmark sinter fines material produced from the Pilbara is changing, and it is, therefore, expected that demand for low alumina iron ore products, such as those produced by Ferrexpo, will increase as steelmakers seek to balance the chemistry of material entering each blast furnace. Pellet premiums Pellet premiums, which are applied to the pricing for pellets in addition to the benchmark iron ore fines price, are primarily governed by global demand from key markets in Europe and Asia. With these destinations seeing a sharper impact from the global pandemic in 2Q and 3Q 2020 compared to China, pellet premiums did not experience the same level of support as was seen with sinter fines. This decline was seen despite significant disruption in the supply of Brazilian pellets during 2020, which represents the single largest source of iron ore pellets in the global pellet export market. Atlantic pellet premiums, as assessed by Platts, which is the premium used in pricing the majority of long term contracts, fell from a multi-year high of US$57 per tonne in 2019 to an average of US$29 per tonne in 2020, with this decrease linked to the impact of COVID-19 on key pellet markets. Conversely, China saw increased pellet buying activity in 2020, which was the result of government stimulus and increased steel demand. With global iron ore demand pivoting towards China as the 10 Loading pellets at Ferrexpo’s berth at the Port of Pivdennyi (formerly known as Yuzhny) in June 2020. 1 Source: S&P Platts. 2 Source: IMF World Economic Outlook Report. 3 Source: CRU. Summary of industry key statistics for 2020 and 2019 (All figures US$/tonne, unless stated otherwise.) Average Platts 62% Fe iron ore fines price CFR China4 Average Platts 65% Fe iron ore fines price CFR China4 65% Fe spread over 62% Fe Average Atlantic pellet premium4 Average China pellet premium4 Average DR pellet premium4 C3 freight (Brazil – China)5 C2 freight (Brazil – Netherlands)5 2020 109 122 13 29 23 36 15 7 2019 93 104 11 57 28 61 19 8 Global steel production (million tonnes)6 1,829 1,846 Change 17% 17% 18% -49% -18% -41% -21% -19% -1% Iron ore ) e n n o t / $ S U ( e c i r p x e d n I 200 180 160 140 120 100 80 60 40 20 0 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Fines price (65% Fe) Chinese Spot PP Atlantic PP Source: Platts pandemic developed, the global pellet export market mirrored this shift, with over 50% of global pellet exports dispatched to China at the peak of the pandemic in May and June 2020 (2019 China average: 22%)7. As a result of this increasing supply, spot pellet premiums in China dropped to below US$5 per tonne in August 2020, as portside inventories of imported iron ore pellets doubled in size. Following a return to more normal market conditions in 4Q, spot pellet premiums in China returned to average US$23 per tonne in 4Q 2020. With Chinese steel producers seeking to increase the productivity of steel mills and further reduce their environmental impact in 2020, owners of these steel mills increased buying of imported iron ore pellets from approximately 28 million tonnes of pellets in 2019 to 43 million tonnes in 2020, representing a significant shift in the global pellet export market7. Ferrexpo, with its operating base in Ukraine, was well situated to adapt to this shift in the pellet market, whereas other pellet producers in more remote locations such as Sweden and Canada faced additional shipping and logistics challenges with their increased shipping distances to China. The second half of the year was characterised by resurgent demand for iron ore, including iron ore pellets. In particular, a number of European, Japanese and Korean steelmakers restarted blast furnaces in 4Q 2020, and as a result, pellet producers saw a return of sales to these markets, replacing spot sales to China. As of the end of 2020, the global pellet export market had broadly returned to a balance of sales in line with previous years. The outlook for pellet premiums in 2021 is positive, with continued supply disruption of Brazilian pellet exports expected, as Brazilian producers face continued operational issues in the consistent supply of pellet feed, as well as the apparent prioritisation of the domestic steel sector in Brazil. The return of Brazilian pellet producer Samarco is not expected to materially impact the market in 2021, with Ferrexpo plc Annual Report & Accounts 2020 this operation ramping up towards a reduced level of output compared to previous levels. Global demand for pellets continues to be robust, with steel producers globally looking to increase the productivity of blast furnaces and reduce carbon emissions, both of which are achieved through the increased usage of iron ore pellets over sinter fines. In December 2020, Brazilian pellet producer Vale S.A. announced an agreed Atlantic pellet premium of US$40 per tonne for 1Q 2021, representing an increase of over US$10 per tonne on the level seen in late 2020, and this reflects tightness in pellet supply relative to demand. It is expected that demand for both iron ore fines and pellets will continue to mirror global steel demand throughout 2021, as economies around the world recover from the global pandemic. Seaborne freight indices5 Ferrexpo exports all of its production, with the majority shipped through the Group’s berth at the port of Pivdennyi (formerly Yuzhny) in south west Ukraine. The C3 freight rate, which is the most relevant index for Ferrexpo’s shipments to Asia, averaged US$15 per tonne in 2020, compared to US$19 per tonne in 2019. The evolution of the C3 index throughout the year was dominated by the global COVID-19 pandemic, starting at US$19 per tonne in January, declining to a low of less than US$7 per tonne in late May (driven by declining global industrial output and falling oil prices), before recovering in the second half of the year. Iron ore demand: steel sector According to the World Steel Association, global steel output fell by just 1% in 2020 to 1,829 million tonnes, despite the impact of the global COVID-19 pandemic. Of particular note is the global recovery in steel output in the second half of the year, which amounted to a 4% gain year on year for this period. China, which represents over 50% of global steel production, drove global demand trends in 2020, with a 5% increase in steel output in the full year, whilst the EU, Japan and the rest of the world saw full year steel output fall by 12%, 16% and 5% respectively6. The EU and Japan are key import markets for iron ore pellets and therefore particularly relevant for this review. December 2020 data for steel output6 indicates that both the EU and Japan are producing at similar rates to December 2019 (down 1% and 3% respectively), suggesting that the recovery of these markets is nearing a conclusion. 4 Source: S&P Platts. 5 Source: Baltic Exchange. 6 World Steel Association. 7 Management estimates. 11 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Strategic Framework Ferrexpo’s strategic goal is to maximise value from its world class iron ore deposit, by producing high quality iron ore products that  can be sold to the best steel producers in the world. This is achieved through a well-invested asset base, an engaged workforce and a low cost of production, which enables further reinvestment in the Group’s assets. Strategy as stated in last year’s report Goals as communicated in last year’s report PRODUCE HIGH QUALITY PELLETS BE A LOW COST PRODUCER SELL TO A WORLD CLASS CUSTOMER PORTFOLIO MAINTAIN A SOCIAL LICENCE TO OPERATE DISCIPLINED CAPITAL ALLOCATION 12 – Maintain consistent quality in line with customer expectations. – Commence regular production of 67% Fe DR grade pellets for market development amounting to c.2% to 3% of total production. – Complete new grinding section in concentrator. – Increase production levels to improve efficiencies and reduce C1 cash cost. – Final consolidation of mining and mobile maintenance activities into one organisation. – Continue to focus on servicing the Group’s long-term customer base. – Renew long-term contracts with key customers as they expire. – Maintain a geographically diversified portfolio of crisis-resistant customers. – 67% Fe DR pellet trial shipments for market development. – Continued delivery of high quality – Concentrator expansion completed in – Expand existing customer portfolio with iron ore pellets to existing premium 2Q 2020 and ramped up in 2H 2020. For additional high quality steelmakers. customer portfolio. further information, see pages 22 to 25. – Continue to develop DR pellet offering – Trial cargoes of DR pellets – Increased proportion of high grade with trial cargoes shipped to additional commenced in 2020, with two shipments delivered, amounting to 339kt, or 3% of total production. pellets (65% Fe or above) to 99% DR pellet customers. of total production in 2020. – Further investments in both concentrator and pelletiser (see pages 22 to 25). – C1 cash cost A reduced by 13% to – Consolidation of mining and mobile – Target further cost reduction initiatives US$41.5 per tonne, as a result of a maintenance into one organisation through disciplined cost control and 7% production increase, and commenced in December 2020, with further dilution of fixed costs through productivity increases. An example of completion expected 1Q 2021. production increases. which is in the consumption of diesel, which fell by 5% in 2020 whilst mining activity rose by 1%. – Market pattern adjusted in 2020 by – Two trial cargoes of DR pellets shipped – Develop relationships with new global COVID-19 pandemic, meaning in 2020 (combined total: 339kt). customers for existing blast furnace increased volumes to spot customers – Diverse geographic mix of customers pellet offering. – Long term contracts renewed with key – Sales to China and SE Asia increasing maintained in 2020. – Further work to establish DR pellet offering with new customers. in China. customers. to 56% in 2020 (2019: 30%), reflecting – Establish presence in selling high grade – Development of new relationships iron ore market conditions in 2020. concentrate, either through synergies with potential new customers, with particular focus on DR pellets. with existing customers or through new relationships. – Eliminate fatal and serious accidents by focusing on material operational risk management. – One fatality in 2020. For further – Greenhouse gas emissions per tonne – Target zero harm for workforce. details, please see page 28. (CO2e) reduced by 16% in 2020. – LTIFR maintained materially below – Continued community support – Maintain LTIFR safety metric below five-year trailing average and iron ore – Support the community through various five-year trailing average for second throughout 2020 via Ferrexpo Charity peer group. initiatives. successive year. – Reduce consumption of key inputs such as electricity and gas, and reduce emissions per tonne. – If market conditions are appropriate, look to extend the Group’s debt maturity profile and increase available facilities. – Subject to cash flows, continue to pay dividends. – Subject to cash flows, increase development capex to expand the Group’s concentrate and pelletising capacity. Fund, with specific focus on COVID-19 Response Fund, as well as ongoing programme to refurbish local hospitals and schools. – Continue efforts to reduce Scope 1 and 2 emissions footprints per tonne. – Continued capital investment in the – US$195 million of dividends paid in – Continued development of operations, Group’s operations, amounting to 2020 (2019: US$155 million). delivering volume growth and quality US$206 million in 2020 (2019: US$247 – Further special interim dividend improvements. million). announced of 39.6 US cents per share, – Continue to pay dividends as – The Group has continued to repay (2019: 3.3 US cents). Total dividends appropriate with cash flows in 2021. existing debt facilities under the existing maturity profile. Market declared in respect of 2020 amount to 72.6 US cents per share (2019: 19.8 US conditions have not necessitated any cents per share), reflecting strong extension of existing debt facilities. operational and financial performance of the Group. Ferrexpo plc Annual Report & Accounts 2020 Goals as communicated in last year’s report What was achieved in 2020 Strategic targets for 2021 – Continued delivery of high quality – Concentrator expansion completed in iron ore pellets to existing premium customer portfolio. 2Q 2020 and ramped up in 2H 2020. For further information, see pages 22 to 25. – Trial cargoes of DR pellets commenced in 2020, with two shipments delivered, amounting to 339kt, or 3% of total production. – Increased proportion of high grade pellets (65% Fe or above) to 99% of total production in 2020. – Expand existing customer portfolio with additional high quality steelmakers. – Continue to develop DR pellet offering with trial cargoes shipped to additional DR pellet customers. – Further investments in both concentrator and pelletiser (see pages 22 to 25). – C1 cash cost A reduced by 13% to US$41.5 per tonne, as a result of a 7% production increase, and productivity increases. An example of which is in the consumption of diesel, which fell by 5% in 2020 whilst mining activity rose by 1%. – Consolidation of mining and mobile maintenance into one organisation commenced in December 2020, with completion expected 1Q 2021. – Target further cost reduction initiatives through disciplined cost control and further dilution of fixed costs through production increases. – Market pattern adjusted in 2020 by – Two trial cargoes of DR pellets shipped – Develop relationships with new global COVID-19 pandemic, meaning increased volumes to spot customers in China. – Long term contracts renewed with key customers. – Development of new relationships with potential new customers, with particular focus on DR pellets. in 2020 (combined total: 339kt). – Diverse geographic mix of customers maintained in 2020. – Sales to China and SE Asia increasing to 56% in 2020 (2019: 30%), reflecting iron ore market conditions in 2020. customers for existing blast furnace pellet offering. – Further work to establish DR pellet offering with new customers. – Establish presence in selling high grade concentrate, either through synergies with existing customers or through new relationships. – Eliminate fatal and serious accidents by focusing on material operational risk – One fatality in 2020. For further details, please see page 28. – Greenhouse gas emissions per tonne – Target zero harm for workforce. (CO2e) reduced by 16% in 2020. – LTIFR maintained materially below – Continued community support five-year trailing average for second successive year. throughout 2020 via Ferrexpo Charity Fund, with specific focus on COVID-19 Response Fund, as well as ongoing programme to refurbish local hospitals and schools. – Continued capital investment in the Group’s operations, amounting to US$206 million in 2020 (2019: US$247 million). – The Group has continued to repay existing debt facilities under the existing maturity profile. Market conditions have not necessitated any extension of existing debt facilities. – US$195 million of dividends paid in 2020 (2019: US$155 million). – Further special interim dividend announced of 39.6 US cents per share, (2019: 3.3 US cents). Total dividends declared in respect of 2020 amount to 72.6 US cents per share (2019: 19.8 US cents per share), reflecting strong operational and financial performance of the Group. – Maintain LTIFR safety metric below five-year trailing average and iron ore peer group. – Continue efforts to reduce Scope 1 and 2 emissions footprints per tonne. – Continued development of operations, delivering volume growth and quality improvements. – Continue to pay dividends as appropriate with cash flows in 2021. 13 – Maintain consistent quality in line with customer expectations. – Commence regular production of 67% Fe DR grade pellets for market development amounting to c.2% to 3% of total production. – Complete new grinding section in concentrator. – Increase production levels to improve efficiencies and reduce C1 cash cost. – Final consolidation of mining and mobile maintenance activities into one organisation. – Continue to focus on servicing the Group’s long-term customer base. – Renew long-term contracts with key customers as they expire. – Maintain a geographically diversified portfolio of crisis-resistant customers. – 67% Fe DR pellet trial shipments for market development. – Support the community through various management. initiatives. – Reduce consumption of key inputs such as electricity and gas, and reduce emissions per tonne. – If market conditions are appropriate, look to extend the Group’s debt maturity profile and increase available facilities. – Subject to cash flows, continue to pay dividends. – Subject to cash flows, increase development capex to expand the Group’s concentrate and pelletising capacity. Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Key Performance Indicators Measures to assess performance across the business in 2020. See pages 186 to 188 for a reconciliation of Alternative Performance Measures to the IFRS equivalent. FINANCIAL KEY PERFORMANCE INDICATORS (KPIs) Underlying EBITDAA Profit for the year 2020 2019 2018 US$859M US$586M US$503M 2020 2019 2018 US$635M US$403M US$335M The Group calculates underlying EBITDA as profit before tax and finance plus depreciation and amortisation, net gains and losses from disposal of investments and property, plant and equipment, share-based payments and write-offs and impairment losses. Underlying EBITDA measures the Group’s ability to generate cash as well as providing a useful measure of operating performance excluding certain non-cash items. In 2020, underlying EBITDA was US$859 million, reflecting increased sales volumes and reduced cash operating costs. Link to strategy: 1 2 3 4 5 Closest equivalent IFRS measure: profit before tax and finance In addition to Alternative Performance Measures, Ferrexpo considers the IFRS results of the Group to be an important measurement of profitability. In 2020, profit for the year was 58% higher at US$635 million, reflecting an increase in production and decrease in operating costs and capital investment. Link to strategy: 1 2 3 4 5 Net debt to underlying EBITDAA Net cash flow from operating activities 2020 2019 2018 N/A 0.48 0.67 2020 2019 2018 US$687M US$473M US$292M Ferrexpo uses net debt to underlying EBITDA to monitor its debt levels relative to profitability. It is an industry standard measurement used to determine relative levels of indebtedness. As of the end of 2020, the Group entered into a net cash position of US$4 million, reflecting the strong cash flow generation of the Group during 2020. Net cash flow from operating activities represents the cash flow generation ability of the Group and indicates available cash flow for investments, returns to shareholders and debt reduction. In 2020, net cash flow from operating activities increased 45% to US$687 million, reflecting higher production, increased product quality and lower operating costs. Link to strategy: 1 2 3 4 5 Link to strategy: 1 2 3 4 5 14 Ferrexpo plc Annual Report & Accounts 2020 Link to strategy 1. Produce high quality pellets. 2. Be a low cost producer. 3. Sell to a world class customer portfolio. 4. Maintain a social licence to operate. 5. Maintain appropriate capital allocation between a strong balance sheet, returns to shareholders and investment for growth. NON-FINANCIAL KEY PERFORMANCE INDICATORS (KPIs) Lost time injury frequency rate (“LTIFR”) Production volumes 2020 2019 2018 0.79 0.58 1.18 2020 2019 2018 11.2MT 10.5MT 10.5MT It is the Group’s highest priority to ensure its workforce operates in a safe environment. The LTIFR is an industry standard measurement and an important indicator of how safe the work environment is. The LTIFR in 2020 was 0.79 (2019: 0.58), representing the second successive year that this metric is materially below the Group’s five-year trailing average (1.01). Link to strategy: 1 2 3 4 5 Production volumes measure the Group’s ability to meet customer demand as well as provide an indication of the Group’s operational performance. In 2020, production was up 7% to 11.2 million tonnes as a result of the completion of investments in the Group’s production process in Ukraine. Link to strategy: 1 2 3 5 C1 cash costsA Sales volume by region 2020 2019 2018 US$41.5/T US$47.8/T US$43.3/T This is the cash cost of production of iron pellets from own ore to the factory gate, divided by production. This is an industry standard measurement and assesses Ferrexpo’s relative competitiveness compared to other pellet producers. In 2020, Ferrexpo’s C1 cash cost of production decreased by 13% to US$41.5 per tonne, reflecting a 7% increase in production and falling input costs for raw materials prices such as diesel and electricity. Link to strategy: 2 5 Turkey, MENA and India China & South East Asia North East Asia 2020 2019 5% 5% 2020 2019 56% 30% 2020 2019 0 2018 6 6% 0 2018 13% 0 2018 Western Europe Central Europe North America 2020 2019 0 2018 8% 2020 23% 2020 13% 16% 2019 0 2018 36% 2019 47% 47 0 2018 5% 16% 17% 2% 0% 1% Ferrexpo believes it is important to have a diversified customer base to be able to withstand periods of volatility in specific regions. In 2020, the global COVID-19 pandemic resulted in a temporary pivot in sales towards China, in line with increasing relative demand from this market. Link to strategy: 3 5 15 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Business Model Ferrexpo’s purpose is to produce and market premium quality iron ore pellets and concentrate, in a socially responsible and sustainable manner. Ferrexpo has achieved this for a number of years through building constructive relationships with stakeholders and driving consistent and sustainable returns from its asset base in mining, processing and logistics. CORE COMPETENCIES OUR COMMERCIAL AND OPERATING MODEL 1. Long life asset base Tier one mining assets with over 40 years of production track record and Ore Reserves for a further +50 years of production. 2. Established mining, processing and logistics infrastructure Reinvestment of profits over successive years has developed Ferrexpo into the third largest exporter of iron ore pellets globally. 3. Skilled workforce Working safely, adapting to implement new technology, to increase production in a safe and sustainable manner. 4. Premium products Consistent investment in assets providing near-term growth in production volumes, product quality and new product types. 5. Premium customers Ferrexpo’s marketing team has developed a network of established steel producers, building resilient business relationships. 6. Prudent financial management Resilience, consistent profitability, disciplined capital allocation, balance sheet strength. 16 LONG LIFE ASSET BASE The Group has a mine life of over 50 years at its two main mines, with an additional mine (FBM) in development. OPERATIONS & WORKFORCE Experienced management team and well invested business, transforming raw ore into high grade pellets. PREMIUM PRODUCTS Pellets are the highest quality form of iron ore that can be used in the steelmaking process. PREMIUM CUSTOMERS Ferrexpo supplies its iron ore products to the world’s best steelmakers to produce high quality steel types. PRUDENT FINANCIAL MANAGEMENT Delivering strong profitability to ensure a balance of investment for future growth and shareholder returns. OUR COMMERCIAL AND OPERATING MODEL Ferrexpo plc Annual Report & Accounts 2020 UNDERPINNED BY OUR VALUES Responsibility Safety first, environmental responsibility, accountable to communities. P26 Make it happen Focused efforts to deliver superior business results, achieved through an engaged workforce. P38-39 Integrity Delivering high ethical standards and delivering on commitments. Accountability. P36 Diversity within one team Valuing difference in opinions and backgrounds. Building collective strength. P38 Continuous innovation Embracing change. Courage to improve and accepting new thinking. P08 STAKEHOLDER BENEFITS Employees Wages and salaries paid (2019: US$109M) US$114M Customers Revenue generated (2019: US$1.5BN) US$1.7 BN Suppliers Suppliers of goods and services (2019: US$944M) US$876M Communities Donations through Ferrexpo Charity Fund (2019: US$6M) Environment Money spent to safeguard the environment (2019: US$16M) US$6M US$17 M Government Taxes and royalties paid (2019: US$114M) US$100M Investors Shareholder returns (2019: US$155M) US$195M Capital providers Debt repayments and interest (2019: US$263M) US$170M 17 REINVESTMENT Reinvestment of over US$2.75 billion since IPO to deliver further volume and quality improvements for stakeholders. i S t r a t e g c R e p o r t C o r p o r a t e G o v e r n a n c e i F n a n c a i l S t a t e m e n t s Ferrexpo plc Annual Report & Accounts 2020 Financial Review DELIVERING GROWTH THROUGH INVESTMENT Through investment of over US$2.75 billion in the Group’s production base since IPO, Ferrexpo has been able to realise strong financial and operational performance in 2020, as a result of volume growth and quality enhancements. Aerial view of Ferrexpo Yeristovo Mine, July 2020. 18 Mine planning work for Ferrexpo Yeristovo Mine, July 2020. Underlying EBITDA margin (%) 50% 2020 2019 39% KPIs P14 Underlying EBITDA A of US$859M 2019: US$586 million Ferrexpo plc Annual Report & Accounts 2020 by 35%. Locally, reduced industrial activity in Ukraine, which also related to the global COVID-19 pandemic, resulted in electricity costs falling by 9% in 2020. Local inflation of 5% and a 14% depreciation of the Ukrainian Hryvnia against the US Dollar also contributed to the fall in C1 cash cost seen in 2020. Over half of the Group’s operating costs are in local currency and are impacted by the Hryvnia exchange rate and inflation. For further information, please see Currency on page 20. Lower electricity, gas and fuel costs contributed US$4 to the total reduction of the C1 cash cost per tonne in 2020 and the remaining cost reduction was primarily related to materials used in the production of pellets. An improvement in consumption rates for key consumables offset the majority of commodity cost increases during the year. Royalties increased in the second half of 2020 by approximately US$1 per tonne due to a change in royalty tax legislation in Ukraine. The Group’s C1 cash cost represents the cash costs of production of iron pellets from own ore (to the mine gate), divided by production volume from own ore, and excludes non-cash costs such as depreciation, pension costs and inventory movements, as well as the costs of purchased ore, concentrate and gravel. The C1 cash cost of productionA (US$ per tonne) is regarded as an Alternative Performance Measure (“APM”). For further information, please see pages 186 to 188. Selling and distribution costs Total selling and distribution costs were US$309 million (2019: US$294 million), reflecting an increase in sales to Asia, which was partly offset by lower freight rates. As a result, international freight costs arising from CFR sales increased by US$17 million compared to 2019. General, administrative and other expenses General and administrative and other expenses was US$62 million compared with US$66 million in 2019, mainly due to US$3 million decrease in audit and professional fees. 19 concentrate during 2020, giving a combined sales figure of 12.1 million tonnes. For further information, please see the Operational Review section on pages 22-25. The Group continues to sell its pellets using the high grade, 65% Fe, fines index, reflecting the high grade nature of Ferrexpo pellets. Iron ore pellets are priced using a pellet premium, which is paid in addition to the benchmark fines price. The Atlantic Pellet Premium and China Spot Pellet Premium are two pellet premiums that are published regularly by third party providers, and further discussion around the movements in these two indices during 2020 is provided in the Market Review section (pages 10 to 11). The global COVID-19 pandemic and a shift in pellet demand resulted in elevated global shipments to China in the middle of 2020. The situation for pellet demand subsequently stabilised in the second half of 2020 and pellet demand began to normalise in Europe and North East Asia. The geographic diversity of Ferrexpo’s customer base results in a variety of reference periods being used in contract pricing. The net effect of this timing is not considered to have had a material influence on the Group’s financial performance in 2020. Seaborne freight revenue arising from CFR sales increased revenue by US$20 million compared to 2019, reflecting the net effect from a higher proportion of sales to Asia, partially offset by lower freight rates. Lastly, the revenues from the Group’s barging and bunker operations, First-DDSG Logistics Holding, decreased by US$8 million in 2020 compared with 2019 as a result of reduced volumes shipped, lower freight rates and bunker prices. C1 cash cost of productionA The Group’s average C1 cash cost of productionA was US$41.5 per tonne in 2020 compared with US$47.8 per tonne in 2019. The decrease in costs in 2020 was primarily due to a fall in input prices, notably oil prices, reduced electricity prices and a weakening local currency against the US Dollar. Oil prices (Brent) began the year at US$67 per barrel before falling to a multi-year low of $9 per barrel in April 2020 in part as a result of the global COVID-19 pandemic. Whilst prices recovered to US$51 per barrel by the end of the year, the average oil price for the year declined Roman Palyvoda Acting Chief Financial Officer Summary In 2020, Group revenue increased by 13% to US$1.7 billion and profit before tax increased by 63% to US$748 million. Strong cash flow generation provided a platform for dividend payments during the 2020 calendar year of US$195 million and capital investment of US$206 million, whilst the Group reduced its net debt position by US$285 million, entering into a net cash position of US$4 million. Revenue Group revenue increased by 13% to US$1.7 billion in 2020 (2019: US$1.5 billion), principally driven by a 17% increase in total sales volumes. Average received DAP/FOB pellet prices fell by 4% during the year as a result of a decrease in pellet premiums, negating the impact of a 17% increase in the average iron ore fines price (65% Fe) to US$122 per tonne and a US$2 per tonne decrease in benchmark freight rates. Total pellet sales volumes for the period increased to 11.9 million tonnes (2019: 10.3 million tonnes), increasing revenue by US$219 million. Furthermore, the Group sold 183,000 tonnes of high grade Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Financial Review continued Ferrexpo utilises sunflower husks in its pelletiser as a substitute for natural gas, increasing consumption to 25% of pelletiser energy in 2020 (2019: 22%). Please see pages 22 to 23 for more information. Table 4: Ukrainian Hryvnia vs. US Dollar UAH per US$ Spot 16.03.21 27.643 Opening rate 01.01.20 23.686 Closing rate 31.12.20 28.275 Average 2020 26.958 Average 2019 25.846 Source: National Bank of Ukraine. Currency Ferrexpo prepares its accounts in US Dollars. The functional currency of the Group’s operations in Ukraine is the Hryvnia, which has historically represented approximately half of the Group’s operating costs. In 2020, the Hryvnia depreciated 19% from UAH23.686 per US Dollar on 1 January 2020 to UAH28.275 per US Dollar as of 31 December 2020. For further information, please see C1 Cash Cost of ProductionA on page 19. denominated loans (at the Group’s barging facility) into the functional currency of the respective Group’s subsidiary. In 2020, the Group recorded a non-operating foreign exchange gain of US$5.3 million (2019: loss of US$18.5 million), which was driven by a 19% depreciation of the Hryvnia during the year against the US Dollar, as well as changes in the Euro/US Dollar exchange rate. For further information, please see Note 9 Foreign Exchange Gains and Losses to the Consolidated Financial Statements. Local balances as of 31 December 2020 are converted into the Group’s reporting currency at the prevailing exchange rate. The depreciation of the Hryvnia resulted in a US$301 million decrease in net assets in 2020 (2019: increase of US$246 million), as reflected in the translation reserve, net of an associated tax effect. Operating foreign exchange gains/losses Given that the functional currency of the Ukrainian subsidiaries is the Hryvnia, a depreciation of the Hryvnia against the US Dollar results in foreign exchange gain on the subsidiaries’ US Dollar denominated receivable balances (from the sale of pellets). The operating foreign exchange gain in 2020 was US$61.0 million compared to a loss of US$46.8 million in 2019. Underlying EBITDA A Underlying EBITDA A in 2020 increased 46% to US$859 million compared to US$586 million in 2019. This increase in 2020 reflects a 17% increase in the Group’s total sales volumes to 12.1 million tonnes, which contributed an additional US$100 million, in addition to a US$6 per tonne decrease in C1 cash costs, which contributed a further US$71 million. This was partially offset by a 4% decrease in realised DAP/FOB pellet prices, which reduced underlying EBITDA A by US$41 million. Selling and distribution and other costs reduced by US$35 million. The 2020 Underlying EBITDA A includes a noncash operating forex gain of US$61 million in 2020 (2019: non cash operating forex loss of US$47 million). Non-operating foreign exchange gains/losses Non-operating foreign exchange gains are mainly due to the conversion of the Hryvnia denominated intercompany payable balances and the conversion of Euro Interest Interest expense on loans and borrowings declined 33% to US$22 million compared to US$34 million in 2019 due to a lower average outstanding debt balance. The average cost of debt for the period ended 31 December 2020 was 5.2% (average 20 31 December 2019: 7.0%). The decrease of the cost of debt was driven by the repayment of US$173 million 10.375% Eurobonds in April 2019. Further details on finance expense are disclosed in Note 10 Net Finance Expense to the Consolidated Financial Statements. Tax In 2020, the Group’s tax expense was US$113 million (2019: US$56 million). The effective tax rate for 2020 was 15.1% (2019: 12.2%). The increase of the effective tax rate is driven by a higher proportion of taxable profits in Ukraine. In 2020, the Group paid income taxes of US$57 million (2019: US$84 million), of which US$54 million were paid in Ukraine (2019: US$73 million). US$48 million of income taxes related to 2020 are expected to be paid in 2021, of which US$42 million in Ukraine. Further details on taxation are disclosed in Note 11 Taxation to the Consolidated Financial Statements. Profit for the period Profit for the period increased 58% to US$635 million compared with US$403 million in 2019, reflecting a 51% increase in operating profit (including operating foreign exchange effects) and US$12 million lower net financial expense and a foreign exchange gain of US$66 million compared to foreign exchange losses of US$65 million in 2019 as well as higher income tax expense of US$56 million. Ferrexpo plc Annual Report & Accounts 2020 Cash flows Operating cash flow before working capital increased 27% while the working capital outflow in 2020 was US$26 million compared to an inflow of US$30 million in 2019. The increase in working capital largely reflects an increase in trade accounts receivable and other receivables, such as prepayments. As a result of the higher operating cash flow, the net cash flow from operating activities increased 45% to US$687 million in 2020 (2019: US$473 million). Capital investment was US$206 million, a decrease of 17% compared to 2019 (US$244 million), while dividends paid during the 2020 calendar year increased by 26% to US$195 million compared to US$155 million in 2019. Capital investment A Capital expenditure in 2020 was US$206 million compared to US$247 million in 2019. Of this, US$103 million was sustaining and modernisation capex (2019: US$102 million) at FPM, FYM, FBM, First-DDSG and others. Total investment in the Group’s concentrator, including the concentrator expansion project commissioned in 2H 2020, amounted to US$33 million in 2020 (2019: US$34 million), with these projects expected to increase concentrate production by 1.5 million tonnes per annum in 2021. FPM also spent US$45 million on its press filtration project during the year. Ferrexpo also invested US$6 million (2019: US$11 million) in the development and exploration of the Belanovo, Galeschyno and the Northern Deposits. For further information regarding the Group’s capital investment plans to expand existing production above current levels, please see the Operational Review section (pages 22 to 25). Dividends A special interim dividend of 39.6 US cents per share (2019: 3.3 US cents per share) has been announced and will be paid on 15 April 2021 to shareholders on the register at the close of business on 26 March 2021. The dividends paid in respect of 2020 are now 72.6 US cents (2019: 19.8 US cents), and this increase reflects the Group’s continued strong operational and financial performance, transition to net cash position and continued healthy iron ore prices. The dividend will be paid in UK Pounds Sterling with an election to receive US Dollars. The Group’s Board will consider, as appropriate, whether or not to propose a final dividend in respect of Capital investment since IPO (US$M) +US$2.75BN Over US$2.75 billion invested since IPO 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 205.7 247.5 135.3 103.0 47.8 65.3 234.4 282.2 434.2 386.7 167.4 86.3 277.9 104.7 US$206M Capital investment in Group’s assets in 2020 Capital investment since IPO (By area) 14% 27% 59%  FPM: modernisation & quality upgrade  FYM: new mine & infrastructure  Logistics & Other 0 435 2020, which if proposed will be put to the Group’s AGM in May 2021. The total available distributable reserves of the Group are shown in Note 12 (Earnings Per Share and Dividends Paid and Proposed). Payment of further dividends during 2021 calendar year will require a waiver from lenders, or full repayment of this facility. Debt and debt maturity profile Ferrexpo has a strong balance sheet, low levels of gross debt and had a net cash position as of 31 December 2020 (31 December 2019: net debt position of US$281 million). At the end of the comparative year ended 31 December 2019, the Group had a net debt to underlying EBITDA A position of 0.48x. The Group’s net cash position of US$4 million as of 31 December 2020 includes a cash position of US$270 million (31 December 2019: US$131 million). Gross debt as of 31 December 2020 was US$266 million compared with US$412 million as of 31 December 2019. The Group’s gross debt relates to a Pre-Export Finance (“PXF”) facility that was initially drawn down in 2017. As of 31 December 2020, the total amount drawn was US$257 million and US$10 million is available for future drawdown if required by the Group. Amortisation of this facility commenced in 1Q 2020 and it will amortise over a total of 12 quarters until 4Q 2022. The credit ratings agency Moody’s has a long term corporate and debt rating for Ferrexpo of B2, with a negative outlook. Furthermore, during 2020, the credit ratings agency Standard & Poor’s downgraded Ferrexpo’s long term foreign issuer credit rating by one notch to B-, with a negative outlook. The credit ratings agency Fitch maintains a BB- rating on the Group, with a stable outlook. The credit ratings ascribed by both Fitch and Moody’s are capped at a maximum level above Ukraine’s Sovereign rating (one notch above sovereign for Moody’s and two notches above sovereign for Fitch). Related party transactions The Group enters into arm’s length transactions with entities under the common control of Kostyantin Zhevago and his associates. For further information, please see Note 34 Related Party Disclosures to the Consolidated Financial Statements. 21 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Operational Review Operations (000’t unless otherwise stated) 2020 2019 % change Iron Ore Production Iron ore mined Strip ratio (waste:ore) Iron ore processed Concentrate produced Pellets produced Of which 67% Fe pellets (“DR pellets”) 29,842 3.2 29,723 14,007 11,218 339 Of which 65% Fe pellets (“Premium Pellets”) 10,780 Of which 62% Fe pellets (“Basic Pellets”) 98 Iron Ore Sales Pellets sold Concentrate sold Total iron ore products sold 11,878 183 12,062 28,195 3.4 28,475 13,228 10,519 – 10,116 403 10,312 – 10,312 +6% -6% +4% +6% +7% – +7% -76% +15% – +17% see the Future Growth Investment Plan Programme section on pages 24 to 25). Expectations for processing in 2021 are for a further increase as operations realise a full year at the plant’s newly expanded processing capacity. The Group is also progressing construction of its concentrate stockyard, press filtration and medium- and fine-crushing projects, which are collectively expected to provide additional operational flexibility in processing. Maintenance is key to a successful operation and further work was completed in 2020 to ensure consistent and high quality production. Work in this area focused on embedding world class maintenance planning processes and the adoption of a management system for preventative maintenance. An example of the progress being made in maintenance can be seen in the change in culture and consistent increase in pelletiser availability rates in 2017-2019, increasing to 88% in 2020, up from 84% in 2017. In 2020, the Group increased production of high grade (65% Fe or above) iron ore pellets to 99% of total output (2019: 96%). Further to this increase, the Group has also commenced production of direct reduction (“DR”) pellets, which are higher grade (67% Fe) and lower impurity than alternative forms of iron ore pellets. DR pellets are expected to represent the future of global steel production, as steelmakers transition to the production of carbon-free Green Steel, with DR pellets the primary source of virgin iron utilised in this process. The Group continues to develop its offering of DR pellets, production of which is possible through the Group’s existing production facilities, with two trial cargoes in 2020, and a further four trial cargoes planned for 2021. CRU breakdown pellet cost curve to China (US$ per tonne) i a n h C R F C t m d / $ S U , 1 2 0 2 h c r a M , s t r o p x e t e l l e p r o f s t s o c s s e n s u B i 120 100 80 60 40 20 0 0 4th Quartile 3rd Quartile 2nd Quartile 1st Quartile O P X E R R E F 30 60 Cumulative pellet exports, 2020, Mt (dry) 90 120 Definition: Business costs are the sum of realisation costs and site costs. Realisation costs include the cost of getting the material to market, the marketing of the material and the financing cost of selling the material. The power of business costs is that by adjusting all product qualities relative to the same benchmark (62% Fe fines product delivered to North China), it allows all mines to be compared on a cost curve on a like-for-like basis. This also means that by subtracting the benchmark price from the business costs for a mine an estimate of cash flow from that operation is obtained. Source: CRU Group During the course of 2020, Ferrexpo’s operations in Ukraine produced 11.2 million tonnes of iron ore pellets, a 7% increase on the previous year, and representing a record for production of high grade pellets since the Group’s IPO. This improvement in production was delivered through a multi- year investment programme throughout the Group’s production process. Mineral Resources and Ore Reserves Geological work completed during the year focused on in-pit drilling and led to a 12% increase in the Group’s JORC- compliant Mineral Resources at FPM and FYM combined, and a 3% increase in the Group’s total Ore Reserves, with these estimates shown in the table opposite. At current processing rates, the Group has sufficient Ore Reserves for over 50 years of further production. The resource update process in 2020 also identified 6.3 billion tonnes of additional material at depth below the Group’s existing mines with exploration potential for exploitation via underground means. This mineralisation sits outside of the Group’s JORC compliant Mineral Resource estimate. Mining review Mining activities at the Poltava mine saw ore mined volumes maintained at 17 million tonnes for the second year running, with waste stripping volumes reduced by 7% as operations focused on mining at depth in the main pit, with additional pushbacks planned for 2021. At the Yeristovo mine, total mining volumes increased by 11% to 44 million tonnes as this relatively new mine continues to develop over time. The increase in mining activity resulted in a greater supply of high grade ore from Yeristovo mine to the main processing plant. The Belanovo mine is Ferrexpo’s newest development project, with a focus on pre-stripping activities in 2020 and general preparatory work with existing infrastructure and land acquisition. The long-term development of the Belanovo mine is a key investment in the Group’s planned increase towards its strategic goal of doubling existing production levels. Processing review Processing activities in the beneficiation plant increased by 4% to 30 million tonnes in 2020, following the implementation of new processing capacity in the second half of 2020 (for more detail, 22 Ferrexpo plc Annual Report & Accounts 2020 CASE STUDY UTILISING TECHNOLOGY TO ADAPT TO A PANDEMIC In light of travel restrictions imposed as a result of the global COVID-19 pandemic, in August 2020 Ferrexpo conducted a virtual site visit to host third party consultants Bara Consulting Ltd (“Bara”), to conclude the planned update to the Group’s Mineral Resources and Ore Reserves under the JORC Code. +12% 12% increase in Mineral Resources for FPM and FYM combined in 2020. In the first site visit of its kind for Ferrexpo, the Group’s site teams hosted Bara’s engineers and geologists using live stream video cameras on the crest of each mining operation and drone footage to assess the status of each mine, with simultaneous presentation of mine design software and discussion with Ferrexpo’s specialists. This visit was an integral part of the Group’s resource and reserve update, which is dated as of June 2020, and completion of which would not have been possible without the use of modern technology to show Bara’s specialists around our operations. Chief Geologist Alexander Belous hosting virtual site visit, August 2020. The Group continues to utilise sunflower husks as a biofuel in its pelletiser, as a substitute for natural gas. Sunflower husks are an abundant by-product of the sunflower industry in Ukraine, which was the world’s largest producer in the 2019-2020 crop year1. This project has been in place since 2015, and usage has steadily increased as the Group optimises the usage of husks in its pelletisers. In 2020, the Group successfully increased usage to 25% of the total energy consumed in the pelletiser (2019: 22%). the Group’s C1 cash costsA, please see Financial Review section, pages 18 to 21. Logistics review The Group’s sales of 12.1 million tonnes in 2020 is a record for Ferrexpo since IPO in 2007, representing a significant achievement for all those involved. Of particular note was the loading of 47 capesize vessels in 2020, a 68% increase on the prior year, and this reflects the flexibility Ferrexpo has in its logistics chain to meet changing global demand. C1 cash costsA review As shown in the graph opposite, Ferrexpo continues to operate in the lowest quartile for pellet exporters globally, as assessed by CRU. The Group’s C1 cash cost A of production was US$41.5 per tonne in 2020; for more details on the key drivers behind Outlook for 2021 The Group expects to deliver a further increase in production from the level seen in 2020. Pellet production is likely to be higher in the second half of 2021 as pelletiser upgrade work is planned Ore Reserves and Mineral Resources for the first half of the year, which will deliver approximately 0.5-1.0 million tonnes per annum of additional full year pelletiser capacity in the second half of 2021. The Group also expects to market additional concentrate for sale during 2021 as a result of investments completed in expanding processing capacity in 2020. The Group’s ongoing growth projects are shown on pages 24 to 25, which represent the near term investment being made to grow production and increase product quality. Ore Reserves Gorishne-Plavninske-Lavrykivske (“GPL”) Yerystivske Total Proven Probable Total Fe total % Fe magnetic % 33 30 32 26 25 26 Mt 841 290 1,131 Fe total % Fe magnetic % 31 33 33 23 26 24 Mt 1,154 524 1,678 Fe total % Fe magnetic % 32 32 32 24 26 24 Mt 313 234 547 Mineral Resources Gorishne-Plavninske- Lavrykivske (“GPL”) Yerystivske Bilanivske Galeschynske Total Measured Indicated Inferred Total Fe total % Fe magnetic % 35 35 31 – 33 29 29 24 – 26 Mt 1,639 571 1,149 268 3,627 Fe total % Fe magnetic % 30 34 31 55 33 22 27 23 – 21 Mt 744 382 217 58 1,401 Fe total % Fe magnetic % 32 33 30 55 33 24 27 21 – 23 Mt 2,862 1,255 1,702 326 6,126 Fe total % Fe magnetic % 31 34 31 55 33 23 27 23 – 23 Mt 479 283 336 – 1,098 The Group’s JORC-compliant Ore Reserves and Mineral Resources shown above are based on an independent review completed by Bara Consulting, and are dated as of 1 June 2020. 1 Source: www.statista.com/ 23 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Operational Review continued FUTURE GROWTH INVESTMENT PROGRAMME PELLETISER LOGISTICS CONCENTRATOR MINING FLEET AUTOMATION TROLLEY ASSIST (HAUL TRUCKS) FERREXPO BELANOVO MINE CONCENTRATE STOCKYARD Location: Yeristovo Mine Location: Poltava Mine Location: Belanovo Mine Location: Concentrator Status/timeline: Successful deployment December 2020 Status/timeline: Scoping study Status/timeline: Pre-stripping works commenced Status/timeline: Commissioning 1H 2021 Capital outstanding: US$2M for Phase 1 Capital outstanding: N/A (subject to OEM selection) Capital investment in 2020: US$6M Capital outstanding: US$3M Operational benefit: Phase 1 deployment of autonomous trucks commenced in December 2020, with an expectation to deploy additional autonomous CAT793 haul trucks to production areas throughout 2021 (Phase 1), delivering gains in both safety and productivity. Operational benefit: Scoping studies are under way to install a pantograph network of overhead cables in the Group’s mines, which would enable haul trucks to ascend the open pit using electricity rather than diesel. Benefits expected in C1 cost base and Scope 1 carbon footprint. Operational benefit: FBM, located 4km north of the Yeristovo Mine, has a significant Mineral Resource of 1.7 billion tonnes of magnetite ore. Ore production from FBM is a prerequisite to the Group achieving its long term goal of increasing pellet production above 20 million tonnes per annum. Operational benefit: Increases operational flexibility to operate the Group’s concentrator and pelletiser independently of each other during periods of plant maintenance. Enables phases of excess concentrate production if desired. 24 Ferrexpo plc Annual Report & Accounts 2020 Ferrexpo aims to grow its production base through continual investment in the various sections of its production process, for both volume growth and quality enhancements. The completion of the Group’s concentrator expansion in 2020 represents one phase of growth to fully realise the Group’s pelletiser capacity of 12 million tonnes per annum, and the following showcases examples from the next phase of growth. FPM MINE OPERATIONS FYM FBM SECTION 9 EXPANSION Location: Concentrator Status/timeline: Commissioned 2H 2020 Capital outstanding: N/A (operational optimisation) Operational benefit: Provides additional 6MTPA of raw ore processing capacity, resulting in 1.5-2.0 million tonnes per annum of additional high grade concentrate capacity for pelletising. MEDIUM AND FINE CRUSHING 2 Location: Concentrator Status/timeline: Construction/Q4 2021 Capital outstanding: US$8M Operational benefit: Second phase of upgrades to plant crushing capacity, adding 800 tonnes per hour of raw ore capacity over two additional crushing lines. Subset of next phase of expansion beyond 12 million tonnes per annum. PELLETISER UPGRADES SOLAR POWER (PILOT PLANT) Location: Pelletiser Location: Concentrator Status/timeline: 1H 2021 (all four lines) Status/timeline: Procurement /2H 2021 Capital outstanding: US$10M Capital outstanding: US$4M Operational benefit: Work to reconfigure initial heating stage within the pelletiser and improved heat recirculation, which will result in enhanced pellet quality through reduced fragmentation of pellets, as well as increases to the productivity of the pelletiser and improved natural gas consumption rates. Operational benefit: First stage in investigating potential for industrial-scale generation of solar power at Ferrexpo’s operations, commencing with a 5MW pilot plant. Electricity consumption accounted for 55% of the Group’s Scope 1 and 2 carbon emissions in 2020, with solar power offering significant potential for cutting the Group’s carbon footprint. 25 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 HSEC Committee Chair’s Review PROGRESS IN RESPONSIBLE BUSINESS In 2020, the CSR committee was reformed into the HSEC committee with an increased focus on all aspects of safety and climate change. As Chair of this new committee, our goal is to deliver sustainable improvements throughout the organisation. Furthermore, the global pandemic has also highlighted the need for companies to take a proactive role in the wellbeing of workforces, with this work coordinated via the HSEC Committee. 22 % reduction LTIFR for 2020 of 0.79, 22% below Group’s five-year trailing average, and below the Group’s peers. BBB MSCI ESG Rating, placing Ferrexpo in top 40th percentile of steel companies assessed by MSCI, which was upgraded by one notch to BBB in December 20202. 12 months LTI free at barging subsidiary First-DDSG, reduction in LTIFR at this entity from 5 year trailing average of 3.06 to zero. 16% reduction in Ferrexpo’s CO2e footprint per tonne in 2020, comprising of an 8% reduction in Scope 1 CO2e emissions and a 21% reduction in Scope 2 CO2e emissions (both per tonne of production). 26 A number of Ferrexpo’s customers, including those in Germany and Japan, use iron ore pellets to produce high end steels for wind turbines and solar wind farms, with as much as 85% of a wind turbine being made from steel1. Fiona MacAulay, Chair, HSEC Committee 1 World Steel Association. 2 For further information on MSCI ESG Ratings please see www.ferrexpo.com/disclaimer Ferrexpo plc Annual Report & Accounts 2020 Safety Safety remains central to the success of our operations, and we continue to operate with a lost time injury frequency rate below that of the major iron ore producers in Australia. However, it is with deep regret that we report a fatality at our operations in 2020, whereby a maintenance contractor was injured during routine maintenance on heavy equipment in our beneficiation plant. As with any safety event, we endeavour to investigate, learn and improve our practices to ensure this type of accident cannot happen again, with details of the key learning points described in the Safety section on page 28. Across the Ferrexpo Group, we recorded a LTIFR of 0.79 in 2020, which represents a level 22% below our five-year trailing average for safety performance, and which we see as an indication of a culture of safety being embedded throughout the Group. One area of safety improvement that we are particularly pleased to report on is with our barging subsidiary, DDSG, which has implemented a number of safety initiatives at its operations and operated injury-free for the entirety of 2020. For more information, please see the Responsible Business – Health and Safety section, pages 28 to 29. Carbon footprint The world is on a pathway to a carbon- free future, with many countries making pledges to be carbon neutral by 2050, and the global steel industry is no exception to this trend. As part of the network of suppliers that feeds the steel industry, we at Ferrexpo acknowledge the importance of climate change and remaining relevant as economies transition to a carbon neutral future. Longer term, we are developing our DR pellet offering, which are pellets that can be used in the production of Green Steel. In the more immediate future, we are striving to reduce our carbon footprint on a per tonne basis, with a 16% reduction realised in 2020 alone. This excellent result has been achieved through improving productivities in our operations (Scope 1) and commencing a project to source low- to zero-carbon forms of electricity (Scope 2). We are also continuing to use sunflower husks in our pelletisers, and successfully increased consumption of this biofuel to 25% of the pelletiser’s total energy in 2020 (2019: 22%). We are reviewing further increases to our biofuel consumption, having steadily increased this figure since this project’s inception in 2015. Our next major project is the development of a 5MW solar farm at our operations, to trial the effectiveness of solar power in our geographic location. Should this trial be successful, we will look to significantly expand this particular project. Workforce wellbeing In other areas, we continue to invest in our workforce, with over 6,500 individuals trained in 2020, despite restrictive measures associated with the global pandemic. In such uncertain times, it is important that we also look after the wellbeing of our workforce, and have offered a range of initiatives, including dedicated mental health support sessions and training in financial planning, as measures to help those who may be struggling through the pressures of working during the pandemic. ESG ratings upgrade As a consequence of our efforts to bring our Responsible Business efforts and reporting in line with industry best practice, we can also report that Ferrexpo’s ESG rating provided by MSCI was upgraded one notch to BBB in December 20202. This puts Ferrexpo into the top 40% of companies covered by MSCI in the steel sector, and we are extremely proud of this recognition for our efforts. In February 2021, we also joined the ResponsibleSteel initiative, which is a certification initiative designed to maximise steel’s contribution to a sustainable society. In conclusion, we have seen an unprecedented year in 2020 with the global pandemic. However, with the HSEC Committee and our various local community support projects, I am confident that Ferrexpo is well placed to provide vital support to our workforce, environment and communities during these difficult times, aiming to make Ferrexpo a good corporate citizen for all stakeholders, whilst also addressing climate change as a key priority. Fiona MacAulay Chair, HSEC Committee Ferrexpo Square, Horishni Plavni, July 2020. 27 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Responsible Business HEALTH AND SAFETY Creating a safe working environment is paramount to a successful modern mining business and an engaged workforce. Ferrexpo uses a number of leading indicators to help measure progress in implementing safety initiatives, as well as lagging indicators to measure the effectiveness of these efforts. Safety performance It is with regret that the Company reports a fatality amongst its workforce in 2020. In August, a maintenance contractor working in the crushing plant was struck when using equipment to lift a cone crusher from its protective housing during regular maintenance. Whilst this individual was wearing the required PPE for this task, the exclusion zone applied around the heavy equipment as it was extracted was not sufficient in size. Ferrexpo endeavours to support any family affected by such a tragic accident and measures are taken to address the specific risks raised by any such incident where an injury occurs. Corrective actions taken in respect of this incident include efforts to strengthen the quality controls in place for inspecting equipment prior to lifting activities, and to extend the relevant hazard zones applied when this type of maintenance is conducted. Ferrexpo’s LTIFR was 0.79 in 2020 (2019: 0.58), which represents a second successive year where our overall safety performance was recorded at a level significantly below the Group’s five-year trailing average LTIFR of 1.01. This result is also significantly ahead of the major iron ore producers in the Pilbara region of Western Australia, which averaged an LTIFR of 1.60 in the most recently published information1. Furthermore, a review of the leading and lagging safety indicators that the Group uses to assess its full safety performance is presented below and in the table opposite. Looking beyond lost time injuries, which are the traditional indicator of safety performance, leading indicators, such as safety inductions and training hours are important tools for assessing the prospect of safety incidents before they occur. These factors, such as safety inductions, were generally affected by measures implemented in response to the global COVID-19 pandemic, with reduced recruitment and an increase in those working remotely. Despite this however, safety inspections were maintained at broadly the same level in 2020. The number of near miss events, significant incidents and road traffic incidents fell in 2020, reflecting the increase in remote working during the global COVID-19 pandemic. A study of Significant Incident Reports (“SIRs”) in 2020 indicated that working at heights and road traffic incidents ought to be priority focus areas for our safety initiatives in 2021, but the number of incidents involving the delivery of cargo have decreased significantly in 2020 (50% reduction in 2020 to four working at height related SIRs). Effective occupational health and safety management systems are an important tool in establishing a safe working culture, with Ferrexpo successfully gaining ISO accreditation (ISO 45001) at FPM in December 2020. Workforce wellbeing The global pandemic in 2020 drastically changed the working environment, with Ferrexpo’s operations implementing social distancing, staggered shifts and rotating team working patterns, all to reduce the risk of transmission of COVID-19. Ferrexpo’s operations are, however, sociable places to work, with many groups meeting outside of work for formal and 1 Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_ Reports_SafetyPerfWA_2019-20.pdf 28 T B C First-DDSG crewman wearing season specific PPE, December 2020. informal gatherings for sport, hobbies and other activities. In the summer of 2020, Ferrexpo began an offering of remote counselling sessions to support the Group’s workforce throughout the pandemic. This support was not limited to counselling, but also personal financial planning, as family’s incomes were often negatively affected with family members facing uncertainty around their employment outside of Ferrexpo. The Group considers that these initiatives are critical for Ferrexpo to retain its talented workforce and maintain a level of stability that would otherwise have been missing during the pandemic, and the Group has approved additional funding to continue these efforts into 2021. Ferrexpo plc Annual Report & Accounts 2020 CASE STUDY FIRST-DDSG – SAFETY ACROSS THE FERREXPO GROUP Ferrexpo’s barging subsidiary on the River Danube – First-DDSG – helps transport pellets to its customers in Central Europe. It is the Group’s third largest entity in terms of hours worked, but historically has operated with the highest LTIFR within the Group. Recent actions taken to address this issue have had significant results, however, with barging operations operating LTI-free for the entirety of 2020. Efforts in safety to achieve this great result have focused on the following: (1) Additional training requirements for safety qualifications. (2) Adoption of season-specific personal protective equipment (“PPE”), ensuring First-DDSG’s workforce have the correct PPE for the conditions faced. (3) Inclusion of safety related clauses in contracts of employment, providing for both bonuses and penalties. (4) Mentoring scheme for senior officers and cadet interns, to ensure safe working practices are passed on. DDSG LTIFR (5 year progression) 2016 2017 2018 2019 2020 3.70 4.32 1.83 0.91 0 KPIs P14 First-DDSG barge carrying Ferrexpo pellets along the Danube River. Health and Safety Performance Statistics 2020 2019 Change Lagging indicators Fatalities Lost time injuries LTIFR TRIFR Near miss events Significant incidents Road traffic incidents Lost work days Leading indicators HSE inspections HSE meetings HSE inductions Training hours Hazard reports Management high visibility hours 1 17 0.79 1.25 7 17 31 1,046 3,305 1,528 7,335 14,755 51 131 0 10 0.58 0.86 26 30 35 1,336 3,349 1,347 10,147 36,167 37 231 – +70% +35% +45% -73% -43% -11% -22% -1% +13% -28% -59% +38% -43% 29 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Responsible Business continued ENVIRONMENTAL STEWARDSHIP Ferrexpo’s operations cover over 5,000 hectares and are closely linked to the environment through the air, water, land use and biodiversity around the Group’s operations. This section focuses primarily on greenhouse gas emissions reporting and climate change, but additional environment-related disclosures and commentaries are available in the Company’s Responsible Business Reports (“RBR”), which are available on the Company’s website. Greenhouse gas emissions During 2020, Ferrexpo’s management increased its efforts to reduce the Group’s carbon footprint1, and in doing so delivering an 8% reduction in the Group’s Scope 1 CO2e emissions footprint per tonne and a 21% reduction in Scope 2 CO2e footprint per tonne, as shown in the table opposite. Ferrexpo’s Scope 1 CO2e emissions, which relate to the Group’s controlled operations, are primarily driven by diesel consumption in the mining fleet and natural gas consumption in the pelletiser. Ferrexpo has a competitive advantage over its pellet producing peers in that Ferrexpo uses natural gas for pelletisation, whereas the Group’s peers commonly use more carbon-intensive sources of energy, such as coal and heavy fuel oil. Ferrexpo’s improved Scope 1 CO2e performance relates to a number of productivity gains throughout the business, including a 5% reduction in diesel volumes used in the Group’s mining activities, despite a 1% increase in the total tonnage mined. Furthermore, Scope 1 emissions were reduced through an increase in sunflower husk usage, which represented 25% of the input energy in the pelletiser, an increase from 22% in 2019, which acts as a substitute for natural gas. Ukraine was the largest producer of sunflower oil in the world in the 2019-2020 crop season2, and, therefore, the Group is well placed to take advantage of this by-product as a biofuel in its processing operations. The greatest area of improvement in the Group’s carbon footprint however has been in its Scope 2 CO2e emissions, which have benefitted from the Group now being able to selectively buy low- to zero-carbon forms of electricity in Ukraine thanks to recent deregulation of the local electricity market. Through these purchases, which began in July 2020, the Group has managed to purchase up to 49% of its electricity from either hydroelectric or nuclear power sources in any given month, and in doing so has reduced the full year Scope 2 CO2e carbon footprint per tonne by 21%. This proportion of greener electricity purchases is expected to grow as Ukraine’s electricity market matures over time. With a full year ahead of greener electricity purchases, as well as productivity improvements and efficiency savings across the Group’s operations, the Group is confident of delivering a similar level of improvement in 2021. Ferrexpo is also committed to its role in the low carbon future of the global economy, and is investigating low carbon solutions throughout its business. Projects to achieve these goals include near-term projects, such as continued purchasing of greener forms of electricity and the proposed installation of a pantograph network in the Group’s mines (see pages 24 to 25), through to longer-term projects such as the development of solar power at the Group’s mines and trials of using green hydrogen in the Group’s pelletisers. To further help deliver the Group’s carbon targets, future large scale investment decisions at Ferrexpo’s operations will now include a carbon price in the 1 Note Ferrexpo’s reported on the basis of carbon-equivalent emissions, and include the impact of other greenhouse gases (CH4 and N2O). 2 Source: https://www.statista.com/ 30 Ferrexpo plc Annual Report & Accounts 2020 Autumn view of River Dnieper, located adjacent to Ferrexpo’s operations. GHG emissions and energy consumption 2020 2019 % Change CO2e emissions (tonnes) – Scope 1 (direct, tonnes) – Scope 2 (indirect, tonnes) Pellets produced (tonnes, 000s) Intensity ratio (kg per tonne pellets) – of which Scope 1 – of which Scope 2 1,262,614 565,552 697,062 11,218 113 50 62 1,404,878 579,415 825,462 10,519 134 55 78 Emissions from biofuels (tonnes) 125,360 104,313 Energy consumption (kWh) 5,203,263,593 5,036,590,365 -10% -2% -16% +7% -16% -8% -21% +20% +3% Note table above shows carbon-equivalent emissions, with the following gases included in calculations: CO2, CH4 and N2O. During 2020, the Group consulted with external consultants regarding its carbon footprint in 2020 and as a result the Group has updated the carbon emissions factor from emissions factors estimated by the EBRD in 2010 to the latest factors published by the IEA (published September 2020). Scope 2 emissions are therefore restated for 2019. Ferrexpo uses coefficients provided by the Greenhouse Gas Protocol to calculate its emissions. CASE STUDY WHAT IS GREEN STEEL AND WHY IS IT RELEVANT? A huge shift is under way in the steel industry, with steel producers under significant pressure to reduce their carbon footprint and produce steel without any carbon emissions (known as Green Steel). Whilst Ferrexpo’s pellets are not directly related to the emissions of steelmakers, Ferrexpo’s pellets contribute to a steelmaker’s Scope 3 emissions, and the Group understands the need for its pellets to have a reduced carbon footprint. This movement presents a significant opportunity for both Ferrexpo and iron ore pellets in general, as the process to produce steel without carbon emissions is through the path of Direct Reduced Iron (“DRI”), whereby high quality DR pellets are processed using carbon-free electricity to create high end steels. Since this process requires iron ore pellets, rather than the more common sinter fines, the Group expects demand for DR pellets to grow significantly in the medium term. The Company began trial shipments of DR pellets in 2020 and additional trial shipments are planned for 2021. Further to the Group’s move towards Scope 3 emissions reporting and DR pellet production, Ferrexpo has also joined the ResponsibleSteel initiative, which aims to maximise steel’s contribution to a sustainable society. ResponsibleSteel provides a platform for a multi-stakeholder approach to sustainability, to establish an independent certification standard and programme for steel production. 31 Hydroelectric dam near the local city of Kremenchuk, located 35km from the Group’s operations. Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Responsible Business ENVIRONMENTAL STEWARDSHIP continued the Group’s Scope 3 emissions in 2020 were 12.1 million tonnes of CO2, or 1,082 kilogrammes of CO2 per tonne of product produced (2019: 1,020 kg/t, using updated Scope 3 calculation). The conversion of the Group’s iron ore products into steel accounted for 94% of the Group’s Scope 3 emissions in 2020 (2019: 92%). Energy consumption Ferrexpo’s energy consumption in 2020 was 5,203,263,593kWh (2019: 5,036,590,365kWh), representing the equivalent of 464kWh per tonne of pellets produced (2019: 479kWh per tonne). Energy consumption data is presented here in kilowatt-hours on the basis of new regulatory requirements for London-listed entities. For continuity with last year’s energy reporting, the Group confirms its energy consumption was the equivalent of 18.7PJ in 2020 (2019: 18.1PJ). Task Force on Climate-Related Financial Disclosures (“TCFD”) The following sections of this report are aimed at addressing the various requirements for reporting under TCFD. – Board oversight of climate change risks and opportunities: pages 30 to 33 and Principal Risks section 48 to 60. – Management’s role in assessing climate change related risks and opportunities: pages 30 to 33 and Principal Risks section 48 to 60. – Organisational processes to identify, assess and manage climate change related risk: pages 30 to 33 and 2019 Responsible Business Report (www.ferrexpo.com/responsibility). – TCFD-specific metrics and targets: pages 30 to 33. Climate change: risks and opportunities Climate change presents a number of risks and opportunities for Ferrexpo and its operations in Ukraine and logistics business beyond Ukraine. These are presented in detail in the Company’s latest Responsible Business Report (available at www.ferrexpo. com), which was released in August 2020, with the main factors summarised as follows: – Climate change related risk (policy) – carbon pricing. Ukraine currently operates a carbon tax of UAH15 per tonne CO2, escalating by UAH5 per year until 2024. This is significantly below the CO2 price per tonne for companies operating under the EU’s Emissions Trading System. The Company is looking to address this risk by reducing its carbon footprint – please see pages 30-33. Dragon boats used for racing on Dnieper River, Horishni Plavni. In addition, the Group successfully implemented a number of ISO certificates at its operations in Ukraine in 2020. The accreditation of Ferrexpo’s energy management system at FPM (ISO 50001:2018) was achieved in December 2020, along with the Group’s continuing certificate for its environmental management system (ISO 14001:2015). Finally, the Group’s barging subsidiary First-DDSG completed its certification process for its quality management system (ISO 9001:2015) in January 2020. Scope 3 emissions As well as reducing the Company’s footprint per tonne in terms of its Scope 1 and Scope 2 CO2e emissions, the Company is also committed to increasing its disclosures around its Scope 3 emissions, which relate to the upstream and downstream activities beyond the production of iron ore pellets. In 2019, Ferrexpo started reporting its Scope 3 emissions in relation to the conversion of iron ore pellets to steel by steelmakers, on the basis that this represents the majority of Ferrexpo’s Scope 3 emissions. This year, Ferrexpo is proud to report that it has worked with external consultants to establish a calculation for Scope 3 emissions that includes a range of upstream and downstream activities, such as employee commuting, tyre usage and third party distribution of pellets via rail and oceangoing freight. On this basis, associated financial modelling. The first such example will be in assessing the long term replacement options for the Group’s mining fleet, modelling for which is being considered in 2021 and will include a carbon price of US$17 per tonne, which reflects the five year trailing average price of carbon in the EU. The Group has also now become a full member of the ResponsibleSteel initiative, which is the steel industry’s first global multi-stakeholder standard and certification initiative, which aims to maximise steel’s contribution to a sustainable society. This initiative aims to develop a certification standard for participants throughout the steel supply chain. Ferrexpo has now begun consultations regarding independent certification of its carbon emissions reporting and reduction targets. Further reading Further information regarding climate change scenario planning is available in the Company’s latest Responsible Business Report (www.ferrexpo.com). 32 Ferrexpo plc Annual Report & Accounts 2020 Climate Change: Scenario Modelling and Impacts Characteristics Impacts 2oC scenario Increased government regulation to curb the potential impacts of climate change in the medium to long term. +3oC scenario Increased physical effects of climate change in the medium to long term. Carbon pricing: application of the same level of carbon pricing in Ukraine as currently envisaged as required under the Paris Agreement (US$50-100 per tonne CO2) would equate to an additional cost of US$3 to US$5 per tonne of pellet production. Electricity pricing: phase out in Ukraine of thermal power plants and increased demand for low-carbon forms of electricity is likely to increase overall electricity prices in Ukraine in the short term, before additional supply of low-carbon electricity is brought online in the medium term. Water stress: US Aid projections for Eastern Europe forecast prolonged periods of drought in the event of a +3oC scenario, which would potentially limit the Group’s ability to source and utilise water in its operations. Water is currently used in processing to remove waste material, such as silica, and increase the iron content of the Group’s ores, as well as in mining operations to limit dust emissions. Any restriction on the availability of water usage could have an adverse effect on the Group’s ability to mine and process its ores to the same extent as it does today. View looking west across local woodland, towards Ferrexpo’s processing plant. – Climate change related risk (technology) – many of the world’s steelmakers are currently focused on reducing their Scope 1 and 2 carbon footprints, including a number of Ferrexpo’s customers, with steelmakers targeting a switch to Green Steel as a result. Ferrexpo is likely to have to switch production of its pellets to direct reduction pellets over blast furnace pellets in the long term to satisfy this change in demand, and the Group is currently in the process of forging customer relationships with DR pellet customers to further future proof the business – see pages 26-27, 30-33 and 40-43 for more information. – Climate change related opportunity (technology/customer behaviour) – iron ore pellets represent a product that steelmakers can utilise to lower their carbon footprint by up to 40% for every tonne of pellets used instead of the more commonly used sinter fines1. This presents an opportunity for the business as steelmakers look to increase pellet usage in blast furnaces, particularly in China, where pellet usage is currently only 10-15%1 of the burden mix in blast furnaces. For more information on the opportunities around increasing pellet usage, please see Market Overview, pages 10 to 11. A more extensive listing of the climate change related risks and opportunities facing the business is provided on pages 61-64 of the Company’s 2019 Responsible Business Report (available at www. ferrexpo.com). Further details on the Principal Risks facing the Group are also provided on pages 48 to 60. Climate change: scenario modelling Ferrexpo has considered two climate change scenarios in its review of the future impact of climate change on its business: – A 2oC scenario, as envisaged by the Paris Agreement, with an associated increase in government regulation compared to today. – A +3oC scenario, whereby governments do not address climate change, and the business faces increased physical effects as a result of climate change. Details of these two scenarios are provided in the table above. 1 Source: CRU. 33 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Responsible Business continued SOCIAL ENGAGEMENT Working with local communities through the Ferrexpo Charity Fund to develop local initiatives and provide support where it is needed. COVID-19 Response Fund 2020 has been an extraordinary year, with communities around the world affected by the global COVID-19 pandemic. In March 2020, the Group responded to rising concerns with a standalone fund for assisting local hospitals and schools to acquire necessary medical equipment and PPE to respond to the pandemic, with an initial US$2.5 million of funding approved for this dedicated fund to assist local hospitals. In light of the continuing pandemic in early 2021 and in recognition of the continuing need for community support, the Group has approved a further US$1.0 million of support through the COVID-19 Response Fund. Through discussions with hospital management, funds have been utilised in a range of areas, including the provision of PPE and specialist medical equipment, such as respirators, that would be necessary to assist treatment of COVID-19 patients. Specific donations have included the following: – Remote monitoring equipment and lighting for intensive care patients, Kremenchug hospital; – Ventilators for hospitals in Horishni Plavni, Kremenchug and Poltava City; – Ambulance purchase for Horishni Plavni hospital; and – Numerous purchases of PPE equipment for local schools and hospitals. Further details of the Group’s response to COVID-19 are provided on page 9. Local communities play an integral role in Ferrexpo’s social licence to operate, and the Group understands the need to play a constructive and proactive role in the communities located close to the Group’s operations. Ferrexpo coordinates its community activities through its own Charity Fund, which was established in 2011, and through direct sponsorship of projects by Ferrexpo’s operating entities FYM and FBM. The primary focus areas of the Group’s work in local communities are as follows: (1) Social partnership projects (for example, the refurbishment of hospitals and schools); (2) Local community development (for example, supporting the local Palace of Culture); (3) Direct aid for local individuals (funding medical procedures for example); and (4) Administrative support for local council budgets (road repairs and safety bollards for example). Ferrexpo’s Charity Fund and local operating entities FYM and FBM focus their efforts on supporting communities immediately surrounding each of the Group’s three mines, in order to develop close ties with each community, working with community leaders to ensure work carried out is both relevant and targeted. Total community support expenditures in 2020, including funds dedicated to the COVID-19 Response Fund (see section below), amounted to UAH158 million (equivalent of approximately US$5.9 million). This figure represents an 11% increase of such expenditures, which reflects the increased level of support for Ferrexpo’s local communities affected by the global pandemic. Further details of the Company’s response to COVID-19 are provided below, as well as on page 9. 34 Art installation, Ferrexpo Square, Horishni Plavni, October 2020. Ferrexpo plc Annual Report & Accounts 2020 Nova Galeschina school refurbishment, September 2020. CASE STUDY REFURBISHING HOSPITALS AND SCHOOLS Ferrexpo’s Charity Fund not only moved to acquire essential medical equipment in response to the global COVID-19 pandemic in 2020, but the fund has also a long-standing initiative to refurbish and modernise local schools and hospitals. In 2020, these efforts continued with work carried out on hospitals in Horishni Plavni and Nova Galeschina, along with refurbishment work at schools in Solonitsa and Nova Galeschina (pictured here). Online Please see the Ferrexpo website for five years of dedicated Responsible Business Reports. Further reading www.ferrexpo.com/ responsibility 35 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Responsible Business continued GOVERNANCE Strong corporate governance is a requirement for modern businesses to succeed and maintain a sustainable business model. Corporate governance enables companies to operate effectively, with transparency in decision-making and fairness for all stakeholders. Whilst Ferrexpo’s Board of Directors is responsible for setting the Group’s overall governance strategy and framework, governance is applied as a culture throughout the workforce. Board structure Ferrexpo’s Board of Directors (the “Board”) is comprised of a Chair and six Directors, four of whom are Independent Non- executive Directors. Ferrexpo’s Board. The Board understands the need for high standards of corporate governance and the direct impact this can have on the Group for all stakeholders. The Board announced an additional appointment of Ann-Christin Andersen as an Independent Non- executive Director in March 2021 and is seeking to appoint an additional Independent Non-executive Director. Shareholder engagement The Group’s Annual General Meeting (“AGM”), which is typically held in May of each year, is an opportunity for the Board to receive shareholder feedback on a number of subject areas, including corporate governance. Following the 2020 AGM, the Board conducted a shareholder feedback process to establish the reasons behind shareholder voting at the 2020 AGM. This process resulted in feedback from a number of the Group’s largest shareholders, and the Group is currently seeking to implement measures in response to this feedback. Related party matters The Group has a controlling shareholder that also has a number of different businesses with which the Group has a commercial relationship. In order to maintain strong levels of corporate governance, to ensure that these business relationships are conducted on an arm’s length basis, the Group has both the Committee of Independent Directors at the Board level and the Executive Related Party Matters Committee at the management level. As disclosed in the Group’s 2019 Annual Report and Accounts and 2020 Interim Results, the Board acting through the Committee of Independent Directors (“CID”) has been conducting a review into its sponsorship arrangements with FC Vorskla, with specific reference to payments totalling c.US$17 million made by FC Vorskla to Collaton Limited, an entity controlled by Kostyantin Zhevago, in connection with the renovation and construction of certain FC Vorskla stadiums and training grounds in Ukraine (the “Loan”). The CID, with assistance from third party advisers, has now concluded its review and arrangements have been made for the Loan to be repaid in full. As disclosed in the 2020 Interim Results, the CID had been informed that the Loan is expected to be repaid via the sale and leaseback of certain capital projects of FC Vorskla in Ukraine, although with the ongoing COVID-19 pandemic and general market conditions in Ukraine, the CID has since been informed that this may not be possible in the near term. Therefore additional arrangements have been put in place by Kostyantin Zhevago and his associated entities for full repayment of the Loan to take place by 31 July 2022. These 36 Separator Operator Kira Abaza in Ferrexpo’s beneficiation plant, June 2020. arrangements have been reviewed by the CID, and having put in place appropriate monitoring controls, the CID is satisfied with the arrangements. The current sponsorship agreement with FC Vorskla Ukraine, as agreed in 1Q 2021, includes enhanced reporting requirements by the football club to the Group and additional provisions around the use of sponsorship funds. Further details are provided in the Audit Committee report on page 76, in addition to Notes 30 and 34 to the Consolidated Financial Statements. Ferrexpo plc Annual Report & Accounts 2020 Non-financial information statement The Ferrexpo Group complies with the non-financial reporting requirements contained in Sections 414CA and 414CB of the Companies Act 2006. The table below, and information it refers to, is intended to help stakeholders understand the Company’s position on key non-financial matters. This builds on existing reporting that the Company already does under the following frameworks: CDP, Global Reporting Initiative, Guidance on the Strategic Report (UK Financial Reporting Council), UN Global Compact, UN Sustainable Development Goals and UN Guiding Principles. In addition to its Annual Reports, Ferrexpo also publishes a standalone report covering its Responsible Business activities, with the report for 2019 available on the Company’s website and the report for 2020 expected to be released in 3Q 2021. Reporting requirements Policies and standards Additional information Environmental – Tailings Management Employees – Ethics and Responsible Business Policy – Code of Conduct – Health and Safety Policy Greenhouse Gas emissions (pages 30-33) Energy consumption (page 32) www.ferrexpo.com/responsibility/environment Health and safety (pages 28-29) Learning and development (pages 38-39) Diversity (pages 38-39) www.ferrexpo.com/responsibility/people www.ferrexpo.com/responsibility/health-and-safety Human Rights – Human Rights Policy statement – Data Privacy Policy – Anti-Slavery and Trafficking Statement Information and Cyber Security Policy – Health and safety (pages 28-29) Diversity (pages 38-39) www.ferrexpo.com/responsibility Ferrexpo Code of Conduct (www.ferrexpo.com) Social Matters – Donations Policy – Community Policy Anti-corruption and Anti-Bribery – Anti-bribery Policy – Anti-money Laundering and Counter Terrorist Financing Policy – Fraud Risk Management – Policy Whistleblowing Chair’s Statement (page 4) Social Engagement (pages 34-35) www.ferrexpo.com/responsibility/community www.ferrexpo.com/responsibility/stakeholder-engagement Chair’s Statement (page 4) Governance (pages 36-37) www.ferrexpo.com/responsibility/governance www.ferrexpo.com/whistleblowing Business Model (pages 16-17) Risk Management (pages 46-47) Viability Statement (page 61) Going Concern Statement (page 111) Key Performance Indicators (pages 14-15) Risks Principal risks, pages 52-60 Principal risks, pages 52-60 Principal risks, pages 52-60 Principal risks, pages 52-60 Principal risks, pages 52-60 Principal risks, pages 52-60 Principal Risks and impact on business activities Non-Financial KPIs CASE STUDY COMPLIANCE EFFORTS IN 2020 Online Ferrexpo’s Code of Conduct is available online: www.ferrexpo.com/ responsibility/governance Compliance is a key element to a company’s corporate governance, ensuring that the business is effective and balanced in its day-to-day operations. Best practice in compliance is achieved through a variety of work streams, including (a) dedicated compliance training courses, both in-person and online, (b) compliance events to raise awareness, and (c) Ferrexpo’s Integrity Line, which is used to report compliance-related concerns that anyone in the business may report anonymously. are maintained throughout the Ferrexpo business. In 2020, a total of 16 concerns were raised via the Integrity Line, compared to 26 in 2019. The main areas of concern were employee relations and conflicts of interest. Compliance Week To raise awareness around compliance- related topics, Ferrexpo hosts its annual Compliance Week, bringing together various groups within the business for training courses in compliance and ethical leadership. The third such iteration of this event, which was a virtual conference held in May 2020, was attended by 616 employees, and had speakers from a number of external organisations covering topics such as Ferrexpo’s values, ethical leadership, modern slavery, anti-corruption and creating a speak-up culture. Dedicated training The Group launched an online training course in February 2020 focused on reinforcing knowledge of existing compliance-related topics, with 632 participants during the month. Additional compliance-related events were held in the form of a Compliance Championship, knowledge days and a Compliance Forum, whereby external speakers presented to senior leaders on recent developments in compliance. Code of Conduct Ferrexpo’s Code of Conduct and Code of Conduct for Business Partners are the main documents by which the Group engages with its workforce and suppliers respectively. As of 2020, a total of 1,955 contracts were signed with compliance clauses included in them, representing 87% of the total number of contracts signed by Ferrexpo’s operating entities. Integrity Line Ferrexpo’s Integrity Line is available at www.ferrexpo.com/IntegrityLine. Users can anonymously report compliance concerns regarding the business by telephone or email, with this function an important safeguard for ensuring that best practice industry standards 37 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Responsible Business continued WORKFORCE AND WORKFORCE ENGAGEMENT Investing in the Group’s workforce Workforce engagement Ferrexpo has a global workforce of nearly 11,000 employees and contractors, all of whom contribute to the success of the Ferrexpo business. In 2020, the Company held its third Workforce Engagement Survey, which has provided an important mechanism for employees to provide feedback. With the disruption experienced in relation to the global pandemic, it has been harder to reach out to the number of employees for participation in the 2020 survey, but the Group still managed to receive responses from 1,660 employees in 4Q 2020, across all three operating entities and the Group corporate and marketing functions. Following a review of the responses received, results of the survey will be communicated back to Ferrexpo’s employees throughout 2021 via town hall meetings, sharing and discussion of results by line managers, briefings for individual work groups and employee conferences. Ferrexpo also engages with its workforce in Ukraine, representing 93% of the Group’s people, through several printed media publications and newsletters, which give Ferrexpo’s management team the ability to reach operators that would not normally use a computer in their day-to-day activities. Ferrexpo also has its social media channels on Facebook, LinkedIn and Instagram, which are used to issue regular updates on its business in both Ukrainian and English. 1,660 1,660 employees provided their views as part of 2020 the Employee Engagement Survey. 38 Diversity Gender balance in each department of Ferrexpo is important, as this leads to diversity of thought leadership and a more balanced decision-making process. At its operations, Ferrexpo has historically had a more balanced workforce in its administrative functions, compared to production and maintenance roles. The Group is attempting to address this by several new initiatives to promote the role of women in these departments through training programmes. An example of this work can be seen in the Group’s project to promote future female leaders of the business, “Fe_munity”, which is an initiative commenced in 2020 that involves bringing together 70 women identified as future leaders, to create a high performance community, who will all receive leadership training and mentoring to help advance their careers. In 2020, women represented 29.2% of Ferrexpo’s employees (2019: 29.3%), with women in management positions representing 18.2% of the total (2019: 17.5%). The Group is targeting a figure of at least 25% of managerial roles to be held by women by 2030. Training Ferrexpo takes every step to ensure a high level of training is provided to its workforce through its own training and development centre, as well as external courses that are facilitated to help invest in the future of the Group’s workforce. The Group’s workforce completed over 6,800 training courses at its operations in Ukraine in 2020, despite a sharp reduction in the number of individuals at site due to social distancing and training largely switching to online formats. In line with 2019, the majority of this training was safety related, as the Group continues to embed a safety first culture. Social media Ferrexpo uses LinkedIn, Facebook and Instagram to communicate with stakeholders – please see links below for more regular updates on Ferrexpo. www.linkedin.com/company/ ferrexpo-plc/ www.facebook.com/Ferrexpoplc/ www.instagram.com/ferrexpo/ 25% Targeting an increase to 25% of management roles held by women by 2030 (2020: 18.2%). 6,800 Over 6,800 training courses completed at the Group’s operations in Ukraine in 2020. FERREXPO’S PIONEERS OF 1970 Ferrexpo has a rich history of operating as an iron ore pellet producer since 1970, and in recognition of this history, throughout 2020 the Group released over 30 interviews through its social media channels documenting the memories of the pioneers who helped build the original mine and processing facilities, as well as key members of the management team past and present. Ferrexpo would like to extend its thanks to all those involved in the creation of this series, which has served as an important record of the Group’s heritage. Night time view over western waste dump at Ferrexpo Poltava Mine. CASE STUDY EMPLOYEE ENGAGEMENT SURVEY 2020 Online https://www. ferrexpo.com/ responsibility/ people Ferrexpo plc Annual Report & Accounts 2020 Responses received in the 2020 survey highlighted that the level of the Group’s response to COVID-19 has received high levels of approval from its workforce, with employees averaging an approval rate of 94% for the questions asked in this section. Other sections to receive high levels of approval in the 2020 survey were in the teamwork and accountability sections. Sections whereby feedback suggests further consideration is required were: (a) reward and recognition, and (b) development. In 4Q 2020, Ferrexpo completed its third Employee Engagement Survey, having conducted previous surveys in 2017 and 2019. Despite the global pandemic limiting workforce numbers at site, the Group managed to receive feedback from 1,660 employees, representing 20% of the employees at the subsidiaries surveyed. Ferrexpo’s Employee Engagement Surveys focus on each respondent’s views on broad topics such as alignment with corporate goals, leadership, teamwork, accountability and performance, and reward and recognition, with a number of questions within each section. The survey uses the same questions and enables Ferrexpo’s Human Resources department to assess positive and negative trends in the responses received from each business unit and department between surveys. An additional section in the 2020 survey also focused on the perceived effectiveness of the Group’s COVID-19 measures. 39 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Review of Stakeholder Engagement Activities Engaging with all stakeholder groups for an effective, successful business. Employees and contractors Customers Suppliers Communities Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement – 2020 Employee Engagement Survey. – Annual performance and development reviews. – Compliance efforts and Integrity Line for raising concerns. – To understand issues that are important to the workforce, to address concerns and build future relationships. – To enhance the relationship between the individual and the business through training and development. – Relationship management. – Feedback provided following each shipment. – To develop mutually beneficial business relationships. – Contract negotiations for long-term contracts. – To promote sustainability throughout the value chain. – Relationship management. – To develop mutually – Regular initiatives through its – Communities grant – Regular feedback. – Contract negotiations. beneficial business relationships. 2011. Charity Fund, active since Ferrexpo’s operations a – To promote sustainability – COVID-19 Response Fund. throughout the value chain. social licence to operate and, specifically for 2020, the health of local communities is directly linked to the future success of the business. What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response – Strong health and safety – LTIFR of 0.79, ahead of iron – Product quality. standards. – Training and development opportunities. – Collective bargaining. – Workforce development. ore producing peers in Australia. – 6,863 individual training courses undertaken in 2020 (2019: 15,586). – Latest collective bargaining agreement agreed in February 2020. – Consistent pellet supply. – Ensuring sustainability throughout the value chain. – Regular briefings between marketing and operations, providing customer feedback. – Work to improve consistency of pellet production, such as pellet line refurbishment process, completed in 2019. – Quality of supply. – Where possible, goods and – Projects relevant to individual – Medical donations via – Effective and timely supply of materials. local suppliers. – Promote good business and – As of 2020, 87% of contacts services are sourced from communities, established through consistent and effective community engagement. employment in local communities. – Ensuring sustainability throughout the value chain. signed by operations included reference to Ferrexpo’s Code of Conduct for Suppliers (94% of contracts with value in excess of UAH 500,000). COVID-19 Response Fund, with US$2.5 million funding approved March 2020, and further US$1 million approved early 2021. – Ferrexpo Charity Fund working to refurbish hospitals and schools in local towns and villages. How quality of engagement is assessed Plans for engaging in 2021 How quality of engagement is assessed Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 assessed assessed – Safety metrics either in line with or ahead of peers. – Employee Engagement Survey and feedback sessions in 2021. – Good working relationship – Continued workforce with unions at operations in Ukraine. development programme. – Longevity of customer quality and pricing. – Adoption of, and adherence Ferrexpo’s Code of Conduct – Direct feedback through 87 million in 2021, excluding – Further engagement on pellet – Further adoption of – Charity Fund budget of UAH relationships. – Multiple long term contracts in place for over ten years. – Additional focus on Responsible Business activities, specifically carbon emissions within the value chain. with, Ferrexpo’s Code of Conduct for Suppliers. – Longevity of supplier relationships. for Suppliers. community support officers. COVID-19 Response Fund. – Quarterly town hall meetings with General Directors. This figure represents a level in line with 2020 (2020: UAH 92 million). – Main projects in 2021 will be focused on refurbishment of local hospitals, schools and sports facilities, representing 40% of the budget for 2021. 40 Ferrexpo plc Annual Report & Accounts 2020 Employees and contractors Customers Suppliers Communities Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement – 2020 Employee Engagement – To understand issues that are – Relationship management. – To develop mutually Survey. – Annual performance and development reviews. – Compliance efforts and Integrity Line for raising concerns. important to the workforce, to address concerns and build future relationships. – To enhance the relationship between the individual and the business through training and development. – Feedback provided following each shipment. – Contract negotiations for long-term contracts. beneficial business relationships. – To promote sustainability throughout the value chain. – Relationship management. – Regular feedback. – Contract negotiations. – To develop mutually beneficial business relationships. – Regular initiatives through its Charity Fund, active since 2011. – To promote sustainability – COVID-19 Response Fund. throughout the value chain. – Communities grant Ferrexpo’s operations a social licence to operate and, specifically for 2020, the health of local communities is directly linked to the future success of the business. What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response – Strong health and safety – LTIFR of 0.79, ahead of iron – Product quality. standards. – Training and development opportunities. – Collective bargaining. – Workforce development. ore producing peers in Australia. – 6,863 individual training courses undertaken in 2020 (2019: 15,586). – Latest collective bargaining agreement agreed in February 2020. – Consistent pellet supply. – Ensuring sustainability throughout the value chain. – Regular briefings between marketing and operations, providing customer feedback. – Work to improve consistency of pellet production, such as pellet line refurbishment process, completed in 2019. – Quality of supply. – Effective and timely supply of materials. – Promote good business and employment in local communities. – Ensuring sustainability throughout the value chain. – Where possible, goods and services are sourced from local suppliers. – As of 2020, 87% of contacts signed by operations included reference to Ferrexpo’s Code of Conduct for Suppliers (94% of contracts with value in excess of UAH 500,000). – Projects relevant to individual communities, established through consistent and effective community engagement. – Medical donations via COVID-19 Response Fund, with US$2.5 million funding approved March 2020, and further US$1 million approved early 2021. – Ferrexpo Charity Fund working to refurbish hospitals and schools in local towns and villages. How quality of engagement is Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 assessed assessed How quality of engagement is assessed Plans for engaging in 2021 How quality of engagement is assessed Plans for engaging in 2021 – Employee Engagement – Further engagement on pellet – Further adoption of – Safety metrics either in line Survey and feedback – Longevity of customer quality and pricing. with or ahead of peers. sessions in 2021. relationships. – Additional focus on – Good working relationship – Continued workforce – Multiple long term contracts Responsible Business with unions at operations in development programme. in place for over ten years. activities, specifically carbon Ukraine. emissions within the value chain. – Adoption of, and adherence with, Ferrexpo’s Code of Conduct for Suppliers. – Longevity of supplier relationships. Ferrexpo’s Code of Conduct for Suppliers. – Direct feedback through community support officers. – Quarterly town hall meetings with General Directors. – Charity Fund budget of UAH 87 million in 2021, excluding COVID-19 Response Fund. This figure represents a level in line with 2020 (2020: UAH 92 million). – Main projects in 2021 will be focused on refurbishment of local hospitals, schools and sports facilities, representing 40% of the budget for 2021. 41 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Review of Stakeholder Engagement Activities continued Environment Government Investors Capital providers Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement – Greenhouse gas reductions. – Local environmental – Enhanced emissions monitoring equipment. – Biodiversity. conditions, whether directly or indirectly affected by Ferrexpo’s operations, are key to the Group’s social licence to operate. – Meetings, calls and emails with government officials across jurisdictions in which the Group operates. – Governments are central to – Annual Report, investor – To report activities in a clear – Regular dialogue with banks, – To maintain a successful operating a successful business, for example, through providing operating licences, whilst also providing a platform for effective community engagement. meetings, calls, conferences, and orderly manner, to ratings agencies and other and email communications. deliver value to all lenders. – Online (press releases, shareholders. website updates and social – Compliance with stock – Provision of information, including both internal working relationship for existing and future debt facilities, and other sources of capital. media channels). exchange listing regulations. updates and market updates – To enable future investment such as analyst research on in the business. Company and commodities. – Direct communications with analysts. – Post-AGM engagement with shareholders. What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response – Key focus on climate change – 8% reduction in Scope 1 across domestic and international stakeholder groups. – Trend within Ukraine for benchmarking air and water quality between industrial towns. CO2e emissions footprint per tonne and 21% reduction in absolute Scope 2 CO2e emissions per tonne. – Biodiversity projects include river restocking project. How quality of engagement is assessed – Dialogue with stakeholder groups, both domestic and international regarding carbon footprint. – ESG-related research and appraisal of Group’s activities. – Regular community engagement activities. Plans for engaging in 2021 – Further reporting around greenhouse gases and emissions targets. – Green projects, including electricity purchasing and generation (solar farm). – Responsible Business Reports. 42 – Companies operating within a consistent and understood financial and legal framework. – Regular payment of taxes and royalties, in line with licence terms. – Companies providing employment and support to local communities, as well as export revenues. How quality of engagement is assessed – Continued government support at local and national level in Ukraine. – Continued government – Taxes and royalties of US$100 million paid in 2020 (2019: US$114 million). – Total taxes and royalties over US$1.0 billion since IPO. – Workforce of 10,911 in 2020 (2019: 11,476). – Clear, consistent and – 24 press releases and four – Clear, consistent and – Meetings and calls with each transparent reporting of presentations on Group’s transparent reporting of of the banks syndicated Group’s operations, financial website in 2020, and issued Group’s operations, financial within Group’s Pre-Export results and Responsible to the London Stock results and Responsible Finance (“PXF”) facility. Business activities. Exchange. Business activities. – Provision of market research – Providing information that is – Annual Report and Accounts – Providing information that is and credit ratings research directly comparable to peer (issued April 2020). directly comparable to peer on the Group, commodity group reporting. – Responsible Business Report group reporting. – Long term value creation. (issued August 2020). research and country research. – Appointed broker and financial adviser (Liberum). Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 – Working with local government to ensure health and wellbeing of local communities during COVID-19 pandemic. support in all corporate and marketing office locations for the Group. – Continued investments in operations, workforce and communities in 2021. assessed assessed – Shareholder feedback. investor community, – Successful repayment of capital provider space. – Continued dialogue with – Continued dialogue with including regular company US$148 million in debt in updates. 2020 (2019: US$224 million). – Continued repayment of existing debt facilities. – Broadening analyst coverage. – Continuation of existing – Analyst research. – Market valuation of the Company relative to its peer group. – Increasing social media channels and topics/content covered. relationships with domestic and international banks. – Availability and future provision of additional debt facilities (if required). Ferrexpo plc Annual Report & Accounts 2020 Environment Government Investors Capital providers Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement Engagement activity in 2020 Reasons behind engagement – Greenhouse gas reductions. – Local environmental – Meetings, calls and emails – Governments are central to – Annual Report, investor – To report activities in a clear – Enhanced emissions monitoring equipment. – Biodiversity. conditions, whether directly with government officials or indirectly affected by across jurisdictions in which operating a successful business, for example, Ferrexpo’s operations, are the Group operates. through providing operating key to the Group’s social licence to operate. licences, whilst also providing a platform for effective community engagement. meetings, calls, conferences, and email communications. – Online (press releases, and orderly manner, to deliver value to all shareholders. website updates and social media channels). – Compliance with stock exchange listing regulations. – Direct communications with analysts. – Post-AGM engagement with shareholders. – Regular dialogue with banks, ratings agencies and other lenders. – Provision of information, including both internal updates and market updates such as analyst research on Company and commodities. – To maintain a successful working relationship for existing and future debt facilities, and other sources of capital. – To enable future investment in the business. What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response What matters most The Company’s response – Key focus on climate change – 8% reduction in Scope 1 – Companies operating within – Taxes and royalties of across domestic and international stakeholder groups. – Trend within Ukraine for CO2e emissions footprint per tonne and 21% reduction in absolute Scope 2 CO2e emissions per tonne. a consistent and understood US$100 million paid in 2020 financial and legal framework. (2019: US$114 million). – Total taxes and royalties over – Regular payment of taxes US$1.0 billion since IPO. benchmarking air and water – Biodiversity projects include and royalties, in line with quality between industrial river restocking project. licence terms. – Workforce of 10,911 in 2020 (2019: 11,476). towns. – Companies providing employment and support to local communities, as well as export revenues. – Clear, consistent and – Meetings and calls with each – Clear, consistent and transparent reporting of Group’s operations, financial results and Responsible Business activities. – 24 press releases and four presentations on Group’s website in 2020, and issued to the London Stock Exchange. transparent reporting of Group’s operations, financial results and Responsible Business activities. – Providing information that is directly comparable to peer group reporting. – Annual Report and Accounts (issued April 2020). – Responsible Business Report – Providing information that is directly comparable to peer group reporting. – Long term value creation. (issued August 2020). – Appointed broker and financial adviser (Liberum). of the banks syndicated within Group’s Pre-Export Finance (“PXF”) facility. – Provision of market research and credit ratings research on the Group, commodity research and country research. How quality of engagement is Plans for engaging in 2021 How quality of engagement is Plans for engaging in 2021 assessed assessed – Further reporting around – Working with local – Dialogue with stakeholder greenhouse gases and – Continued government government to ensure health groups, both domestic and emissions targets. support at local and national and wellbeing of local international regarding carbon footprint. – Green projects, including level in Ukraine. electricity purchasing and – Continued government communities during COVID-19 pandemic. – ESG-related research and generation (solar farm). support in all corporate and – Continued investments in – Responsible Business Reports. marketing office locations for operations, workforce and the Group. communities in 2021. appraisal of Group’s activities. – Regular community engagement activities. How quality of engagement is assessed – Shareholder feedback. – Analyst research. – Market valuation of the Company relative to its peer group. Plans for engaging in 2021 – Continued dialogue with investor community, including regular company updates. How quality of engagement is assessed Plans for engaging in 2021 – Successful repayment of US$148 million in debt in 2020 (2019: US$224 million). – Continued dialogue with capital provider space. – Continued repayment of existing debt facilities. – Broadening analyst coverage. – Continuation of existing – Increasing social media channels and topics/content covered. relationships with domestic and international banks. – Availability and future provision of additional debt facilities (if required). 43 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Section 172 Statement CONSIDERING STAKEHOLDERS IN DECISION- MAKING The Board of Directors acts to promote the long-term success of the Company for the benefit of shareholders as a whole, and in doing so recognises the importance of having due regard to the matters set out in section 172(1)(a) to (f) of the Companies Act 2006, being: – – – – – the likely consequences of any decision in the long term; the interests of the Company’s employees; the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and – the need to act fairly as between members of the Company. The Board receives regular training on directors’ duties, including refresher training on the duty under section 172 during the year, and new directors appointed to the Board receive tailored, individual briefings on their duties. 44 How considering stakeholders in decision-making works in practice The Group engages regularly with its stakeholders. This engagement is largely conducted by the Group’s management team, as part of the day-to-day management of the Group delegated by the Board to the management team, although the Board will also engage directly with stakeholders as appropriate. Where stakeholder engagement has been conducted by management, the stakeholder issues are considered at Board level through regular updates from the Acting CEO and senior management. This will include presentations by members of the senior management team to the Board on particular stakeholder considerations, and the Board will discuss feedback received from stakeholders directly with the management team. Considerations relating to stakeholder matters are also included in management papers prepared for the Board, as appropriate. As part of its discussions and decision- making process, the Board will take into account relevant stakeholder considerations and the potential impacts of their decisions on such stakeholders and the environment. This will include considering the impact of competing stakeholder interests, and the Board is cognisant of the fact that some of its decisions may have an adverse impact on certain stakeholders or affect different stakeholder groups in different ways. The stakeholder groups which the Board has identified as being fundamental for an effective, successful business, together with the engagement activities carried out by the Group in 2020, are outlined on pages 40 to 43. In addition to these stakeholder groups, the Board considers the likely consequences of decisions in the long term, the impact of the Group’s operations on the community and the environment and the importance of maintaining a reputation for high standards of business conduct. The Board will also be guided in its decision-making by the Group’s purpose and values and its strategic framework as outlined on pages 16 to 17 and 12 to 13, respectively. Further details on the Group’s approach to the matters outlined in section 172 can be found in the following sections of this report: Section 172 factor Key examples Workforce – Case Study: Autonomous large scale haul trucks – Case Study: Ferrexpo’s response to COVID-19 – HSEC Committee Chair’s Review – Responsible Business: Health and Safety – Case Study: First-DDSG – Safety across the Ferrexpo Group Page p.8 p.9 pp.26-27 p.28 p.29 Suppliers and customers Community Environment High standards of conduct Investors – Responsible Business: Workforce and Workforce p.38 Engagement – Case Study: Employee Engagement Survey 2020 – Case Study: Utilising technology to adapt p.39 p.23 to a pandemic – Case Study: Compliance efforts in 2020 – Responsible Business: Social Engagement – Case Study: Refurbishing hospitals and schools – HSEC Committee Chair’s Review – Responsible Business: Environmental Stewardship – Case Study: What is Green Steel and why p.37 p.34 p.35 pp.26-27 p.30 p.31 is it relevant? – Responsible Business: Governance – Case Study: Compliance efforts in 2020 – Shareholder returns – Shareholder engagement p.36 p.37 p.5 p.36 Key decisions made in 2020 The Board and its Committees took a broad range of factors and stakeholder considerations into account when making decisions in the year. Details on how the Board and its Committees operate and the way in which they reach decisions, including the matters discussed and debated during the year, can be found in the Corporate Governance Report on pages 68 to 75. The following are some examples of how the Directors have had regard to the matters set out in section 172(1) (a) to (f), and the need to foster the Company’s business relationship with customers, suppliers and other stakeholders, when making principal decisions and the effect of that on certain of the decisions taken by them. CASE STUDY FERREXPO MINING CONSOLIDATION PLAN Our Mining Consolidation Plan is a key operational development milestone for the Group. It is a new mining system, which is part of the One Ferrexpo Strategy to consolidate functions and accountabilities across the Group’s three mines into centralised single units, for example, ‘One electrical service’, ‘One dewatering service’ and ‘One drilling service’. The new mining system is in the long-term interests of the Group, as it will create operational efficiency through the optimisation of resources, elimination of duplicitous functions and accountabilities, and promote more efficient ways of working through the re-allocation and transferability of resources to where they are needed the most. The decisions taken to implement the Mining Consolidation Plan spanned many of the section 172 factors. Management and the Board identified the key stakeholders as the employees, contractors, service providers and local community. A stakeholder consultation exercise was undertaken by the management team, with the aim of enhancing the understanding of the impact of the new mining system on the stakeholders. The findings were reported back to the Board through presentations and discussions between the management team and the Board. The process identified a number of benefits for stakeholders. These included the ability to create multifunctional roles among the workforce, thereby creating development opportunities, facilitating the move to in-sourced labour, centralised services covering all three mines, and safety benefits through the use of autonomous vehicles and operational efficiencies. It was also Ferrexpo plc Annual Report & Accounts 2020 acknowledged that there would be adverse impacts for some stakeholders, including redundancies and reducing the need for outsourced contractors and some service providers. These factors were carefully considered by the management team with the Board exercising full oversight and challenge, with particular regard to the long-term consequences of the decisions. A key outcome of the consultation process and stakeholder considerations was the need to embed a change in cultural mind-set, to operate and think as ‘One business’ with aligned leadership and effective decision-making. This is being progressed by the management team, which will report to the Board in due course. CASE STUDY COVID-19 PANDEMIC RESPONSE When COVID-19 emerged as a global pandemic, the management team together with the Board took immediate steps to protect our employees, contractors and the local communities. Safety was our number one priority. Action was also taken to safeguard the business through the implementation of our business continuity plans. In addition to regular engagement with the workforce, management engaged with a broad range of stakeholders to understand the impacts that COVID-19 was having on them, including our customers, suppliers and other local stakeholders. Following engagement with local stakeholders, in March 2020, the Board approved a US$2.5 million dedicated COVID-19 Response Fund, to be used for medical equipment to support local hospitals and communities. A further US$1 million was approved by the Board in February 2021. Supporting the local community is important to the Company as this aligns with our strategy to maintain a social licence to operate, and also our desire to positively contribute to the economy in all countries in which we operate. Supporting the local community through the COVID-19 Response Fund is also important for protecting the Group’s workforce, and therefore is in the long-term interests of the Company, as many members of the workforce are part of the local community in Poltava region. Another key impact of the COVID-19 response has been regular engagement with the Group’s customers. The Group’s marketing team initially contacted customers to understand the impacts that COVID-19 was having on their business and operational practices, and also to provide details of the actions which the Group was taking to protect its own business. In many countries it was not possible to conduct face-to-face meetings with customers and therefore the Group had to adapt its way of working and moved to virtual meetings with its existing and new customers. The Chief Marketing Officer met all customers virtually and maintains regular contact with them. Key learnings from this engagement are reported regularly to the Board through presentations from the Chief Marketing Officer. CASE STUDY DIVIDEND PAYMENTS Following the onset of the coronavirus pandemic, and given the general market uncertainty caused by the spread of COVID-19, at the time of publication of the 2019 annual results in March 2020 the Board decided to defer consideration of a potential final ordinary and/or special dividend. This deferral was to allow the Board more time to assess the effect of the COVID-19 pandemic on the Group’s workforce, customers and suppliers. The Board continued to carefully monitor developments relating to COVID-19 in relation to the Group’s business, and that of its customers and impacts on other stakeholders. Actions taken by the Group to protect its business, together with the trading position of the Group and strong balance sheet, gave the Board confidence to declare a final special and ordinary dividend for 2019 on 21 April 2020. The Board was also able to declare further dividends throughout 2020. Prior to each decision to declare a dividend, the Board took various factors into account with particular focus on the impacts of the COVID-19 pandemic. Other factors considered included the Group’s cash balance, the cash flow impact payment would have on capital investment projects and payments to employees, suppliers and governments (taxes and royalties). Payments to lenders and covenants under loan agreements were also considered, and during the year the Board made a voluntary prepayment of US$10 million under its pre-export finance facility to further reduce its debt position. The Board also considered the expectations of investors in light of the Group’s existing regular dividends and any longer-term implications on growth projects. Overall, the Board determined that the dividend payments were in the best interests of all shareholders. The interests of employees, customers, suppliers and other stakeholders were also considered, and the decision to pay the dividends was not thought to adversely impact their interests. 45 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Risk Management ASSESSING AND MANAGING RISK The Group has developed a system for identifying risks, with a focus on risk management and mitigation to protect the Ferrexpo business. Risk management is a process overseen by the Ferrexpo Board of Directors. Approach The Group’s risk management processes provide a framework to support the identification, prioritisation and management of both emerging and principal risks involved in the Group’s activities. It is not, and cannot be, designed to eliminate risk, particularly in an emerging market economy. Ferrexpo’s risk management policies and procedures have been established to identify and analyse the risks faced by the Group, to set appropriate limits and controls and take relevant mitigating actions where considered by the Board of Ferrexpo and its executive management to be beneficial. Risk assessment The Group’s risk matrix is regularly reviewed and monitored by the Executive Committee and its sub-committee, the Finance, Risk Management and Compliance Committee (“FRMC”), as well as the Audit Committee and the Board. This review process includes ensuring that any new risks are identified, their potential impact on the Group assessed and appropriate controls established. The risks identified are ranked based on the potential impact and the probability of occurrence in order to assess their impact on the Group’s operation and viability. The impact and the probability are reassessed on a regular basis based on latest developments in the Group’s macro and micro environment. This includes assessing whether any emerging risks may have become 46 principal risks. Ferrexpo considers an emerging risk to be newly developing or changing risks that are difficult to quantify. It is the responsibility of the Group’s Executive Committee to define appropriate actions to adequately monitor those risks and establish an effective control environment. The controls are generally conducted by the Group’s internal audit function or members of the Executive Committee and updates are provided to the Executive Committee and the Board. Risk governance The Board of Ferrexpo is ultimately responsible for defining the Group’s attitude to risk and ensuring that appropriate systems of risk management and internal controls are established and embedded across the Group, in conformity with its desired risk management culture. Its responsibility extends to ensuring that the emerging and principal risks faced by the Group are robustly assessed and that the Group’s exposure to such risks is aligned with its strategic objectives. The Audit Committee assists the Board in its regular monitoring of risk exposures and the Group’s risk matrix, and is responsible for evaluating the adequacy and effectiveness of the established risk management and internal control systems. It also oversees how management monitors compliance with risk management policies and procedures, with assistance from the Group internal audit function which conducts ad hoc reviews of risk management controls and procedures as part of its annual programme of work. For more information relating to the Audit Committee’s monitoring and assessment of the effectiveness of the risk management and internal control systems, see the Audit Committee Report on page 76. The FRMCC oversees the centralised financial risk management structures and monitors compliance risks, while the HSEC Committee monitors safety, environment and community risks. These two committees assist the Audit Committee and Board in the identification and analysis of both emerging and principal risks. Assurance on the internal control and risk management systems is provided in the form of management information, reports and updates from the Group internal audit function, external audits and oversight by the Executive Committee, Audit Committee and Board. 2020 risk assessment The risks set out in the matrix were assessed by the FRMCC and Audit Committee, as appropriate, and the risks identified as posing the biggest threat to the Group’s operations (based on their potential impact and taking account of the mitigating measures in place) were analysed in order to identify the principal risks faced by the Group for assessment by the Board. At each Board meeting throughout the year, the Board reviewed the risk register and assessed the emerging and principal risks facing the Group over both the short and long term. For more information, please see the Viability Statement on page 61. Ferrexpo plc Annual Report & Accounts 2020 RISK MANAGEMENT PROCESS Ferrexpo Board – Takes overall responsibility for maintaining sound risk management and internal control systems. – Sets strategic objectives and defines risk appetite. – Monitors the nature and extent of risk exposure, which includes principal and emerging risks. Audit Committee – Supports the Board in monitoring risk exposure and risk appetites. Executive Committee – Assesses and mitigates Group- wide risk. – Reviews effectiveness of risk – Monitors internal controls. management and control systems. HSEC Committee – Oversees corporate social responsibility-related matters and performance. – Has specific focus on safety and climate change related risks. FRMCC – Monitors centralised financial risk management structures. – Monitors Group compliance. Internal audit function – Supports the Audit Committee in reviewing the effectiveness of risk management. – Maintains and develops internal control systems. Operational level – Risk management processes and internal controls embedded across all Ferrexpo operations. RISK MATRIX HEAT MAP The principal risks identified in the heat map to the right highlight which could have the greatest impact (shaded red) on the Group’s operations and viability. Please see pages 48 to 60 of this report for a full summary of principal risks. Key 1.1 1.2 Ukraine country risk (external risk) Counterparty risk (external risk) Global demand for steel 2 3.1 Changes in pricing methodology 3.2 Lower iron ore prices (external risk) 3.3 3.4 4.1 4.2 4.3 5. 6. Pellet premiums and pellet supply (external risk) Seaborne freight rates (external risk) Operating risks related to mining, processing, pelletising and logistics (Company-specific risks) Operating risks related to health and safety (Company-specific risk) Operating risks related to operating costs (external and Company risk) Operating risks related to climate change Risks related to COVID-19 e r e v e S t c a p m I w o l y r e V 1.1 5 2 3.2 3.3 3.1 4.1 4.2 4.3 6 1.2 3.4 Unlikely Likelihood Almost certain 47 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Principal Risks The principal risks and uncertainties facing Ferrexpo’s business as assessed by the Board of Ferrexpo are shown in this section. A number of the risks described in this section have the ability to directly affect the Group’s strategy, which for reference is as follows: 1. Produce high quality pellets. 2. Be a low cost producer. 3. Sell to a world class customer portfolio. 4. Maintain a social licence to operate. 5. Maintain appropriate capital allocation between a strong balance sheet, returns to shareholders and investment for growth. Increase in expected risk in 2021 Decrease in expected risk in 2021 Risk balance for 2021 Risk assessment and risk mitigation Principal risks are defined as factors that may negatively affect the Group’s ability to operate in its normal course of business, and may be internal, in the form of risks derived through the Group’s own operations and activities, or external, such as political risks, market risks or climate change related risks. Principal risks include, but are not necessarily limited to, those that could result in events or circumstances that might threaten the Group’s business model, future performance, solvency or liquidity and reputation. Further reading For more information on the Group’s strategy, please see pages 12-13 48 Risks are inherently unpredictable and can be uncontrollable, and, therefore, the risks outlined in this report are considered the main risks facing the Group. New risks may emerge during the course of the coming year, and existing risks may also increase or decrease in severity and/or likelihood, and this is why it is important to conduct regular reviews of the Group’s risk register throughout the year. The Group maintains a more extensive list of risks, covering over 30 different risk areas at the Group level, with additional risks considered in local risk registers at each operating entity. The Group risk register is reviewed on a monthly basis for completeness and relevance by the Group’s Finance, Risk Management and Compliance Committee (“FRMCC”), which ultimately reports into the Company’s Board of Directors for further review and approval of the risk register. The Group’s risk register is also reviewed by the Audit Committee at least four times a year. The members of the Executive Committee manage risk within the business on a day to day basis, which is a committee that includes the Acting Chief Executive Officer, Acting Chief Financial Officer and Chief Marketing Officer. Newly encountered risks that were specific to 2020 were principally related to the global COVID-19 pandemic. In addition, the Group faced similar risks that have faced the business in previous years, including risks associated with operating in an emerging market, and market risk related to commodity pricing. The Group has updated its principal risks as shown on pages 48 to 60 of this report, in accordance with the known risks facing the business. Further updates to the Group’s Principal Risks will be provided in the Group’s Interim Results statement, which is due for publication in August 2021. Where the Group has identified a principal risk, details of the Group’s efforts to mitigate each risk are also provided. It should be noted that the Group’s Audit Committee has reviewed the risks associated with the exit of the United Kingdom from the European Union (“Brexit”), and whilst significant uncertainty exists in relation to this event and the future trading relationship between the UK and the EU post-Brexit, the Audit Committee has determined that this is not a principal risk on the basis of the Group’s reduced exposure to the UK market. Ferrexpo plc Annual Report & Accounts 2020 Responsibility Board of Directors and Chief Executive Officer Risk appetite Medium Link to strategy 1, 2, 3, 4 and 5 1. COUNTRY RISK 1.1 UKRAINE COUNTRY RISK (EXTERNAL RISK) Risk overview Transparency International e.V. has published an annual Corruption Perceptions Index since 1995 and is a leading global indicator of public sector corruption. Ukraine is currently placed 117th out of 180 countries on the Corruption Perceptions Index1, up from 126th position in the 2019 iteration of the same survey. Whilst Ukraine is continuing to reform, most recently under the guidance of the International Monetary Fund, its position on the Corruption Perceptions Index has only marginally improved over the past five years from being ranked 130th.2 There continues to be a number of principal risks relating to the Group’s operating assets being located in Ukraine and exposure to Ukraine’s geopolitical environment, judicial system and macro-economic conditions. These factors, either individually or in combination, have the ability to adversely impact the Group’s ability to operate its pellet production facilities, ability to export its iron ore products, ability to repay existing debt or gain access to new debt facilities, ability to reinvest in the Group’s asset base, either in the form of sustaining capex to maintain production or expansion capex for future growth, as well as the Group’s ability to pay dividends. The independence of the judicial system, and its immunity from economic and political influences in Ukraine, remains questionable, and the stability of existing legal frameworks may weaken further with future political changes in Ukraine. Because Ukraine is a civil law jurisdiction, judicial decisions generally have no precedential effect on subsequent decisions, and courts are generally not bound by earlier decisions taken under the same or similar circumstances, which can result in the inconsistent application of Ukrainian legislation to resolve the same or similar disputes. In addition, court claims are often used in the furtherance of political aims. The Group may be subject to such claims and may not be able to receive a fair hearing. In January 2020, the Company advised that it had lodged an appeal against a court order in Ukraine, whereby a district court had placed a restriction on the transfer on 50.3% of the shares in Ferrexpo Poltava Mining (“FPM”), which are held through Ferrexpo AG, the Company’s Swiss subsidiary. Ferrexpo AG was subsequently successful in this appeal and the Company announced that this restriction had been removed on 3 June 2020. On 19 June 2020, the Company announced that a similar restriction was placed on the same shareholding by a district court in Kyiv. An appeal was also lodged against this restriction, and whilst it was similar to the first restriction, which was successfully appealed, the appeal against this second restriction was not successful. In November 2020, Ferrexpo AG was however successful in a motion to dismiss this restriction, as announced on 30 November 2020. The Group understands that the new ruling of the court to cancel the restriction on 50.3% of the shares in FPM cannot be appealed. The Group cannot however rule out similar cases being raised against the Group in the future. In October 2019, Kostyantin Zhevago stepped down as CEO of the Group in order to focus on resolving certain matters in Ukraine relating to one of the businesses he owned until 2015 (Bank Finance & Credit). The Company understands that these matters remain unresolved. Given Mr Zhevago’s connection to Ferrexpo, and Ferrexpo’s previous commercial relationship with Bank Finance & Credit, there is a risk that these matters may affect the Group, including adverse media attention and reputational damage for the Group and a reluctance on the part of some customers, suppliers or other stakeholders to deal with the Group whilst such matters concerning Mr Zhevago remain unresolved. The Group understands that the restriction on 50.3% of the shares in FPM which was cancelled in November 2020 was in connection with 1 https://www.transparency.org/en/countries/ukraine# 2 https://www.transparency.org/en/cpi/2015/results/ukr 49 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Principal Risks continued 1. COUNTRY RISK CONTINUED 1.1 UKRAINE COUNTRY RISK (EXTERNAL RISK) purchase agreement 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. These claims were fully dismissed in 2015. According to recent claims made in the Ukrainian courts, four claimants seek to invalidate the share sale and purchase agreement concluded in 2002 pursuant to which a 40.19% stake in FPM was sold. Responsibility Board of Directors and Chief Executive Officer Risk appetite Medium Link to strategy 1, 2, 3, 4 and 5 Risk overview continued ongoing matters in Ukraine involving Kostyantin Zhevago and Bank Finance & Credit. There is a risk that assets owned or controlled (or alleged to be owned or controlled) by Kostyantin Zhevago may be subject to restrictions in connection with such unresolved ongoing matters, in Ukraine or elsewhere, or that the Group may be impacted by or become involved in further legal proceedings relating to these matters in Ukraine or elsewhere. In January 2021, Ferrexpo AG received a claim in relation to previous litigation regarding the shares in FPM. In 2005, a former shareholder in FPM brought proceedings in the Ukrainian courts seeking to invalidate the share sale and Change Risk mitigation Ferrexpo operates in accordance with relevant laws and utilises internal and external legal advisers as required to monitor and adapt to legislative changes or challenges. The Company maintains a premium listing on the London Stock Exchange and as a result is subject to high standards, including the UK Corporate Governance Code and Market Abuse Regulation. Ferrexpo has a relationship agreement in place with Kostyantin Zhevago, which stipulates that the majority of the Board of Directors must be independent of Mr Zhevago and his associates. For all related party transactions, appropriate procedures, systems and controls are in place. Ferrexpo prioritises a strong internal control framework including high standards of compliance and ethics. The Group operates a centralised compliance structure that is supported and resourced locally at the Group’s operations. Ferrexpo has implemented policies and procedures throughout the Group including training. Ferrexpo prioritises sufficient total liquidityA levels and strong credit metrics to ensure smooth operations should geopolitical or economic weakness disrupt the financial system of Ukraine. Ferrexpo looks to maintain a talented workforce through skills training and by offering competitive wages, taking into account movements of the Hryvnia against the US Dollar and local inflation levels. Ferrexpo has a high profile given its international client base, its London listing and bank lending from Western financial institutions. Ferrexpo’s Board of Directors and relevant senior management are tasked with stakeholder engagement and government relations to communicate the economic contribution that Ferrexpo makes to Ukraine and to show that it operates to high international standards. 50 Ferrexpo plc Annual Report & Accounts 2020 1.2 COUNTERPARTY RISK (EXTERNAL RISK) Risk overview Ferrexpo is exposed to counterparty risk through its interactions with government agencies, customers, suppliers, contractors and external parties that the Group interacts with, including through its CSR programmes. Risks relating to government agencies both in Ukraine and other jurisdictions in which the Group operates throughout the globe include levels or taxation, the repayment of VAT, and licences required for Ferrexpo’s operations to operate. In Ukraine, a number of monopolies exist, including the supply of natural gas that is required for the pelletisation of the Group’s products, and this presents the Group with a risk should these monopoly companies fail to function correctly. The Group is also exposed to counterparty risk through its business interactions with customers, suppliers of goods and services, and any charitable donations to third parties, as these interactions may result in financial loss for the Group if the counterparty in question fails to fulfil its duties correctly. Change Risk mitigation Ferrexpo sells its iron ore products to well-established steel producers that have sound credit profiles. Ferrexpo’s counterparties are subject to regular and thorough review. The results of these reviews are used to determine appropriate levels of exposure, and available alternatives, in order to reduce the potential risk of financial loss. The Group develops its supplier base in order to avoid excessive dependence on any supplier, actively encouraging a diversity of supply where reasonable and practical. Companies that would like to work with Ferrexpo are required to undergo an Accreditation Procedure, where their documents, licences and financial stability are checked. In 2020, in line with previous years, Ferrexpo screened and monitored third party entities for sanctions and other risks, with suppliers that pass accreditation able to participate in tenders. The advent of the global COVID-19 pandemic in 2020 also introduced additional risk to Ferrexpo in the form of heightened risk of counterparty failure, as third parties struggled to adapt to the effects of the pandemic. This is a risk facing the Group in terms of timely payment and/or delivery of goods and services. Responsibility Ferrexpo Board of Directors Risk appetite Low Link to strategy 4 For entities deemed to be “high risk”, additional checks and further monitoring are required by the Group’s compliance function. All supplier contracts must contain the defined set of compliance clauses (related to anti-bribery, sanctions, tax compliance, modern slavery, etc). These requirements were consolidated into the Business Partners’ Code of Conduct in 2019, which is referenced in 87% of contracts signed in 2020. The Finance, Risk Management and Compliance Committee (“FRMCC”), an executive sub-committee of the Board, met ten times in 2020, and is charged with ensuring that systems and procedures are in place for the Group to comply with laws, regulations and ethical standards. The FRMCC is attended by the Group Compliance Officer and, as necessary, by the local compliance officers from the operations, who present regular reports and ensure that the FRMCC is given prior warning of regulatory changes and their implications for the Group. The FRMCC enquires into the ownership of potential suppliers deemed to be “high risk”, and oversees the management of conflicts of interests below Board level and general compliance activities (including under the UK Bribery Act 2010, the Modern Slavery Act, the Criminal Finances Act, and the EU General Data Protection Regulation). The Group aims to minimise risk around the timely provision of goods and services through maintaining sufficient cash reserves and liquidity, as well as maintaining alternative suppliers should one counterparty fail. The Board’s current policy regarding charitable donations is not to donate on a nationwide basis, and the Group does not have any plans to conduct any such activity in the future. However, should the Company resume any national CSR programme in Ukraine, the Board will ensure adherence to the highest standards of diligence, oversight, governance and reporting. 51 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Principal Risks continued 2. GLOBAL DEMAND FOR STEEL China, which recovered to produce above 2019 levels sooner than other regions. The impact of this shifting dynamic in the industry resulted in significant inflows of iron ore pellets into China during the middle of 2020 and a material decrease in the Chinese pellet premium, which dropped from US$25 per tonne in early January 2020 to less than US$5 per tonne in August 2020. This decrease in pellet premiums affected the Group’s financial performance, with over 50% of the Group’s sales in 2020 going to China. In addition, the Company faced increased risk around the transport of increased volumes of products to Asia by oceangoing vessel, compared to the Group’s train shipments to Europe. The global steel industry is recovering, however, back to 2019 levels, according to data from the World Steel Association, which shows steel production in China in December 2020 above the level seen a year earlier. Ferrexpo remains vigilant, however, to further effects from the global COVID-19 pandemic and any potential impacts on global steel output in 2021 as a result. Responsibility n/a (Ferrexpo is not large enough to influence global market dynamics) Risk appetite Medium Link to strategy 3 and 5 Further reading For further information on the global market for steel demand in 2020, please see the Market Review section on P10-11 Risk overview Ferrexpo operates within the global steel industry as a raw material to feed steel mills, and therefore the global demand for the Group’s products is directly correlated to global demand for steel. Demand for steel can affect both the underlying price for iron ore, as well as the premium paid for high grade iron ore, whereby steel mills deliberately reduce the productivity of blast furnaces during times of reduced profitability by purchasing lower grade iron ore products. Scrap steel prices also have an impact on iron ore pricing as this material can be substituted for iron ore in certain types of steelmaking. There is also a trend in the global steel industry towards the production of Green Steel, which involves the production of steel without carbon emissions, and the risks presented to the Ferrexpo business by this factor are covered in a separate risk on page 59. Global steel production in 2020 was significantly impacted by the global COVID-19 pandemic, with a significant decrease in steel production seen across the globe. The impact of the pandemic on the steel sector was more severe and longer lasting in Europe and Far Asia (Japan, Korea and Taiwan), which are all important regional destinations for iron ore pellets, compared to the steel industry in Change Risk mitigation Ferrexpo is a low cost producer relative to the majority of its peers, positioned on the lowest quartile of the pellet cost curve, which is provided in the Market Review section on pages 10 and 11. Ferrexpo’s operating costs are partly correlated with commodity prices. When the commodities cycle is in a downward phase, and Ferrexpo typically receives a lower selling price, its cost base in general also reduces. The Ukrainian Hryvnia is a commodity- related currency and historically over the long term it has depreciated during periods of low commodity prices, although movements of the Hryvnia against the US Dollar can also be influenced by short-term political factors. 52 Ferrexpo plc Annual Report & Accounts 2020 3. RISKS RELATED TO REALISED PRICING 3.1 CHANGES IN PRICING METHODOLOGY Risk overview Pricing formulas for iron ore pellets are governed by a number of factors, including the iron ore fines price, a premium for additional ferrum content (if applicable), pellet premiums, freight rates and additional quality premiums and discounts depending on the type of iron ore pellet or concentrate supplied and its chemistry. Industry-wide factors, which are outside of the Group’s control, can influence the methodology for pricing iron ore products, in addition to the various premiums and discounts that are applied by individual customers and individual regions. Premiums or discounts paid for specific characteristics may change and adversely impact the Group’s ability to market specific products. Responsibility Chief Executive Officer and Chief Marketing Officer Risk appetite Medium Link to strategy 1, 3 and 5 Change Risk mitigation Ferrexpo endeavours to achieve the prevailing market price at all times, and is a low cost producer that aims to be cash flow positive throughout the commodities cycle. For more information on its position on the cost curve, please see Operational Review section on pages 22 to 23. The Group also has the logistics capability to divert sales to other markets to offset any regional weakness, as was seen during 2020 when the Group was able to redirect additional tonnages to Asia to meet increased relative demand for pellets in China. 3.2 LOWER IRON ORE PRICES Risk overview Ferrexpo’s iron ore products are priced using the iron ore fines index, and as such, lower iron ore fines pricing would negatively impact the Group’s ability to generate cash, potentially affecting shareholder returns, the Group’s ability to repay existing debt facilities and capital investment plans for future production. In 2020, the high grade iron ore fines price (65% Fe), which is the most applicable index for Ferrexpo’s iron ore products, averaged US$122 per tonne, compared to an average of US$104 per tonne in 2019. The price for medium grade iron ore fines (62% Fe) as of 1 March 2021 was US$174 per tonne, whereas the analyst consensus, as of early March 2021, for iron ore fines (62% Fe) pricing in 2021 was US$131 per tonne and the forward curve for delivery of 62% Fe iron ore fines material in December 2021 was US$135 per tonne, with both, therefore, indicating an expected decline in pricing in the year ahead. For further information on the iron ore market in 2020, please see the Market Review section on pages 10 to 11. Responsibility n/a (Ferrexpo not large enough to influence global iron ore pricing) Risk appetite Medium Link to strategy 1, 3 and 5 Change Risk mitigation Ferrexpo is a low cost producer relative to the majority of its peers, positioned on the lowest quartile of the pellet cost curve. Ferrexpo’s operating costs are partly correlated with commodity prices. When the commodities cycle is in a downward phase, and Ferrexpo typically receives a lower selling price, but the Group’s cost base also tends to decline as a result of local currency devaluation. The Ukrainian Hryvnia is a commodity-related currency and historically over the long term it has depreciated during periods of low commodity prices, although movements of the Ukrainian Hryvnia against the US Dollar can also be influenced by short-term political factors. Ferrexpo regularly reviews options to hedge the price of its output; however, its current strategy is not to enter into hedging agreements. Ferrexpo has maintained positive profit and cash generation throughout the iron ore price cycle. 53 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Principal Risks continued 3.3 PELLET PREMIUMS AND PELLET SUPPLY Risk overview Iron ore pellets are utilised by steel mills to improve productivity through their inherent characteristics as a pellet and the higher grade nature of Ferrexpo’s iron ore pellets. At times of lower steel mill profitability, steel producers are known to reduce demand for higher cost inputs such as iron ore pellets, in order to reduce the cost of steel production and to protect steel margins. This has the potential to negatively affect the pellet premium, and by extension, the profitability of Ferrexpo, since the majority of Ferrexpo’s profit margin has come from its ability to receive the pellet premium. Risks to the pellet premium also exist in replacement of pellets in the blast furnaces operated by Ferrexpo’s customers with alternatives, such as lump ores, and a significant increase in this substitution would have the potential to reduce pellet premiums. Further supply of pellets into the global Change Risk mitigation export market would also have the potential to reduce pellet premiums and a pellet producer in Brazil, which was offline since 2015, returned to production in late 2020. Recent trends in the global steel industry have led steel producers towards targeting lower carbon emissions, and iron ore pellets are a method for achieving such a reduction, since iron ore pellets do not require sintering prior to conversion into steel. If, however, this trend towards an environmentally friendlier method of steel production were to reverse in the future, this could also negatively affect demand for iron ore pellets, and by extension, lower pellet premiums. Lower pellet premiums could impact the Group’s ability to pay dividends to shareholders, repay debt amortisation and could result in lower levels of capital investment (including sustaining capex). Responsibility Chief Executive Officer and Chief Marketing Officer Risk appetite Medium Link to strategy 1, 3 and 5 Ferrexpo primarily sells high quality pellets, which underpin demand for its product throughout the commodity cycle. Should the pellet premium decline, Ferrexpo has one of the lowest pellet conversion costs in the industry, which should ensure that it is able to remain a competitive producer. Ferrexpo also has the ability to produce iron ore concentrate should market conditions make this product more economically viable. Ferrexpo’s pelletising costs in 2020 were approximately US$11 per tonne and, therefore, lower than the pellet premium seen in 2020 in both the Atlantic and China spot markets. Please see the Market Review section on pages 10-11 for more details. Should, however, the pellet premium fall below the cost of pelletising material, the Group has the option to halt pelletising operations and produce concentrate instead for a period of time. Further reading For further information on the global market for steel demand in 2020, please see the Market Review section on P10-11 54 Ferrexpo plc Annual Report & Accounts 2020 Responsibility Chief Marketing Officer and Group Freight Manager Risk appetite Medium Link to strategy 2, 3 and 5 3.4 SEABORNE FREIGHT RATES Risk overview As iron ore is a bulk commodity, seaborne freight rates are an important component of the cost to deliver product to a customer. An increase in freight rates will reduce the net price received from a customer, and reduce profitability, while a reduction in freight rates will increase the net price received from a customer. Seaborne freight rates, such as the C3 freight index, are published by the Baltic Exchange. The C3 freight index represents the cost for ocean transportation for iron ore from the Brazilian port of Tubarão (where the largest seaborne pellet supplier is based) to Qingdao, China (the world’s largest steel producer). Ferrexpo’s received price is referenced to transparent freight indices such as the Baltic Exchange C3 freight index. In 2020, the C3 freight index fell to an average of US$15 per tonne, down from US$19 per tonne in 2019, with this decrease coming as a result of the global COVID-19 pandemic and lower global demand for oil as a result. Freight rates are largely influenced by the price of oil and demand for oceangoing vessels from bulk commodity producers. As of 1 January 2020, the International Maritime Organization enforced a new 0.5% global sulphur cap on fuel content in the shipping industry from the previous 3.5% limit. Subject to supply and demand dynamics, including steel mill profitability, the introduction of IMO 2020 could have the potential to increase freight costs in future, due to the installation cost of scrubbers or the higher cost of compliant fuel, for iron ore suppliers across the industry and reduce net prices and thus impact profitability. Change Risk mitigation Ferrexpo has its own in-house freight and distribution specialists who procure freight competitively on behalf of the Group. Ferrexpo’s geographic proximity to its European customers is a competitive advantage compared to other iron ore producers. 55 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Principal Risks continued 4. OPERATING RISKS 4.1 OPERATING RISKS RELATED TO MINING, PROCESSING, PELLETISING AND LOGISTICS Risk overview Ferrexpo operates three open pit mining operations, a large scale beneficiation plant and four pelletising lines, which all involve the processing of significant volumes of material, and, therefore, have inherent significant associated risks due to their size and complexity of operations. In mining, there are inherent risks associated with open pit mining, including geotechnical risks, risks related to groundwater and surface water ingress, risks surrounding mine planning decisions, and risks related to critical equipment failure. In the Company’s beneficiation and pelletising operations, there are risks associated with critical equipment failure, as well as risks specific to the potential failure of the Group’s tailings dam facilities. Logistics risks relate to the business’s reliance on the ease of transport of its iron ore products to customers, in addition to the consistent supply to the Group’s operations of key consumables such as fuel for mining and natural gas for pelletising. Lower volumes, higher costs and financial penalties due to poor quality and late delivery can impact the Group’s cash generation ability, reducing liquidity levels and impacting capital investment A levels as well as its ability to repay debt and pay dividends to shareholders. Poor pellet quality or late delivery of product can also affect the Group’s ability to perform according to customer contracts and its ability to maintain and renew contracts in the future. Responsibility Chief Executive Officer, Chief Marketing Officer and Chief Operating Officer Risk appetite Medium Link to strategy 2, 3 and 5 Change Risk mitigation The Group aims to continually reinvest its profits into its business to simultaneously sustain and expand its production and logistics capabilities. Extensive monitoring by in-house planning departments, in addition to external certification by third party consultants, help to mitigate risks around the Group’s mining, processing, pelletising and logistics operations, including the Group’s tailings dam. To mitigate risk in relation to the Group’s logistics business and delivery of iron ore products to customers, the Group strives to operate its own equipment and facilities where possible, and as a result the Group owns a fleet of 2,850 railcars within Ukraine, a fleet of 154 barges on the River Danube, and has a 49.9% interest in a berth at the port of Pivdennyi (formerly known as Yuzhny). The Group also operates a talent management and leadership programme to ensure management coverage of business-critical roles. This involves the annual assessment of all managers across the Group of approximately 300 people. The results are presented to the Operations Management Committee, the Executive Committee and the Board. 56 Ferrexpo plc Annual Report & Accounts 2020 4.2 OPERATING RISKS RELATED TO HEALTH AND SAFETY Risk overview The mining and processing of iron ore is often associated with a hazardous working environment as it includes the use of explosives and the operation and repair of large mining machinery, amongst other things. Failure to provide a safe work environment for the Group’s workforce and failure to ensure the right safety culture and subsequent safe behaviours can impact the Group’s social licence to operate. Fatalities and lost time injuries negatively impact the workforce, their families and the communities in which we operate, and it can result in production stoppages due to regulatory interventions. The Group had one fatality in 2020 (2019: zero fatalities) and the Group’s lost time injury frequency rate (“LTIFR”) was 0.79 (2019: 0.58). Whilst the LTIFR result for 2020 represents an increase on the prior year, it should be noted that this figure is 22% below the Group’s five-year trailing average LTIFR and is also significantly ahead of a number of the world’s largest iron ore miners, located in the Pilbara region of Western Australia, which collectively achieved a LTIFR result of 1.6 in the most recently published data (2019-20), as published by the government of Western Australia1. COVID-19 has presented the Group with an additional group of risks in 2020 that have otherwise not been experienced previously. Ferrexpo has a workforce of nearly 11,000 employees and contractors, the majority of whom work in close proximity with other individuals, and transmission of the COVID-19 virus in the workplace represents a significant risk to the health and wellbeing of Ferrexpo’s workforce. Responsibility Chief Executive Officer, Chief Marketing Officer and Chief Operating Officer Risk appetite Low Link to strategy 1, 2, 3, 4 and 5 Change Risk mitigation The Group seeks to address the risks around the overall health and safety of its operations through a number of leading and lagging indicators. Leading indicators focus on measuring progress on efforts to reduce the incidence of safety-related events and these include health and safety training programmes, health and safety-specific audits of working areas and working practices, hazard reports and the number of high visibility safety tours by senior managers. Lagging indicators measure progress made through a reduction in the number of safety events that occur at the Group’s operations, including the number of fatalities in a reporting period, the number and frequency of lost time injuries, near miss events and road traffic accidents. It is the Group’s intention to instil a safety first ethic within its workforce, and as a result promote a culture of safety reporting incidents, regardless of whether an injury was incurred. As a result, it is the goal of the Group’s management to increase the volume of reporting of leading indicators (for example, safety training courses and the number of emergency drills), as well as increase the number of lagging indicators, such as near miss events, in order to learn from these events and avoid any reoccurrences happening. A portion of all employees’ total remuneration, especially the bonus structure, is also linked to team and individual safety performance. Further details of the Group’s safety performance are provided in the Responsible Business section of this report; please see pages 26 to 39. In relation to the specific risks posed by COVID-19, the Group has taken significant steps to reduce the risk of transmission in Ferrexpo workplaces, from demobilising up to a third of the Group’s employees to work remotely, through to the provision of training and materials to raise awareness on the virus for those who cannot work remotely, as well as enhanced cleaning protocols in Ferrexpo work areas. Further details of the Group’s efforts to stem the risk of transmission of the COVID-19 virus are detailed on page 9 as well as an overview on page 60 of the risks posed by COVID-19 and risk mitigations that the Group has taken. 1 Latest available period: 12 months to June 2020. http://www.dmp.wa.gov.au/Documents/Safety/MSH_Stats_Reports_SafetyPerfWA_2019-20.pdf 57 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Principal Risks continued 4.3 OPERATING RISKS RELATED TO OPERATING COSTS Responsibility Chief Financial Officer and Chief Operating Officer Risk appetite Low Link to strategy 2 & 5 affected approximately 50% of the Group’s total C1 cash costsA. The Ukrainian Hryvnia is a commodity-related currency and historically over the long term it has depreciated during periods of low commodity prices, although movements of the Ukrainian Hryvnia against the US Dollar can also be influenced by short-term political factors. In 2020, the Group’s C1 cash costsA of production decreased by 13% to US$41.5 per tonne from US$47.8 per tonne. See the Financial Review section of this report (pages 18 to 21) for a description of the factors impacting operating costs. Risk overview Ferrexpo’s overall ability to generate cash is predicated on its ability to maintain a low cash cost of production across its business, including the Group’s mining, processing, pelletising and logistics businesses. A number of factors affect the Group’s ability to remain cost effective relative to its iron ore producing peers, including the component of the Group’s cost base that relates to global commodity prices, such as fuel, gas, explosives, tyres and steel grinding media. The commodity-linked component of the Group’s cost base has historically represented approximately 50% of the total C1 cash costsA. In times of relatively high iron ore prices the cost of production tends to increase due to commodity cost inflation; however, during periods of low commodity prices the cash cost is typically reduced. A second important driver of C1 cash costsA is local currency, the Ukrainian Hryvnia, and this has historically directly Change Risk mitigation Ferrexpo sits in the bottom half of the pellet cost curve, and as such maintains a degree of competitiveness over its pellet producing peers in countries such as Brazil, Canada and Sweden. Many of the Group’s costs which relate to commodity prices will also impact Ferrexpo’s peers to a similar extent, and as such, in times of higher commodity prices, the Group should be able to maintain its cost competitiveness relative to its competitors. In 2021, Ferrexpo expects to increase production volumes, which will aid production costs through the dilution of fixed costs, and will potentially enable the Group to offset (to some extent) external cost inflation. A number of the Group’s peer group have in the past switched between production of iron ore pellets and iron ore concentrate, according to pellet premiums and the profitability of producing pellets. Ferrexpo’s pelletising costs in 2020 were approximately US$11 per tonne and therefore lower than both the pellet premium seen in 2020 in both the Atlantic and China spot markets (please see the Market Review section on pages 10 to 11 for more details). However, should the pellet premium fall below the cost of pelletising material, the Group has the option to halt pelletising operations and produce concentrate instead for a period of time. The Group also has a Business Improvement Programme aimed at increasing efficiencies and reducing costs by 1% to 2% per annum. Ferrexpo has established several sources of suppliers for key products as well as several supply routes to ensure cost effective supplies of all key consumables. 58 Ferrexpo plc Annual Report & Accounts 2020 Responsibility Ferrexpo Board of Directors and Chief Executive Officer Risk appetite Low Link to strategy 1, 2, 3, 4 and 5 5. OPERATING RISKS RELATED TO CLIMATE CHANGE in steel production would necessitate a move away from the blast furnace method of steel production, which utilises coal to fuel the steelmaking process, to the direct reduced iron (“DRI”) pathway of producing steel, which typically utilises either electricity or natural gas as its source of energy. This change in the global steel industry will potentially reduce demand for the Company’s main pellet type – the blast furnace pellet, and as a result poses a risk to pellet premiums paid for blast furnace pellets. Conversely, this will increase demand for direct reduction (“DR”) pellets that are used in the DRI steelmaking process and will therefore potentially increase pellet premiums for DR pellets instead. Reputational risks that relate to climate change are whereby stakeholders view the Group as having an excessive carbon footprint, or as engaging in activities that are not sufficiently beneficial to the environment, and could lead to the Group losing its social licence to operate, creating difficulties in accessing sources of external funding, a decrease in the Group’s share price relative to its peers, or limiting the Group’s ability to attract top managers to work for its business. Risk overview Climate change poses potential risk to Ferrexpo in both the near term and long term, through a variety of factors that range from physical risks of climate change that have the potential to directly affect operations, market risks related to the transition towards iron ore products that enable a pathway to a carbon free future of steel production, financial risks in the form of lenders preferentially lending to projects and assets that are considered to be environmentally friendly, and reputational risks related to stakeholder perceptions of the Group. Physical risks include the potential scarcity of water for mining operations (dust suppression) and processing activities, for example the water in the Group’s flotation tanks that is used to remove silica from the Group’s products. Additional risks relating to climate change are the potential for an increase in the frequency and severity of storm events that may impact the Group’s ability to access sections of its open pit mines, or the potential to interrupt logistics networks. Market risks relate to trends that are evident today in the global steel industry whereby steel producers are targeting carbon free steel production in the long term (typically by 2050), in line with targets set by national governments. Such a switch Change Risk mitigation The Company aims to be proactive and transparent in its activities, to inform stakeholders of its carbon footprint and to provide details of the work carried out to reduce the Group’s carbon footprint in the short-, medium- and long-term. Initiatives in 2020 have included the planning of a 5MW solar power plant, to be installed at the Group’s main operating facility, FPM, as a pilot plant. The Group has also commenced a project to purchase electricity generated by low-carbon (nuclear) or carbon-free (hydroelectric) sources, so as to reduce the Company’s Scope 2 emissions footprint, and to simultaneously promote the use of these power sources locally in Ukraine. Ferrexpo also utilises sunflower husks as a substitute for natural gas in its pelletiser, which increased in 2020 to 25% of the total energy consumed in the Group’s pelletiser (2019: 22%). Through improved efficiencies throughout its operations, and increased biofuel substitution of natural gas, the Group reduced its Scope 1 footprint per tonne by 8% in 2020. Through purchasing greener forms of electricity, the Company reduced its Scope 2 carbon footprint per tonne by 21% in 2020. Through a full year of greener energy purchases, further productivity gains and an expected increase in production, the Group expects to deliver a further reduction in its overall carbon footprint on a per tonne basis in 2021. 59 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Principal Risks continued 6. RISKS RELATED TO COVID-19 Responsibility Ferrexpo Board of Directors and Chief Executive Officer Risk appetite Low Link to strategy 1, 2, 3, 4 and 5 Risk overview The global COVID-19 pandemic had a significant impact on the world in 2020, affecting economies, communities, governments, businesses and individuals on an unprecedented scale. Examples of the effect of COVID-19 on a global level include an increase in mortality rates worldwide, a halt to international travel, distorted trade patterns, and a significant strain put on both national governments and health care systems around the world. On a local level, COVID-19 has isolated communities, reduced the ability of workers to attend their places of work and for businesses to function, and has therefore put individuals under increased physiological, psychological, emotional and financial strain as a result. The limiting nature of the global pandemic, which has resulted in the erection of significant barriers to day to day life in 2020, has both heightened existing risks facing the Group as well as introduced new risks that the business has not encountered previously. Change Risk mitigation Risks posed to the Group as a result of COVID-19 can broadly be categorised into the effect of COVID-19 on the iron ore market, the Group’s ability to produce and its impact on the health and wellbeing of its workforce. Please see commentary in this section around the iron ore market (page 10 to 11) and the Group’s operations (page 22 to 23) for additional information. Examples of specific risks relating to the health and wellbeing of the Group’s workforce include the health implications of individuals contracting the COVID-19 virus, and the subsequent risk on the business of their absence and potential onward transmission to others, the inability of the Group’s workforce to attend their place of work and/or travel to Ferrexpo offices and the subsequent impact of this on the Group’s ability to produce and distribute its pellets, and a heightened risk of a deterioration in existing business relationships as a result of contact with both customers and providers of finance being limited. Risk mitigation activities to ensure iron ore pellet production was not affected by, and continues to be unaffected by, COVID-19 include the measures implemented to protect individuals in the Group’s workforce, as detailed below, in addition to contingency planning around potential business interruptions, including events that may affect either the supplies of key consumables or key aspects of the Group’s logistics used to supply customers with pellets. The Group is confident that the measures undertaken to insulate operations against the effects of COVID-19 in 2020 were effective, as shown by the 7% increase in production seen during the year, and the Group continues to implement these measures as the pandemic continues into 2021. in a significant adjustment of demand towards China, and the Group reacted by shipping significantly greater volumes of pellets to China as a result. This was achieved through an increase in the number of capesize vessels shipped from the Group’s berth at the port of Pivdennyi (formerly Yuzhny) from 28 in 2019 to 47 in 2020. The Group has additional flexibility in its rail and barge operations to adapt to further movements in global pellet demand should they arise. Initial indications have shown an acceleration in pellet buying from steel mills in Europe in the fourth quarter of 2020, resulting in a normalisation of the pellet market in this region as of the end of 2020. Global demand for pellets remains strong, with other geographic regions seeing a resumption in buying activity in early 2021. In relation to mitigating risks posed by COVID-19 to the iron ore export market, the Group maintains a global network of marketing offices and an established logistics network, enabling it to redirect sales to markets according to global demand. In 2020, COVID-19 resulted In relation to protecting its workforce and local communities, the Group has taken extensive measures throughout its business in 2020. Steps taken to protect the Group’s workforce include remote working measures for those who can conduct their activities remotely and measures at workplaces for those who are unable to work remotely, such as social distancing of operating teams, staggered shift patterns, the distribution of canteen food to places of work, the provision of sanitiser for handwashing and COVID-19 specific training and awareness initiatives. The Group also regularly tests its workforce and conducts contact tracing activities to limit the potential spread of the COVID-19 virus in Ferrexpo’s places of work. Further details of the efforts made to protect the Group’s workforce are provided on page 9. In addition, the Group has made extensive efforts to protect the local communities that surround the Group’s operations in Ukraine, through a dedicated COVID-19 Response Fund, which has approved funding of US$2.5 million to be used in supporting local hospitals in acquiring medical equipment and supplies, in addition to a further US$1 million of available funding approved in early 2021. Further details of Ferrexpo’s efforts to support local communities during the global pandemic are provided on pages 34 to 35. 60 Viability Statement The Board monitors the Group’s risk management and internal control systems on an ongoing basis, and confirms that during the year it carried out a robust assessment of the principal and emerging risks facing the Group, their potential impact and the mitigating strategies in place, as described on pages 46 to 60. Time horizon The Board has reviewed the long-term prospects of the business, which remain aligned with Ferrexpo’s life of mine assumptions. For the purposes of assessing the Group’s viability in the medium term, the Directors have chosen a five-year time period given the long life nature of mining assets, including the period required to invest in such assets and taking into account the cash flows generated by those assets, as well as the cyclical nature of the commodities industry. As such, a five-year time period was considered an appropriate length for the Board’s strategic planning period. Stress testing In determining the viability of the business, the Directors have stress tested the individual risks and combination of risks that could materially impact the future viability of the business. The Group is primarily exposed to changes in the iron ore fines price, pellet premiums and cost inflation. Based on 2021 expected production volumes of 12.2 million tonnes, and 13.1 million tonnes for years 2022 to 2024, a US$5.0 per tonne fall in the Group’s received price would, if not mitigated, reduce the Group’s underlying EBITDA A by US$5.0 per tonne. Modelling indicates that a general production cost increase of 10% would decrease Group underlying EBITDA A by US$3.7 per tonne, whilst a 10% decrease in production volumes, and an associated 5% increase in production costs, would decrease underlying EBITDA by US$8.8 per tonne. Other stress test scenarios included operational incidents that have a significant impact on production volumes, a deterioration in the Group’s long-term cost position on the industry cost curve or other operating constraints due to Ukrainian country risk. The scenario analysis includes severe situations outside the normal course of business, such as a breakdown in the linkage between the movements of the iron ore price with other commodity prices, notably the oil price which forms a significant component of the Group’s cost base or an appreciation of the Ukrainian Hryvnia when the iron ore price is weak. Mitigating actions include a reduction or cancellation of discretionary expenditure such as dividends, non-essential capital investment and repairs and maintenance, or other operating costs, adjusting capital allocation, reducing working capital requirements, altering mining schedules and accessing additional funding. The Directors take comfort in the Group’s historical cash generation ability, particularly in 2015 and 2016 at a time when the iron ore price was trading at a cyclical low. Since 1 January 2016, the Group has reduced its net financial indebtedness by over US$870 million and it currently has a strong financial profile. Although the Group navigated successfully through the unprecedented period of the COVID-19 pandemic in 2020, reverse stress tests have been performed in order to understand the impact of more significant changes in circumstances in terms of the resilience of the Group’s business model and its cash balance. The reverse stress test addressed significant adverse changes of sales prices, production costs and volumes. Viability Statement Based on the results of this analysis, the Directors have a reasonable expectation that the Group will be able to continue to operate and meet its liabilities as they fall due over the five-year period of this assessment. Prospects The Directors, having assessed the Group’s current position and the principal and emerging risks related to the Group’s business model, believe the long-term prospects of the Group remain sound. Principally, this is due to Ferrexpo’s competitive cost position on the iron ore cost curve, its high quality product that commands a price premium in a niche market with high barriers to entry, a first- class customer portfolio, a well-invested asset base and favourable long-term industry dynamics supporting pellet consumption. The Directors also note the resilience shown during the global COVID-19 pandemic in 2020, whereby production volumes increased by 7%, Ferrexpo plc Annual Report & Accounts 2020 despite significant measures implemented to mitigate the impact of the COVID-19 virus on operations. Furthermore, the Group showed adaptability in light of the global COVID-19 pandemic, which shifted global pellet demand away from traditional pellet export markets in Europe, and increased pellet demand in China. The Group was able to quickly respond to this shift, increasing shipments via the Group’s berth at the port of Pivdennyi (formerly Yuzhny) and increasing the number of capesize vessels from 28 in 2019 to 45 in 2020. The Directors also note the potential impacts of climate change on the Group, including environmental and social factors related to climate change, as well as the recent shift towards Green Steel (carbon free steel). Ferrexpo is well positioned in this regard through its production of iron ore pellets, which are currently the main identified pathway to producing Green Steel, via direct reduction pellets. As such, the Group commenced production of direct reduction pellets in 2020, with further trial cargoes planned for 2021. The Strategic Report was approved by the Board and signed on its behalf by: Lucio Genovese Chair 61 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Corporate Governance Report Chair’s Introduction Dear Shareholder I am delighted to present my first Corporate Governance Report since my appointment as Chair, which sets out our governance structure and highlights the governance activity of the Board and its principal committees during the course of the year. The Board remains fully committed to maintaining good corporate governance practices throughout the Group. The structure, policies and procedures we have adopted, which are described in this report, the Directors’ Report and the reports of the various committees, reflect this commitment, but we recognise the need to keep them under review and to make changes where necessary to ensure that standards are maintained and to reflect evolving best practice. This report also explains how we have applied the principles of the 2018 Corporate Governance Code during the year. As I reflect on the challenges, achievements and developments over the last year, it is clear that the COVID-19 pandemic presented unprecedented circumstances. The pandemic tested every aspect of the business, the resilience of our people and our system of governance and internal control. The Board’s role includes managing the risks facing the business. This includes taking into account the risks associated with the country of operation, counterparties, operational and financial risks including health, safety, environmental and climate change risks, together with market volatility, pricing, financing and refinancing exposures. As new risks emerge our approach to evaluating risk appetite is reassessed. COVID-19 response and governance framework As a responsible Board, our priority over the past year has been the safety and wellbeing of our employees globally. We responded and adapted quickly to the challenges which COVID-19 presented to ensure business continuity and safeguard our operations, whilst maintaining good corporate governance practices and our system of internal control. Our prompt response to implement effective measures meant that, despite the global disruption, the Board and its Committees continued to function effectively and without disruption. With the exception of meetings held earlier in the year, all scheduled Board and Board Committee meetings were held virtually. Adapting to new ways of working during the pandemic, the Board and its Committees regularly met via video conferencing due to the stay at home measures and social distancing requirements. This was an effective way of maintaining good corporate governance, the corporate agenda, the flow of information across the Group and delivery of the Group’s strategy. Despite the challenges of remote working we continued to enhance our shareholder and stakeholder engagement and place their interests at the centre of our considerations for key decisions. Our section 172 Statement set out on pages 44 to 45 provides further details on how the Board complied throughout the year. Supporting local communities during COVID-19 In 2020, in addition to our continued support for communities locally, COVID-19 special funding in the amount of US$2.5 million was provided to support the local community in Horishni Plavni for the purchase of Personal Protective Equipment and equipment for local hospitals (see Responsible Business section of the Strategic Report on pages 26 to 39). Community support activities took place exclusively in Ukraine and donations were made within a Board-approved framework agreed annually at the time of setting the budget; they are subject to the internal control and approval limits applicable within the individual subsidiaries of the Group, which are set by the Board. The Board exercises control of the local charitable spending via its Health, Safety, Environment and Community (“HSEC”) Committee, which oversees and directs these activities and receives reports detailing the spend. The Audit Committee reviewed reporting from the external auditors in relation to their procedures on HSEC Committee as part of their audit of the Group. Board changes There were a number of key Board changes during the year. Steve Lucas, former Chair, announced his intention to retire for personal reasons after the 2020 AGM once an orderly succession process had been put in place. Following an extensive search and benchmarking process led by the Nominations Committee together with external consultants, on 24 August 2020, the Board appointed me as Chair of the Company. On 28 May 2020, Jim North was appointed as Acting CEO in place of Chris Lucio Genovese Chair “Improving Board diversity 62 Ferrexpo plc Annual Report & Accounts 2020 Diversity in action: in 2017, Soviet-era legislation that banned women from working in specific professions was abolished in Ukraine, enabling Ferrexpo to hire women as truck drivers at its latest mine – Belanovo. Post AGM engagement During the year, we consulted with shareholders on a number of important corporate governance issues, four of which following significant votes against Resolutions 2, 9, 10 and 12 at the 2020 AGM (approval of Directors’ Remuneration Report, re-election of Vitalii Lisovenko, Steve Lucas and Kostyantin Zhevago) and one following significant votes against Resolution 1 at the 2020 General Meeting (re-election of Vitalii Lisovenko). Based on the feedback received, the Board understands that the votes against arose as a result of concerns over corporate governance. Actions taken in response included: – the appointment of Lucio Genovese as Chair; – alignment of all Non-executive Director fees; – enhanced procedures and internal controls as part of the process of improving the overall corporate governance framework; and – enhanced shareholder engagement. The Company has continued its search for diverse independent candidates to strengthen the profile of the Board. This work remains ongoing (please see Nominations Committee Report on page 82). Lucio Genovese Chair 16 March 2021 63 Mawe who returned to his role as CFO and, it was subsequently announced that Mr Mawe would leave his position as CFO once an orderly transition process had been established. On 30 July 2020, Roman Palyvoda was appointed as Acting CFO. On 5 July 2020, Jim North was appointed an Executive Director of the Company. Throughout the year, the Board continued its search for Independent Non-executive Director candidates led by the Nominations Committee and supported by external consultants. I am pleased that Ann-Christin Andersen has recently agreed to join the Company as an Independent Non- executive Director. The Board is committed to appointing another independent Non-executive Director to further strengthen the Board and its Committees. This process is being led by the Nominations Committee supported by international search consultants. FC Vorskla As previously disclosed, the Committee of Independent Directors (“CID”) has been conducting a review into FC Vorskla sponsorship arrangements. Significant progress has been made and the review has now been completed. See page 78 for further details. Key highlights in 2020: – proactive response to COVID-19; – focus on climate change; – enhance procedures and internal controls improving the Corporate Governance framework; – third Employee Engagement Survey; – appointment of Chair; – appointment of Executive Director; – appointment of Acting CEO; – appointment of Acting CFO; – focus on shareholder and key stakeholder engagement; and – Remuneration Policy review. Key priorities for 2021: – continued management of COVID-19; – Health & Safety and employee wellbeing; – climate change; – appointment of an independent Non-executive Director; – Board diversity; – succession planning at Board and management level; and – cyber security. Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Board of Directors A refreshed Board with the right mix of skills and experience Raffaele (Lucio) Genovese Non-executive Chair Vitalii Lisovenko Senior Independent Non-executive Director Jim North Acting Chief Executive Officer and Executive Director Fiona MacAulay Independent Non-executive Director Graeme Dacomb Independent Kostyantin Zhevago Ann-Christin Andersen Non-independent Independent Non-executive Director Non-executive Director Non-executive Director Date of appointment 24 August 2020 as Chair 13 February 2019 as Non-independent Non- executive Director Current external appointments Currently, he serves as chief executive officer of Nage Capital Management AG, a Swiss based investment and advisory firm, since 2004; non-executive director of Mantos Copper SA since September 2015; and Nevada Copper Inc since 2016. Previous appointments Previously, he was chair of Firestone Diamonds Plc, 2012- 2020; an Independent Non- executive Director of Ferrexpo plc, 2007–2014; independent non-executive director of Ferrous Resources Limited, 2014–2019; senior executive officer, Copper Division, Glencore International, 1996–1999 and chief executive officer, CIS Operations, Glencore International, 1992–1998. Skills, expertise and contribution Lucio contributes to Ferrexpo plc over 30 years’ of commercial experience in the metals and mining industry. He worked at Glencore International AG where he held several senior positions including the CEO of the CIS region. Lucio brings a deep knowledge across the Ferrous and Non- Ferrous Mining sector, including in iron ore. He has extensive experience of operating in emerging markets, specifically in Russia and the CIS states. As a previous Board member (from 2007 to 2014) and as a Board member of Ferrexpo AG, Lucio has in-depth knowledge of the Group which is extremely valuable to the Company at a Board level. Committee membership Lucio is the Chair of the Nominations Committee. 64 Date of appointment 28 November 2016 Date of appointment 5 July 2020 Executive Director Date of appointment 12 August 2019 Date of appointment Date of appointment Date of appointment 10 June 2019 14 June 2007 as Non-executive 1 March 2021 Current external appointments Currently, he serves as a non- executive adviser to the Minister of Finance of Ukraine, having previously served as an executive counsellor to the Minister of Finance. He also serves as a non-executive director of the Supervisory Board of National Depositary of Ukraine and a non- executive alternate director, Black Sea Trade and Development Bank (Greece) since 2014. Previous appointments Previously, he was an executive director of Ukreximbank (Ukraine), 2006–2010; an executive director of Alfa Bank Ukraine, 2010–2014; a non- executive director of Amsterdam Trade Bank, 2013–2014; and since 1994 held various positions in the Finance Ministry of Ukraine. He also was an Associate Professor of Finance at the Kyiv State Economic University. Skills, expertise and contribution Vitalii contributes to Ferrexpo plc over 20 years’ experience in government finance. In 2005, he served as the head of the Trade and Economic Mission at the Ukrainian Embassy in London. He was an Associate Professor of Finance at the Kyiv State Economic University. Vitalii brings extensive experience in the field of Ukrainian government finance together with a deep understanding of geopolitical developments in Ukraine which is valuable to the Group. Committee membership Vitalii is the Chair of the Committee of Independent Directors and a member of the Audit, Nominations and Remuneration Committees. Non-executive Director designate for workforce engagement 28 May 2020 as Acting Chief Executive Officer 1 November 2014 as Chief Operating Officer Current external appointments None. Previous appointments Previously, he was Chief Operating Officer of London Mining PLC, where he was accountable for setting the company’s operational and investment strategy around the world. He has wide-ranging operational mining experience at a senior level with Rio Tinto, BHP Billiton and Mount Isa Mines in Africa, South America and Australia covering commodities including iron ore, coal, base metals and aluminium. Skills, expertise and contribution Jim joined the Company in November 2014 and since then he has successfully managed our operations, enhancing operating efficiency by introducing world- class operating practices. Over the past five years, Jim has developed the strategic organic growth programme to expand and increase production through incremental brownfield expansions to FPM processing facilities significantly reducing the capital intensity required. Jim is a capable Executive Director. He brings multiple commodity experience across the resources value chain and extensive experience to bear managing the Company. Committee membership Jim is a member of the HSEC Committee (formerly CSR Committee). Current external appointments Currently, she serves as non- executive director of Chemring Group plc since 2020; and non- executive director of AIM listed Coro Energy since 2017; and non- executive director of AIM listed Independent Oil & Gas plc since 2018 where she serves as chair. Previous appointments Previously, she was chief executive officer of Echo Energy plc 2017–2018 and a non-executive director 2018–2019 and chief operating officer of Rockhopper Exploration plc, 2013–2017. Skills, expertise and contribution Fiona contributes to Ferrexpo plc over 35 years’ experience in the upstream oil and gas sector including key roles in a number of leading oil and gas firms across the large, mid and small cap space including Mobil, BG Group, Amerada Hess, Echo Energy and Rockhopper. Fiona brings a strong focus on health, safety, climate change and culture with a deep understanding of the factors influencing the management for safe, efficient and commercial operations which is crucial to her role as Chair of the HSEC Committee. Fiona brings extensive operational experience in emerging energy which enables her to bring positive insight on a broad range of issues to Board and Committee discussions. Committee membership Fiona is the Chair of the Remuneration Committee and a member of the Audit and Nominations Committee and Committee of Independent Directors. Fiona was appointed the Chair of the HSEC Committee formerly CSR Committee) on 13 February 2020. Current external appointments Currently, he serves as non- executive director of Anglo Pacific Plc since 2019. Previous appointments Previously, he was a Member of the Financial Reporting Review Panel from 2011–2018 and an audit partner of Ernst & Young LLP for 26 years. Skills, expertise and contribution Graeme contributes to Ferrexpo plc over 42 years’ experience of which he was a partner at Ernst & Young (“E&Y”) for 26 years where, for his last 12 years, he was a lead partner in the extractive industry, responsible for coordinating the provision of a full suite of services to multinational mining and oil and gas clients including Xstrata, Fresnillo, and BP across a broad range of countries including emerging markets. In addition to audit services, he provided critical advice for his clients on corporate governance structures, risk management, acquisitions, disposals and financial systems and controls. Graeme brings extensive knowledge of the extractive industry and his financial expertise gained as lead audit partner provides a solid foundation for his role as Chair of the Audit Committee. He also brings an invaluable perspective and insights from his extensive international career. Committee membership Graeme is the Chair of the Audit Committee, where he acts as its Financial Expert and a member of the Remuneration Committee and the Committee of Independent Directors. Director 1 November 2008–25 October 2019 as Chief Executive Officer 25 October 2019 as Non- independent Non-executive Director Current external appointments None. Previous appointments Kostyantin has substantial management and investment experience gained over a 30-year business career in Ukraine. Skills, expertise and contribution Kostyantin contributes to Ferrexpo plc over 30 years’ substantial management and investment experience gained during his business career in Ukraine. Kostyantin brings significant experience in areas such as mining operations, sales and marketing and government relations, and has a detailed understanding of the Ukrainian business, economic and political landscape, which is very valuable to the Group. He has a deep working knowledge of the Group, having previously acted as Chief Executive Officer for 11 years, which he is able to contribute to Board decision- making. Kostyantin also has strong relationships with a number of key stakeholders of the Group, developed during his time at Ferrexpo. Committee membership Kostyantin was a member of the HSEC Committee (formerly CSR Committee) until 13 February 2020. Current external appointments Since 2020, Ann-Christin has served as chair of the board of Glitre Energi AS, having been appointed as a director in 2015. She is a non-executive director of Maersk Drilling since 2020 and has been a non-executive director of Rotork Plc since 2018. Previous appointments Previously, she has combined her executive career in the oil and gas industry with several board assignments, e.g. non-executive director for Veidekke ASA. Skills, expertise and contribution Ann-Christin is an engineer with more than 30 years’ experience in the oil and gas industry. Ann-Christin brings wealth of resource based industrial experience in both mature and emerging markets together with real life experience on how to orchestrate business transformation. In addition to experience on how to implement a culture of safety in a high-risk industry, she brings knowledge of stepping-up automation to become smarter, better, faster whilst driving digital transformation for business value. Committee membership Ann-Christin was appointed a member of the Nominations Committee, Remuneration Committee, Committee of Independent Directors and HSEC Committee (formerly CSR Committee) with effect from May 2021. Ferrexpo plc Annual Report & Accounts 2020 Raffaele (Lucio) Genovese Non-executive Chair Vitalii Lisovenko Senior Independent Jim North Fiona MacAulay Acting Chief Executive Independent Non-executive Director Officer and Executive Non-executive Director Graeme Dacomb Independent Non-executive Director Kostyantin Zhevago Non-independent Non-executive Director Ann-Christin Andersen Independent Non-executive Director Date of appointment 28 November 2016 Date of appointment Date of appointment 5 July 2020 Executive Director 12 August 2019 Date of appointment 24 August 2020 as Chair 13 February 2019 as Non-independent Non- executive Director Current external appointments Currently, he serves as chief executive officer of Nage Capital Management AG, a Swiss based investment and advisory firm, since 2004; non-executive director of Mantos Copper SA since September 2015; and Nevada Copper Inc since 2016. Previous appointments Previously, he was chair of Firestone Diamonds Plc, 2012- 2020; an Independent Non- executive Director of Ferrexpo plc, 2007–2014; independent non-executive director of Ferrous Resources Limited, 2014–2019; senior executive officer, Copper Division, Glencore International, 1996–1999 and chief executive officer, CIS Operations, Glencore International, 1992–1998. Skills, expertise and contribution Lucio contributes to Ferrexpo plc over 30 years’ of commercial experience in the metals and mining industry. He worked at Glencore International AG where he held several senior positions including the CEO of the CIS region. Lucio brings a deep knowledge across the Ferrous and Non- Ferrous Mining sector, including in iron ore. He has extensive experience of operating in emerging markets, specifically in Russia and the CIS states. As a previous Board member (from 2007 to 2014) and as a Board member of Ferrexpo AG, Lucio has in-depth knowledge of the Group which is extremely valuable to the Company at a Board level. Committee membership Lucio is the Chair of the Nominations Committee. Current external appointments Currently, he serves as a non- executive adviser to the Minister of Finance of Ukraine, having previously served as an executive counsellor to the Minister of Finance. He also serves as a non-executive director of the Supervisory Board of National Depositary of Ukraine and a non- executive alternate director, Black Sea Trade and Development Bank (Greece) since 2014. Previous appointments Previously, he was an executive director of Ukreximbank (Ukraine), 2006–2010; an executive director of Alfa Bank Ukraine, 2010–2014; a non- executive director of Amsterdam Trade Bank, 2013–2014; and since 1994 held various positions in the Finance Ministry of Ukraine. He also was an Associate Professor of Finance at the Kyiv State Economic University. Skills, expertise and contribution Vitalii contributes to Ferrexpo plc over 20 years’ experience in government finance. In 2005, he served as the head of the Trade and Economic Mission at the Ukrainian Embassy in London. He was an Associate Professor of Finance at the Kyiv State Economic University. Vitalii brings extensive experience in the field of Ukrainian government finance together with a deep understanding of geopolitical developments in Ukraine which is valuable to the Group. Committee membership Vitalii is the Chair of the Committee of Independent Directors and a member of the Audit, Nominations and Remuneration Committees. Non-executive Director designate for workforce engagement Director 28 May 2020 as Acting Chief Executive Officer 1 November 2014 as Chief Operating Officer Current external appointments None. Previous appointments Previously, he was Chief Operating Officer of London Mining PLC, where he was accountable for setting the company’s operational and investment strategy around the world. He has wide-ranging operational mining experience at a senior level with Rio Tinto, BHP Billiton and Mount Isa Mines in Africa, South America and Australia covering commodities including iron ore, coal, base metals and aluminium. Skills, expertise and contribution Jim joined the Company in November 2014 and since then he has successfully managed our operations, enhancing operating efficiency by introducing world- class operating practices. Over the past five years, Jim has developed the strategic organic growth programme to expand and increase production through incremental brownfield expansions to FPM processing facilities significantly reducing the capital intensity required. Jim is a capable Executive Director. He brings multiple commodity experience across the resources value chain and extensive experience to bear managing the Company. Committee membership Jim is a member of the HSEC Committee (formerly CSR Committee). Current external appointments Currently, she serves as non- executive director of Chemring Group plc since 2020; and non- executive director of AIM listed Coro Energy since 2017; and non- executive director of AIM listed Independent Oil & Gas plc since 2018 where she serves as chair. Previous appointments Previously, she was chief executive officer of Echo Energy plc 2017–2018 and a non-executive director 2018–2019 and chief operating officer of Rockhopper Exploration plc, 2013–2017. Skills, expertise and contribution Fiona contributes to Ferrexpo plc over 35 years’ experience in the upstream oil and gas sector including key roles in a number of leading oil and gas firms across the large, mid and small cap space including Mobil, BG Group, Amerada Hess, Echo Energy and Rockhopper. Fiona brings a strong focus on health, safety, climate change and culture with a deep understanding of the factors influencing the management for safe, efficient and commercial operations which is crucial to her role as Chair of the HSEC Committee. Fiona brings extensive operational experience in emerging energy which enables her to bring positive insight on a broad range of issues to Board and Committee discussions. Committee membership Fiona is the Chair of the Remuneration Committee and a member of the Audit and Nominations Committee and Committee of Independent Directors. Fiona was appointed the Chair of the HSEC Committee formerly CSR Committee) on 13 February 2020. Date of appointment 10 June 2019 Current external appointments Currently, he serves as non- executive director of Anglo Pacific Plc since 2019. Previous appointments Previously, he was a Member of the Financial Reporting Review Panel from 2011–2018 and an audit partner of Ernst & Young LLP for 26 years. Skills, expertise and contribution Graeme contributes to Ferrexpo plc over 42 years’ experience of which he was a partner at Ernst & Young (“E&Y”) for 26 years where, for his last 12 years, he was a lead partner in the extractive industry, responsible for coordinating the provision of a full suite of services to multinational mining and oil and gas clients including Xstrata, Fresnillo, and BP across a broad range of countries including emerging markets. In addition to audit services, he provided critical advice for his clients on corporate governance structures, risk management, acquisitions, disposals and financial systems and controls. Graeme brings extensive knowledge of the extractive industry and his financial expertise gained as lead audit partner provides a solid foundation for his role as Chair of the Audit Committee. He also brings an invaluable perspective and insights from his extensive international career. Committee membership Graeme is the Chair of the Audit Committee, where he acts as its Financial Expert and a member of the Remuneration Committee and the Committee of Independent Directors. Date of appointment 14 June 2007 as Non-executive Director 1 November 2008–25 October 2019 as Chief Executive Officer 25 October 2019 as Non- independent Non-executive Director Current external appointments None. Previous appointments Kostyantin has substantial management and investment experience gained over a 30-year business career in Ukraine. Skills, expertise and contribution Kostyantin contributes to Ferrexpo plc over 30 years’ substantial management and investment experience gained during his business career in Ukraine. Kostyantin brings significant experience in areas such as mining operations, sales and marketing and government relations, and has a detailed understanding of the Ukrainian business, economic and political landscape, which is very valuable to the Group. He has a deep working knowledge of the Group, having previously acted as Chief Executive Officer for 11 years, which he is able to contribute to Board decision- making. Kostyantin also has strong relationships with a number of key stakeholders of the Group, developed during his time at Ferrexpo. Committee membership Kostyantin was a member of the HSEC Committee (formerly CSR Committee) until 13 February 2020. Date of appointment 1 March 2021 Current external appointments Since 2020, Ann-Christin has served as chair of the board of Glitre Energi AS, having been appointed as a director in 2015. She is a non-executive director of Maersk Drilling since 2020 and has been a non-executive director of Rotork Plc since 2018. Previous appointments Previously, she has combined her executive career in the oil and gas industry with several board assignments, e.g. non-executive director for Veidekke ASA. Skills, expertise and contribution Ann-Christin is an engineer with more than 30 years’ experience in the oil and gas industry. Ann-Christin brings wealth of resource based industrial experience in both mature and emerging markets together with real life experience on how to orchestrate business transformation. In addition to experience on how to implement a culture of safety in a high-risk industry, she brings knowledge of stepping-up automation to become smarter, better, faster whilst driving digital transformation for business value. Committee membership Ann-Christin was appointed a member of the Nominations Committee, Remuneration Committee, Committee of Independent Directors and HSEC Committee (formerly CSR Committee) with effect from May 2021. 65 Strategic ReportCorporate GovernanceFinancial StatementsBrett Salt Chief Marketing Officer Nikolay Kladiev Chief Financial Officer, FPM Viktor Lotous Chief Operating Officer and Head of Managing Board, FPM Greg Nortje Chief Human Resources Officer Roman Palyvoda Acting Chief Financial Officer On 1 July 2020, Brett joined Ferrexpo from Rio Tinto where, over a 23-year career, he held a variety of senior leadership roles in Asia, North America, Europe, the Middle East, Africa and the former Soviet Union. His commercial experience covers sales and marketing, mergers and acquisitions, corporate development, finance, shipping and logistics across multiple commodities to include iron ore, coal, copper and freight. Skills and experience He holds a Bachelor of Commerce, majoring in Economics and Commercial Law from Curtin University of Technology and a diploma in Investment and Risk Management in Shipping from the IMD Business School. Nikolay spent several years as an audit manager with Ernst & Young and as CFO of a large Russian factory. Viktor became Chief Engineer in 1997 and Greg joined Ferrexpo in January 2014. He Roman was appointed as Acting Chief General Director and Chief Operating Officer previously held a variety of international in April 2007. human resource leadership positions with Anglo American and BHP Billiton. Skills and experience He is a Chartered Accountant (UK) and has a Masters in International Economic Relations from the Kyiv National Economic University. Skills and experience Skills and experience Skills and experience He is a graduate of Kryvyi Rih Mining and Ore Institute, and of the Kyiv National Economic University, specialising in Finance. He has Advanced Management qualifications from the University of Stellenbosch Business School and the Gordon Institute of Business Science, a Bachelor of Arts degree and a postgraduate Diploma in Education from the University of the Witwatersrand. Financial Officer on 14 November 2019 until 28 May 2020 and reappointed on 30 July 2020. He joined Ferrexpo in September 2008 as the Group Management Accountant. Previously, he worked at Renault Group, most recently as the Financial Controller for Russia, Ukraine and the CIS. He studied International Relations in Finance at the National University of Lviv, graduating with honours, and Business Management at the Institut d’etudes politiques de Paris. As Roman’s appointment as Acting Chief Financial Officer is temporary he has not joined the Board of Directors. Ferrexpo plc Annual Report & Accounts 2020 Executive Committee Jim North Acting Chief Executive Officer and Chief Operating Officer – combined role For more information see page 64 for details. 66 Ferrexpo plc Annual Report & Accounts 2020 Jim North Acting Chief Executive Officer and Chief Operating Officer – combined role Brett Salt Nikolay Kladiev Chief Marketing Officer Chief Financial Officer, FPM Viktor Lotous Chief Operating Officer and Head of Managing Board, FPM Greg Nortje Chief Human Resources Officer For more information see page 64 for details. On 1 July 2020, Brett joined Ferrexpo from Nikolay spent several years as an audit manager with Ernst & Young and as CFO of a large Russian factory. Viktor became Chief Engineer in 1997 and General Director and Chief Operating Officer in April 2007. Greg joined Ferrexpo in January 2014. He previously held a variety of international human resource leadership positions with Anglo American and BHP Billiton. Rio Tinto where, over a 23-year career, he held a variety of senior leadership roles in Asia, North America, Europe, the Middle East, Africa and the former Soviet Union. His commercial experience covers sales and marketing, mergers and acquisitions, corporate development, finance, shipping and logistics across multiple commodities to include iron ore, coal, copper and freight. Roman Palyvoda Acting Chief Financial Officer Roman was appointed as Acting Chief Financial Officer on 14 November 2019 until 28 May 2020 and reappointed on 30 July 2020. He joined Ferrexpo in September 2008 as the Group Management Accountant. Previously, he worked at Renault Group, most recently as the Financial Controller for Russia, Ukraine and the CIS. Skills and experience Skills and experience He holds a Bachelor of Commerce, majoring in Economics and Commercial Law from He is a Chartered Accountant (UK) and has a Masters in International Economic Relations Curtin University of Technology and a diploma from the Kyiv National Economic University. Skills and experience He is a graduate of Kryvyi Rih Mining and Ore Institute, and of the Kyiv National Economic University, specialising in Finance. in Investment and Risk Management in Shipping from the IMD Business School. Skills and experience He has Advanced Management qualifications from the University of Stellenbosch Business School and the Gordon Institute of Business Science, a Bachelor of Arts degree and a postgraduate Diploma in Education from the University of the Witwatersrand. Skills and experience He studied International Relations in Finance at the National University of Lviv, graduating with honours, and Business Management at the Institut d’etudes politiques de Paris. As Roman’s appointment as Acting Chief Financial Officer is temporary he has not joined the Board of Directors. 67 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Corporate Governance Compliance As a premium listed company on the London Stock Exchange, the Company is subject to the 2018 Corporate Governance Code. This section explains how we applied the principles of the 2018 Corporate Governance Code. A copy of the Code can be found at frc.org.uk. Statement of Compliance (in accordance with Listing Rule 9.8.6R(5)) The Board considers the Company has complied throughout the year ended 31 December 2020 with all the provisions of the 2018 Corporate Governance Code except as set out below: – Provision 9: The Chair was not independent on appointment. – Provision 17: From 1 January 2020 to 15 January 2020, the Nominations Committee was not comprised of a majority of independent Non-executive Directors. This was remedied on 15 January 2020 when Fiona MacAulay joined the Nominations Committee. – Provision 19: The Chair has remained in post for more than nine years since his first appointment to the Board in June 2007. Mr Genovese’s tenure ran from 12 June 2007 to 1 August 2014, and he rejoined the Board on 13 February 2019. Therefore, whilst the total tenure exceeds nine years there was a significant break in Mr Genovese’s tenure between 2014 and 2019. Explanations for not complying with provisions 9 and 19 of the Corporate Governance Code as the Chair was not independent on appointment and his tenure exceeds the recommended nine-year are provided in the Nominations Committee report on page 82. The Board confirms that at the date of this report, unless otherwise explained above, the Company fully complied with all relevant provisions of the Corporate Governance Code. Further information on the Company’s compliance with the Principles of the Corporate Governance Code can be found on the following pages: Board leadership and Company purpose Principle A: Section 172 Statement page 44, Chair’s Statement page 4, Skills Matrix page 71 Principle B: Chair’s Statement, Purpose, Values and Strategy pages 12 to 13 and pages 16 to 17 Principle C: Audit Committee Report page 76 Principle D: Our Stakeholders page 40 Principle E: Employee Engagement page 38, Non-Financial Information Statement page 37, Whistleblowing Policy page 81 Division of responsibilities Principle F: Role Descriptions page 72, Board Evaluation page 74 Principle G: Role Descriptions page 72 Principle H: Time Commitment page 71, Corporate Governance At a Glance page 69 Principle I: The Board page 70, Skills Matrix page 71 Composition, succession, evaluation Principle J: Appointment Process and Succession Planning page 83, Board Diversity Policy page 84 Principle K: Skills Matrix page 71, Appointment Process and Succession Planning page 83, Board Composition page 70 Audit, risk, internal control Principle M: External Audit page 80, Internal Audit page 80 Principle L: Board Evaluation page 74 Remuneration Principle N: Audit Committee Report page 76 Principle O: Internal Control and Risk Management page 79, Risk Management page 46, Principal Risks page 48 Principle P: Remuneration policy page 91 Principle Q: Procedure for developing policy on remuneration, page 86 Principle R: Directors should exercise independent judgement when authorising remuneration outcomes page 98 Disclosure Guidance and Transparency Rules By virtue of the information included in this Corporate Governance Report and the Directors’ Report, we comply with the corporate governance statement requirements of the FCA’s Disclosure Guidance and Transparency Rules. 68 Ferrexpo plc Annual Report & Accounts 2020 Corporate Governance Report At a glance Shareholders The Board Audit Committee Remuneration Committee Nominations Committee Responsibilities include: – Monitoring integrity of financial statements. – Reviewing internal control and risk management systems. – Relationship with external auditor. FOR MORE INFORMATION: AUDIT COMMITTEE REPORT SEE PAGE 76 Responsibilities include: – Reviewing and approving all aspects of remuneration for Executive Directors and members of the Executive Committee. – Aligning remuneration policy and practices to support strategy. – Engaging with shareholders to receive feedback on remuneration policy and outcomes. FOR MORE INFORMATION: DIRECTORS’ REMUNERATION REPORT SEE PAGE 86 Responsibilities include: – Considering and approving the knowledge, skills and experience mix required for the Board to best deliver the Company’s objectives. – Identifying and nominating (for Board approval) candidates to fill Board vacancies, having due regard to the need to satisfy the Board’s skills requirements. FOR MORE INFORMATION: NOMINATIONS COMMITTEE REPORT SEE PAGE 82 Health, Safety, Environment and Community (“HSEC”) Committee (formerly CSR Committee) Responsibilities include: – Formulating and monitoring the implementation of the Group’s policy on CSR issues as they affect operations. – Specific focus on safety and climate change impacts. Chief Executive Officer and Executive Committee1 Responsibilities include: – Execution of Board-approved strategies. – Delegated authority levels for senior management. – Development and implementation of Group policies. – All material matters not reserved for the entire Board. Committee of Independent Directors (“CID”) Responsibilities include: – Ensuring compliance with related party transaction rules and the Relationship Agreement. – Authorising (if appropriate) related party transactions on behalf of the Board. – Conflicts of interest procedure under the 2006 Companies Act. FOR MORE INFORMATION: SEE PAGE 72 FOR MORE INFORMATION: RESPONSIBLE BUSINESS SECTION SEE PAGE 26 FOR MORE INFORMATION: SEE PAGES 66–67 1 The Finance, Risk Management and Compliance Committee, Investment Committee and the Executive Related Party Matters Committee all report to the Executive Committee. Controlling shareholder – Relationship Agreement The Company’s majority shareholder is Fevamotinico S.a.r.l., which owns 50.3% of the issued share capital of Ferrexpo plc. Fevamotinico S.a.r.l. is wholly owned by The Minco Trust. The Minco Trust is a discretionary trust that has three beneficiaries, consisting of Kostyantin Zhevago and two other members of his family. Mr Zhevago is therefore considered a controlling shareholder of the Company. In accordance with the UK Listing Rules, Mr Zhevago, The Minco Trust and Fevamotinico S.a.r.l. have entered into a Relationship Agreement with the Company (the “Relationship Agreement”) to ensure that the Group is capable of carrying on its business independently, that transactions and arrangements between the Group, Fevamotinico S.a.r.l., The Minco Trust and Mr Zhevago (and each of their associates) are at arm’s length and on normal commercial terms, and that at all times a majority of the Directors of the Company shall be independent of Fevamotinico S.a.r.l., The Minco Trust and Mr Zhevago. Under the Relationship Agreement, Mr Zhevago is entitled to appoint himself as a Director or another person as his representative Director, in each case in a non-executive capacity. The Relationship Agreement terminates if, inter alia, the shareholding of Mr Zhevago and his associates in the Company falls below 24.9%. Statement of Compliance with UK Listing Rules, Rule 9.8.4 (14) – Ferrexpo has complied with the independence provisions contained in UK Listing Rule 9.2.2ADR(1) during 2020. – So far as Ferrexpo is aware, each of Mr Zhevago and Fevamotinico S.a.r.l. and their associates have also complied with the independence provisions contained in UK Listing Rule 9.2.2ADR(1) during 2020. – So far as Ferrexpo is aware, the procurement obligation set out in LR 9.2.2B(2)(a) (which requires Mr Zhevago and Fevamotinico S.a.r.l. to procure that The Minco Trust, the non-signing controlling shareholders (being the beneficiaries of The Minco Trust other than Mr Zhevago) and their associates comply with the independence provisions contained in UK Listing Rule 9.2.2ADR(1)) has also been complied with during 2020. 69 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Corporate Governance Report continued The Board The Board is responsible for setting the Group’s objectives and policies, providing effective leadership within the framework of prudent and effective controls required for a public company. The Board has a formal schedule setting out the matters requiring Board approval and specifically reserved to it for decision. These include: – approving the Group strategy and budget; – annual and long-term capital expenditure plans; – approving contracts for more than a certain monetary amount; – monitoring financial performance and critical business issues; – approval of major projects and contract awards; – approval of key policies and procedures including for dividends, treasury, charitable donations and corporate social responsibility; – approval of procedures for the prevention of fraud and bribery; and – through the CID, monitoring and authorising related party transactions. Certain aspects of the Board’s responsibilities have been delegated to the Committees shown in the chart below to ensure compliance with the Companies Act 2006, FCA Listing Rules and Disclosure Guidance and Transparency Rules and the Corporate Governance Code. The terms of reference for each of the Audit Committee, Nominations Committee, Remuneration Committee and HSEC Committee are available on the Company’s website at www.ferrexpo.com/about-us/corporate-governance/board-committees. It is the responsibility of the CEO and the Executive Committee to manage the day-to-day running of the Group. Board composition and independence As of 31 December 2020, the Board (excluding the Chair) comprised one Executive Director, one Non-independent Non-executive Director, and three Independent Non-executive Directors who are considered by the Board to be independent in accordance with the Corporate Governance Code. This structure ensures that the Executive Director is subject to appropriate independent and constructive challenge by the Non-executive Directors, and that no single Director can dominate or unduly influence decision-making. Composition of the Board and Committees as of 31 December 2020 is presented in the table below: Board member Role Audit Remuneration Nominations CID HSEC1 R L Genovese Non-executive Chair V Lisovenko Senior Independent Non-executive Director J North G Dacomb F MacAulay K Zhevago Acting Chief Executive Officer Independent Non-executive Director Independent Non-executive Director Non-independent Non-executive Director 1 The HSEC Committee also includes some members of senior management. • Committee member. •• Committee Chair. • •• • • • •• •• • • •• • • • •• The Board considers that it is of a sufficient size to ensure that the requirements of the business are met without placing undue reliance on any one Director. Biographical details of the Directors at the date of this report are set out on pages 64 and 65. Board balance Gender diversity Tenure Nationality 1 1 1  Independent  Non-independent  Chair  Executive 70 2 2 4 5 5  Male  Female  0–5 years  9 years+ 2 1 1 1 2  Ukraine  Switzerland  UK  Australia  Norway Ferrexpo plc Annual Report & Accounts 2020 Skills matrix Mining operations experience A Andersen G Dacomb R L Genovese V Lisovenko F MacAulay J North K Zhevago 1 Not previously. Financial risk management Board governance Leadership and strategy Ukrainian experience UK market Government relations Investor relations Sustainability Executive compensation NP1 NP1 NP1 Time commitment It is expected that a Non-executive Director of the Company will normally spend at least two and a half days a month, on average, on Ferrexpo’s affairs. The expected time commitment for the Senior Independent Director, the Committee Chairs and, in particular, the Chair of the Board is considerably more than that. The Non-executive Directors are required to confirm at least annually that they are able to commit sufficient time to the affairs of the Company, and all of our Non-executive Directors have given this confirmation in respect of 2020. All of the Non-executive Directors have been able to make themselves available for the majority of the ad hoc Board and Committee meetings and update calls held during the year, notwithstanding their external commitments. The attendance of the Directors at Board and Committee meetings during 2020 is shown in the table below. During 2020, Fiona MacAulay was appointed as a Non-executive Director of Chemring Group plc and Vitalii Lisovenko was appointed as a Non-executive Director of the Supervisory Board of National Depositary of Ukraine. These appointments were considered a significant appointment for Ms MacAulay and Mr Lisovenko for the purposes of the Corporate Governance Code, and in advance of the appointment both Ms MacAulay and Mr Lisovenko sought the prior approval of the Board. As part of approving these additional appointments the Board considered a range of factors, including the existing appointments of Ms MacAulay and Mr Lisovenko, the time commitment expected in the role as a Ferrexpo director, attendance records at Ferrexpo Board and committee meetings, institutional investor guidance on number of board roles in respect of overboarding and the additional time commitments from the new roles. The Board was satisfied having regard to these matters that the additional roles would not adversely impact the ability of Ms MacAulay or Mr Lisovenko to perform their existing roles on the Ferrexpo Board and its committees. Board and Committee meeting attendance in 2020 Board Audit Remuneration Nominations CID HSEC Scheduled Ad hoc Scheduled Scheduled Scheduled Scheduled Ad hoc Scheduled Attended/Eligible to attend Director G Dacomb R L Genovese V Lisovenko S Lucas (until 24 August 2020) F MacAulay C Mawe (until 5 July 2020) J North (from 5 July 2020)1 K Zhevago 5/5 5/5 5/5 4/4 4/4 4/4 1/1 5/5 4/4 5/5 5/5 5/5 4/4 5/5 8/9 9/9 5/6 9/9 5/5 5/5 5/5 4/4 5/5 3/3 2/2 5/5 12/12 12/12 12/12 10/10 12/12 8/9 2/2 11/12 1 Mr North was a member of HSEC Committee prior to being appointed to the Board. During the year, there were a number of ad hoc Board meetings which dealt with COVID-19 response, Board appointments and the declaration of dividends. 4/4 4/4 71 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Corporate Governance Report continued Role descriptions The division of responsibilities between the Chair and the CEO has been clearly established in writing and is agreed by the Board. A summary of the roles of the Chair, the CEO, the Senior Independent Director, the Non-executive Directors and the Company Secretary is set out in the following table. The table also includes an overview of the role of the Executive Committee and of the CID. The roles of the Audit and Nominations Committees are set out later in this Corporate Governance Report, the role of the HSEC Committee in the Strategic Report on page 26, and the role of the Remuneration Committee in the Remuneration Report on page 91. Role Chair CEO Description The Chair is responsible for leadership of the Board, ensuring its effectiveness, setting its agenda, ensuring that it receives accurate, clear and timely information, and ensuring effective communication with shareholders. The Chair also ensures that there is a constructive relationship between the Executive and Non-executive Directors. At least once annually the Chair holds meetings with the Non-executive Directors without the Executive Director present. Mr Genovese’s other current responsibilities are set out in the biographical notes on page 64. 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, implement Group strategy through executive committees, chair the Executive Committee, and oversee and implement Board-approved actions. Mr Mawe as Acting CEO to 28 May 2020 had no other directorships of quoted companies. Mr North as Acting CEO has no other directorships of quoted companies. Senior Independent Director Vitalii Lisovenko is the Senior Independent Director. In conjunction with the other Independent Non-executive Directors, the Senior Independent Director assists in communications and meetings with shareholders and other stakeholders concerning corporate governance matters. He also chairs the Committee of Independent Directors. At least once a year, the Senior Independent Director meets the Non-executive Directors, without the Chair present, to evaluate the Chair’s performance. The Senior Independent Director is also available to discuss with shareholders any issues that the Chair has been unable to resolve to shareholders’ satisfaction. Non-executive Directors The Non-executive Directors provide an independent and objective viewpoint to Board discussions and bring experience from a variety of industry backgrounds. Their role is to provide constructive support and challenge to executive management. Acting either as the Board or as members of its Committees, the Non-executive Directors: approve budgets; discuss and contribute to strategic proposals and agree on corporate 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 (see the Remuneration Report on page 86); and monitor executive succession planning (for Board succession planning, see the Nominations Committee Report on page 82). From time to time, where delegated by the Board, individual Non-executive Directors may take on additional functions in areas in which they have particular knowledge or expertise. Company Secretary Executive Committee The Company Secretary is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary is also responsible for advising the Board on governance issues and for ensuring, with the Chair, 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. All Directors have access to the advice and services of the Company Secretary. The Executive Committee is a key decision-making body of the Group, responsible for managing and taking all material decisions relating to the Group, apart from those set out in the Schedule of Matters Reserved for the Board. It has delegated responsibility from the Board 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. The Executive Committee meets regularly during the year. Committee of Independent Directors (“CID”) The CID is composed of the Senior Independent Director, and three other Independent Non-executive Directors. The Committee considers and, if appropriate, authorises on behalf of the Board, related party transactions and otherwise ensures compliance with the related party transaction rules and 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, approve situations which give rise to an actual or potential conflict of interest for any member of the Board in accordance with the Companies Act 2006. The CID keeps under review the authorisation and approval process relating to related party transactions (which are also reviewed in detail by the Executive Related Party Matters Committee (“ERPMC”)) and satisfies itself that, as required under the Relationship Agreement, related party transactions are conducted on an arm’s length basis on normal commercial terms. Mr Zhevago and his role Given the expected time commitment of Mr Zhevago’s role, which continues to be broader than that of other Non-executive Directors, the Company has entered into a consultancy arrangement with Mr Zhevago. Further details can be found in the Remuneration Report on pages 104. 72 Ferrexpo plc Annual Report & Accounts 2020 BOARD LEADERSHIP Board activity in 2020 Five scheduled Board meetings were held in 2020 (supplemented by other ad hoc meetings, telephone conferences and written resolutions as required from time to time). Regular matters discussed at these meetings included: – Non-executive Director recruitment and appointments; – interactions with auditors; – oral reports from the Chair of the Committees meeting before the Board meeting, and minutes of earlier meetings of the Committees; – Chief Executive Officer’s report including production and operations, iron ore market conditions, and updates on COVID-19 and the position in Ukraine; – Chief Financial Officer’s report including status vs. budget, forecasts, cash flow position, and funding update; – related party matters (including Directors’ interests/conflicts); – investor relations report (including shareholder feedback); – strategy, business plan and budget; – formal risk review; – compliance matters; – HSEC Committee (formerly CSR Committee) matters, including health and safety, and community spending; and – Board refreshment, succession planning, Director independence and Committee composition. Matters reviewed as required included: – the Group’s response to COVID-19 pandemic and actions taken to protect the Group and its workforce; – review of half-year or annual results, going concern and viability, dividend policy and recommendations, investor presentation; – evaluation of the performance of the Board, Chair and each Director; – review of the AGM statement, and proxy agency comments and recommendations; – annual review of bank relationships with the Company within and outside Ukraine; – approval of terms of reference of the HSEC Committee (formerly CSR Committee); – annual review of the Treasury Policy; – approval of the Related Party Transaction Policy and Procedures; – approval of the Insider Dealing Policy and procedures; – approval of the Share Dealing Policy and procedures; – approval of a new Director Conflicts Policy; – approval of the Code of Conduct; – carbon reduction strategy; – delegated authorities; – growth projects; and – the CSR budget. In 2020, the Board also held sessions at which the relevant executive heads of department led detailed presentations on operations, finance, HR and management succession planning, sales and marketing, and communications. This included a presentation by the Chief Human Resources Officer to members of the Remuneration Committee to consider and approve the remuneration policy for 2021. Board virtual site visit and Strategy Day Due to travel restrictions imposed by COVID-19, the Board was unable to conduct the planned visit of the Group’s operations in Horishni Plavni (formerly known as Komsomolsk), Ukraine. The alternative arrangement was a Board virtual site visit and Strategy Day. The General Managers FPM, FYM and FBM used drones to record video footage for each mine including footage inside the processing plant. The Board received presentations from executive management on operations, safety and strategy. Matters discussed included health, safety and environment, COVID-19, technology and innovation, market strategy, growth projects and licence to operate covering carbon reduction, people development, productivity and culture. The Board virtual site visit and Strategy Day was preceded by a Carbon Reduction Strategy discussion including data collection, validation and benchmarking and the carbon reduction journey. The Board is supported by the Executive Committee, which meets approximately monthly. All information submitted to the Board by management is reviewed and approved by the Executive Committee prior to submission. 73 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Corporate Governance Report continued BOARD EVALUATION Performance evaluation The annual performance evaluation of the Board and its Committees was carried out internally in 2020 by the Chair of these bodies. The evaluation process involved the completion of questionnaires by Board and Committee members, with responses collated anonymously and analysed by the Chair together with the Company Secretary. The Chair of the Board then held meetings with each of the Directors individually to discuss the feedback from the questionnaires, and the comments made, before relaying the conclusions to the Board. The 2020 evaluation concluded that the Board and its Committees as reconstituted were well equipped to work effectively and to deal with challenges faced by the business; and that there is an open culture which responds very well to constructive challenge. Contentious issues are discussed and debated and the CEO and Chair encourage full and frank discussion. The process identified further development areas for focus in 2021: Board/Committee Development areas and focus Board constitution and Committee Improve Board diversity Board leadership Improve frequency of site visits to better understand operations Efficiency of Board processes Allocate additional time for Growth projects Board’s role Stakeholders Reviewing past performance and influencing future performance Chair and Senior Independent Director to bolster shareholder engagement Remuneration Committee More time to be allocated The Senior Independent Director and the other Non-executive Directors have evaluated, and will continue to monitor the performance of the Chair. 74 Ferrexpo plc Annual Report & Accounts 2020 BOARD TRAINING AND DEVELOPMENT Training and professional development The Chair is responsible for agreeing training and development requirements with each Director to ensure they have the necessary skills and knowledge to continue to contribute effectively to the Board’s discussions. All Directors receive updates given to the Board as a whole on changes and proposed changes in laws and regulations affecting the Group, as and when necessary. In December 2020, the Board had a training session with its legal advisers Herbert Smith Freehills. This training covered key areas such as directors’ duties, market announcements, director share dealing procedures, related party transactions and developments in corporate governance best practice. Usually, site visits are held for the whole Board annually, so as to ensure that all Directors are familiar with the Group’s operations, and Directors may visit the operations of the Group independently to the extent they feel this is necessary. Due to COVID-19 the physical Board site visit was cancelled and replaced with a Board virtual site visit as set out on page 73. In addition, training may be provided by the Group’s advisers in respect of specific areas of interest to the Board, including general economic and market conditions, developments in corporate governance regulations and best practice and any other matters as agreed by the Chair. All Directors may take independent professional advice at the expense of the Group in the furtherance of their duties. Induction 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 each Director upon appointment, taking into consideration the individual qualifications and experience of the Director. Induction training includes meeting senior executives of the Executive Committee, a detailed and structured site visit, meeting the Company Secretary, necessary training on corporate governance aspects, and receiving various key Company documentation and reports. 75 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Audit Committee Report Dear Shareholder I am pleased to present to you the Report of the Audit Committee for 2020. This report sets out the following information: – The composition of the Committee. – The Committee’s activities in 2020. – Key issues and judgements considered by the Committee. – Ferrexpo’s system of internal control and risk management. – Review of the internal audit function. – The assessment of the external auditor’s independence and effectiveness. – The “fair, balanced and understandable” assessment of the Annual Report and Accounts. The Viability Statement is set out in the Strategic Report on page 61. During the year, the Committee had five scheduled meetings (see page 71). The COVID-19 related travel restrictions and quarantine regimes in the United Kingdom, Switzerland and Ukraine had to be taken into consideration in the course of the auditors’ review of Ferrexpo’s 2020 interim accounts. Through using appropriate technology by both the auditors and Ferrexpo, the review procedures in July 2020 were successfully performed remotely. As the COVID-19 situation did not improve towards the year end, remote audit procedures for the preliminary and final audits were considered and planned early in the process to ensure efficient and effective audits at the Group’s different locations for the audit of the consolidated accounts. The experience gained during the review of Ferrexpo’s 2020 interim accounts provided comfort to MHA and Ferrexpo that the preliminary audits in November and the final audits in February and March 2021 could be successfully completed within the planned timeline. The Committee reviewed the Annual Report, associated preliminary year-end results and interim results, focusing on key areas of judgement, complexity and accounting policies. The internal control and risk management procedures at Ferrexpo are set out later in this report and the principal risks to the Group are set out on pages 48 to 60 of the Strategic Report. Throughout the year, the Committee has robustly assessed the principal risks and emerging risks facing the business. Activity during 2020 Key activities of the Audit Committee during 2020 are set out below. February – Reviewed a presentation on the ongoing tax cases in Ukraine. – Reviewed the FRC’s letter to all Chairs of audit committees and their recommended areas of focus. – Considered assumptions used for going concern and the long-term viability assessment and impairment test. – Received an update on the progress of the 2019 audit and analysed further work required. – Considered the draft Annual Report and March – 2019 year-end review. – Reviewed significant risks disclosed in the Annual Report and Accounts for 2019. – Assessed FRC’s recommended areas of focus. – Reviewed and discussed the status of key areas of focus and audit matters and disclosure provisions. – Reviewed auditor’s responsibilities statement. – Reviewed auditor’s independence statement. – Considered the draft of the auditor’s opinion. – Final review of the Annual Report and Accounts Accounts for 2019. for 2019. – Considered business continuity plans and related internal controls for FPM. – Reviewed the Viability Statement. – Reviewed the disclosures around FC Vorskla – Reviewed the questionnaire to be used to assess matters. the external auditor’s performance. – Reviewed compliance report including whistleblowing cases. – Reviewed the risk matrix and register. – Reviewed an update on the Directors’ Interests list and transactions with Related Parties. – Reviewed the Audit Committee Report. – Reviewed draft Letters of Representation. – Held private meeting with the auditors. Graeme Dacomb Chair of the Audit Committee “ Maintaining accountability through the COVID-19 pandemic Membership and attendance Meetings Eligible Committee member to attend Attended Graeme Dacomb Vitalii Lisovenko Fiona MacAulay 5 5 5 5 5 5 76 At the end of this process, the Committee was satisfied with the accounting treatment and disclosure of each issue and with management’s exercises of critical estimates and judgements used as disclosed in Note 4 to the Consolidated Financial Statements on page 134. The Board also asked the Committee to advise it as to whether the Annual Report and Accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, and performance, business model and strategy. Graeme Dacomb Chair of the Audit Committee 16 March 2021 The significant issues and judgements considered by the Committee in respect of the 2020 Annual Report are set out on page 78. In considering these matters, the Committee took into account the regular financial and internal audit reports made to the Board throughout the year, as well as discussing the issues with management and the external auditors at intervals throughout the year. Detailed disclosure of the significant areas in which critical estimates and judgements had to be made is given in Note 4 to the Consolidated Financial Statements from page 134. To satisfy itself that the accounting for these issues was reasonable and appropriate, and that disclosure in the financial statements was suitable and clear, the Committee reviewed the papers setting out the procedures followed by the auditors and the responses of management, and questioned and debated them with the CFO, Acting CFO, the Group Financial Controller and, if relevant, operational management, and with the auditors at the Committee’s meetings. These discussions were also informed by the Committee members’ own expertise, particularly with regard to the economic and financial situation in Ukraine and operating practice in other large mining companies. Ferrexpo plc Annual Report & Accounts 2020 Membership and meetings As at the year end, the Committee comprised three Independent Non- executive Directors: – Graeme Dacomb (Chair of the Committee); – Vitalii Lisovenko; and – Fiona MacAulay. All members of the Committee are considered to possess appropriate knowledge and skills relevant to the activities of the Group, and Graeme Dacomb has recent and relevant financial experience, including accounting and auditing, due to his career as an audit partner with Ernst & Young LLP. The Committee met five times for scheduled meetings during 2020. The attendance record of the Committee members is shown in the table on page 71. In addition to its members, other individuals and external advisers, and the Chair of the Board, may be invited to attend meetings of the Committee at the request of the Committee Chair. Regular attendees at meetings include the Acting CFO, Group Financial Controller, Company Secretary and the external auditor MHA MacIntyre Hudson. The Committee has an opportunity to meet with the external auditors at the end of its scheduled meetings, without the Executive Director or management present. May – Received an update on FC Vorskla related matters. July – Presentation of half-year accounts. – Going concern assessment, including COVID-19 – Reviewed auditors 2019 performance (Statutory reporting and considerations. December – Received a report on the outcome of the 2019 Internal Audit plan and progress update on 2020. – Reviewed the preliminary Internal Audit plan for – Auditor’s Review Report to the Audit Committee. – Reviewed a compliance report, including whistleblowing cases. – Reviewed the risk matrix and register. – Reviewed the Directors’ Interests list and transactions with Related Parties. Audit Service Order) – analysis of scores. – Reviewed 2020 audit planning, key dates, preliminary audit plan and FRC guidance on COVID-19 disclosures. – Reviewed an update on 2019 recommendations from Internal Audit. – Reviewed the Internal Audit plan for 2020. – Reviewed Internal Audit quality survey results. – Reviewed a compliance report including whistleblowing cases. – Reviewed the risk matrix and register. – Reviewed an update on Directors’ Interests list and transactions with Related Parties. 2021. – Considered a risk analysis of the Internal Audit plan. – Considered a report from the external auditors on progress of the preliminary audit for 2020. – Considered the work plan for the 2020 year end. – Reviewed an external audit planning report. – Received an update on the planned process for the viability and going concern assessment, COVID-19 impact on audit fieldwork and the impairment test at year end. – Reviewed a compliance report including whistleblowing cases. – Reviewed the Directors’ Interests list and transactions with Related Parties. – Reviewed the risk matrix and register. 77 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Audit Committee Report continued Significant issues and judgements The significant issues and judgements considered by the Committee in respect of the 2020 Annual Report are set out below: Issues Judgements/actions taken COVID-19 related considerations for the Group’s going concern and viability assessment Taxation: tax legislation in Ukraine (Note 11 to the Consolidated Financial Statements) Inventories: lean and weathered ore (Note 17 to the Consolidated Financial Statements) Commitments, contingencies and legal disputes (Note 30 to the Consolidated Financial Statements) Loan relationship between related parties of the Group (Note 34 to the Consolidated Financial Statements) The global COVID-19 pandemic had a significant impact on the world in 2020, affecting economies, communities, governments, businesses and individuals on an unprecedented scale. The Group implemented measures at its main operations in Ukraine to ensure iron ore pellet production was not affected by, and continues to be unaffected by, the COVID-19 pandemic. The Group also successfully managed to redirect its iron ore pellet sales from Europe and North East Asia to the Chinese spot market. The Group benefitted from high demand for its products on the Chinese market and high prices. As a result, the Group was highly cash generative in 2020 and closed the year in a net cashA position of US$4 million, after debt repayments totalling US$148 million and dividend payments totalling US$195 million. As the Group successfully navigated through the COVID-19 pandemic in 2020, there are no specific COVID-19 related critical judgements and estimates to be considered in assessing the Group’s going concern and viability statements and the Group expects to be able to rely on the experience gained (e.g. redirection of sales to other markets) and to be able to react again to any adverse changes on the global pellet market. COVID-19 related disclosures have been made in the Group’s Principal Risks section on page 60 providing further information on key actions that management has taken. Having considered the background of a recent claim made in Ukraine in respect of a tax audit with a focus on the Group’s cross-border transactions, the Committee shares management’s confidence that Ferrexpo will successfully defend its methodology applied to determine the prices between its subsidiaries in the courts in Ukraine. The court hearings and tax audits commenced earlier in 2020 were put on hold due to a COVID-19 related quarantine imposed in Ukraine but these are expected to resume once the court system in Ukraine returns to normality. The processing of the stockpiled ore in the past has been dependent on the availability of additional processing capabilities and it was the Group’s intention to ramp up the processing of the stockpiled ore during the financial year 2021. While the additional processing capacities are fully operational and some volumes of the stockpiled ore were processed in the second half of the financial year 2020, the Committee notes that management has now decided to postpone further processing of the lean ore until 2022 in order to maximise the financial benefits in the current high price environment for iron ore pellets. This has had no impact on the carrying value of the stockpiled ore. As disclosed in the 2019 Annual Report & Accounts, the Board, acting through the Committee of Independent Directors (the “CID”), has been conducting a review into its sponsorship arrangements with FC Vorskla. Following careful consideration of the information received from FC Vorskla, and the work of the CID’s third party advisers, the CID has now concluded its enquiries. As detailed in the Group’s 2020 half-year report, the CID has received written confirmations from FC Vorskla and Kostyantin Zhevago, who also controls FC Vorskla, confirming the use of the funds under a related party loan made by a FC Vorskla entity in connection with the construction and renovation of certain FC Vorskla stadiums and training grounds in Ukraine. Based on the unaudited management accounts of FC Vorskla Cyprus Limited for the financial year 2019, the loan to Collaton Limited was US$16,978 thousand. FC Vorskla is considered to be a related party of the Group as Kostyantin Zhevago also controls FC Vorskla. As the loan does not involve any of the Group’s subsidiaries, the loan is not a transaction between the Group (or any of its subsidiaries) and a related party and therefore does not fall under Chapter 11 of the Listing Rules. As disclosed in the 2020 half-year report, the CID had been informed that it was intended that the related party loan would be fully repaid using the proceeds of a sale and leaseback of certain capital projects of FC Vorskla in Ukraine. The CID has since been informed that it is possible that the sale and leaseback may not occur in the near term given the COVID-19 pandemic and current market conditions in Ukraine. Kostyantin Zhevago and his associated entities have therefore now put in place additional arrangements for the related party loan to be fully repaid by 31 July 2022. These arrangements have been reviewed by the CID, and having put in place the appropriate monitoring controls, the CID is satisfied with the arrangements which it considers will ensure that the related party loan will be repaid in full. The Group has put in place a new sponsorship agreement with FC Vorskla Ukraine. The new sponsorship agreement includes enhanced reporting requirements by FC Vorskla Ukraine to the Group and additional provisions around the use of sponsorship funds. 78 Ferrexpo plc Annual Report & Accounts 2020 Internal control and risk management The Board has overall responsibility for the Company’s system of internal control, which includes risk management, and monitoring and reviewing its effectiveness. The system of internal control is designed to identify, evaluate and manage significant risks associated with the achievement of the Company’s objectives, and to meet the Company’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. In July 2020, the Board approved a reorganisation of the management committees. The Compliance matters addressed at the Executive Compliance Committee (“ECC”) were transferred to the Finance and Risk Management Committee (“FRMC”) which was renamed the Finance, Risk Management and Compliance Committee (“FRMCC”) and the ECC was disbanded. The day-to-day responsibility for managing risk and the maintenance of the Company’s system of internal control is collectively assumed by the Executive Committee. Key risk and control issues are reviewed regularly by the Executive Committee, Finance, FRMCC, HSEC Committee and Audit Committee. On behalf of the Board, the Executive Committee and FRMCC have established a process for identifying, evaluating and managing the significant risks faced by the Company. This process was followed throughout 2020 and up to the date of approval of this Annual Report. The Group has also adopted a risk-based approach in establishing the Company’s system of internal control and in reviewing its effectiveness. To assist in managing key internal risks, it has established a number of Company-wide procedures, policies and standards and has set up a framework for reporting matters of significance. Internal controls – general The Board, with assistance from the Audit Committee, regularly reviews the policies and procedures making up the internal control and risk management system, and any significant matters reported by the Executive Committee. The risk register, which includes details of the controls in place to manage and mitigate identified risks, is considered at every scheduled Board and Audit Committee meeting, with specific risks discussed in detail as and when required. The Board has delegated its responsibility for reviewing the effectiveness of the internal control and risk management system to the Audit Committee. In making its assessment, the Audit Committee considers the reporting provided to it during the year in relation to internal control systems and procedures, including the risk matrix and register, and may request more detailed investigations into specific areas of concern if appropriate. Key elements of the internal control and risk management system include: – The Group has in place a series of policies, practices and controls in relation to the financial reporting and consolidation process, which are designed to address key financial reporting risks, including risks arising from changes in the business or accounting standards and to provide assurance of the completeness and accuracy of the content of the Annual Report. – Regular review of risk and identification of key risks at the Executive Committee which are reviewed by the Audit Committee and by the Board. – Prior to the transfer of Compliance matters to FRMCC, the ECC met six times in 2020, after which the FRMCC met four times. The FRMCC, an executive sub-committee, is charged, on behalf of the Executive Committee or Audit Committee, as appropriate, with ensuring that, inter alia, systems and procedures are in place to comply with laws, regulations and ethical standards. The Group Compliance Officer attends the FRMCC meetings, and, as necessary, local compliance officers from the operations, attend and present regular reports to ensure that the FRMCC is given prior warning of regulatory changes and their implications. The FRMCC enquires into the ownership of potential suppliers deemed to be “high risk”, and oversees the management of conflicts of interests below Board level and general compliance activities (including under the UK Bribery Act, the Modern Slavery Act, the Criminal Finances Act, and the EU General Data Protection Regulation). The FRMCC also reviews financial information, management accounts, taxation, cash management, risk including counterparty risk, risk register and third party risks. – Clearly defined organisational and reporting structure and limits of authority for transaction and investment decisions, including any with related parties. – Clearly defined processes for the review and approval of related party listings and transactions and appropriate review and approval from the CID and its delegated management sub-committee the Executive Related Party Matters Committee (“ERPMC”). Additional procedures are in place locally to ensure the completeness and arm’s length nature of related party transactions, such as background checks and tender processes. – Clearly defined information and financial reporting systems, including regular forecasts and an annual budgeting process with – reporting against key financial and operational milestones. Investment appraisal underpinned by the budgetary process, where capital expenditure limits are applied to delegated authority limits. 79 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Audit Committee Report continued – The Investment Committee (an executive sub-committee) which meets as required in order to consider and approve capital expenditures within limits delegated by the Executive Committee and the Board. – A budgetary process and authorisation levels to regulate capital expenditure. For expenditure beyond specified levels, detailed written proposals are submitted to the Investment Committee and Executive Committee and then, if necessary, to the Board for approval. – Clearly defined treasury policy (details of which are given in Note 27 to the Consolidated Financial Statements on pages 163 to 171), which is 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 our in-house audit team based in Ukraine (see below) which monitors, tests and improves internal controls operating within the Group at all levels and reports directly to the Chair of the Audit Committee, and to the CFO for line management purposes. – A standard accounting manual is used by the finance teams throughout the Company, 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 internal security department operating in the Company’s key operating subsidiaries. – A whistleblowing policy is in place under which staff may in confidence, via an independent, secure website, raise concerns about financial or other impropriety, which are followed up by Internal Audit and reported on to the Board. The Committee and the Board continued to review ongoing litigation affecting the Company throughout the year (see Note 30 to the Consolidated Financial Statements on pages 172 to 174 and received regular update reports and presentations from legal counsel. Full details of the Group’s policy on risk and uncertainties are set out in Note 27 to the Consolidated Financial Statements on pages 163 to 171. See also the Principal Risks section of the Strategic Report from page 48. 80 Internal audit The internal audit function has a Company- wide remit, and the Head of Internal Audit (who has mining experience), reports directly to the Chair of the Audit Committee and to the CFO. none impacted on the effectiveness of the audit and were mostly a consequence of 2019 being MHA MacIntyre Hudson’s first year. The outcome of the 2020 review in respect of the 2019 Annual Report and Accounts were discussed with the relevant partners of MHA MacIntyre Hudson. The Committee reviews at least annually the effectiveness of the internal audit function by assessing outcomes against plan targets, and is satisfied, following its 2020 assessment, with the rigour of the internal audits and with management’s response to the audit findings and recommendations. An Internal Audit plan for 2021 was approved by the Audit Committee in December 2020. The Internal Audit plan for 2020, approved by the Audit Committee, focused on the operational risks relating to sales and marketing, FYM Procurement process, FPM Inventory management, Group Compliance audit, DP-Ferrotrans and Health & Safety risk register review. The Committee received a report from the Head of Internal Audit twice during the year, and reviewed the progress of the Internal Audit plan with the external auditors and the Head of Internal Audit. The reports include the Head of Internal Audit’s assessment of the operation and effectiveness of relevant elements of the Company’s internal control systems, and formed part of the Committee’s ongoing monitoring and assessment of such systems. External audit Auditor independence and assessment of audit process effectiveness The Audit Committee and the Board place great emphasis on the independence and objectivity of the Company’s external auditors when performing their role in the Company’s reporting to shareholders. The effectiveness of the audit process and the overall performance, independence and objectivity of the external auditors are reviewed annually at the end of the annual reporting cycle by the Audit Committee, taking into account the views of management. This review takes the form of a survey (using a questionnaire) of the auditor’s performance under various headings: the robustness of the audit, the quality of delivery, the calibre of the audit team and value added advice. The results of the survey indicated that, overall, the external auditor’s performance was considered very good by the respondees. Areas for improvement were noted but The auditors also 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 Company pays in proportion to the overall fee income of the firm. The Committee concluded that the auditors are providing the required quality in relation to the audit and that they have constructively challenged management where appropriate. Taking into account the review of independence and performance of the external auditor, the Audit Committee has recommended to the Board the reappointment of MHA MacIntyre Hudson. Resolutions reappointing MHA MacIntyre as external auditor and authorising the Directors to set the Auditor’s remuneration will be proposed at the 2021 AGM. The Company has complied with the Statutory Audit Services Order issued by the UK Competition and Markets Authority for the financial year ended 31 December 2020. Non-audit services The Audit Committee operates policies in respect of the provision of non- audit services and the 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 under applicable guidance and the FRC’s Ethical Standards. 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$20,000 must first be approved by the Audit Committee or its Chair (who are routinely notified of all non-audit services). Fees for audit-related and non-audit related services performed by the external auditors during 2020 are shown in Note 7 to the Consolidated Financial Statements on page 137. For 2020, MHA MacIntyre Hudson did not perform any non-audit services. Whistleblowing policy In accordance with the Corporate Governance Code, the Board is responsible for reviewing the Company’s whistleblowing arrangements, and receives regular reports from the Audit Committee and the Head of Internal Audit which detail any new whistleblowing incidents and, where appropriate, steps taken to investigate such incidents. Graeme Dacomb Chair of the Audit Committee 16 March 2021 Financial reporting The Board has asked the Audit Committee to advise whether it considers the 2020 Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s position, and performance, business model and strategy. In providing its advice, the Committee noted that the factual content of the Annual Report and Accounts has been carefully checked internally, and that the document has been reviewed by senior management in order to ensure consistency and overall balance. The Committee has also conducted its own detailed review of the disclosures in the Annual Report and Accounts, taking into account its own knowledge of Ferrexpo’s strategy and performance, the consistency between different sections of the report, the accessibility of the structure and narrative of the report, and the use of key performance indicators. The Committee is satisfied that, taken as a whole, the 2020 Annual Report and Accounts is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s position, and performance, business model and strategy, and has advised the Board accordingly. The Committee has also advised the Board on the process which has been undertaken in the year to support the longer-term Viability Statement required under the Corporate Governance Code. The Viability Statement is set out in the Strategic Report on page 61 and a statement setting out the Board’s assessment of the Company as a going concern is contained in the Directors’ Report on page 111 and Note 2 to the Consolidated Financial Statements on page 132. Ferrexpo plc Annual Report & Accounts 2020 81 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Nominations Committee Report w Lucio Genovese Chair of the Nominations Committee “ Renewed focus on refreshing the Board Membership and attendance Committee member to attend Attended Meetings Eligible Lucio Genovese1 Vitalii Lisovenko Fiona MacAulay2 Steve Lucas3 1 5 5 4 1 5 5 4 The Chief Executive Officer and the Chief Human Resources Officer also attend meetings by invitation of the Committee. 1 Appointed on 3 December 2020. 2 Appointed on 15 January 2020. 3 Retired on 24 August 2020. 82 Dear Shareholder I am pleased to present the Nominations Committee Report for 2020, and the first following my appointment as Board Chair and Chair of the Nominations Committee following Steve Lucas’s retirement from the Board in August 2020. I would like to thank Steve and the rest of the Committee for their work during the year. In 2020, the Committee was formally convened five times (2019: three). Informal meetings also occurred. At the formal meetings of the Committee, it considered: – the composition and refreshment of the Board; – reviewing and making recommendations as to the composition of the Board and its Committees in order to maintain a diverse Board with the appropriate mix of skills, experience, independence and knowledge; – – the criteria for Non-executive and Executive Director appointments; the engagement of executive search agencies to assist with such appointments; – deciding upon a shortlist of candidates for interview. Committee members interviewed shortlisted candidates and made recommendations to the Board; – formalising search processes and making recommendations to the Board for the appointment of Brett Salt as Chief Marketing Officer, Lucio Genovese as Board Chair, Jim North as Acting CEO and Executive Director, and Roman Palyvoda as Acting CFO; – approving actions to be taken in 2020 in support of the achievement the Group’s diversity and inclusion goals; – reviewing the results of the Group’s annual talent review and succession plans for business-critical roles; and – the time commitment expected from each of the Non-executive Directors to meet the expectations of their role. The Committee also agreed to undertake an internally facilitated Board performance evaluation for the year to 31 December 2020 (for further information see Performance Evaluation on page 74). The Company will conduct an external Board evaluation in 2021. During the year, members of the Committee (and the Board as a whole) were very active in supporting a number of management changes relating to Group leadership, provide for Board diversity and strengthen the overall governance agenda of the Board. These included the appointment of Brett Salt as Chief Marketing Officer following the departure of Jason Keys, the appointment of Jim North as Acting CEO and the subsequent appointment of Mr North as an Executive Director and the appointment of Roman Palyvoda as Acting CFO. The Committee also led search processes to appoint a new Board Chair following Steve Lucas’s decision to retire from the Board, announced following the AGM in May 2020, which resulted in the appointment of myself as Chair in August 2020. The search for an additional independent Non-executive Director to improve the balance between independent and non- independent Directors on the Board as well as to advance diversity on the Board, taking into account the targets of the Hampton-Alexander and Parker reviews, was also continued. This work continued into 2021 and resulted in the appointment of Ann-Christin Andersen who joined the Board on 1 March 2021. Ms. Andersen’s appointment means that the Board is now comprised of four independent Non-executive Directors, which exceeds the requirement of the UK Corporate Governance Code to ensure that at least half of the Board (excluding the Chair) are independent Non-executive Directors. The Board remains committed to promoting behaviours that support an inclusive and diverse workplace, and which reflects the Company’s values. This commitment is set out in Ferrexpo’s Equality, Diversity and Inclusion policy, approved by the Board in 2019, which aims to address gender diversity imbalances in the workforce, while also delivering sustainable talent pipelines for succession to senior leadership roles. In 2020, women represented 29.2% of Ferrexpo’s employees (2019: 29.3%), with women in management positions representing 18.2% of the total (2019: 17.5%). The Company is targeting a figure of at least 25% of managerial roles to be held by women by 2030. To achieve this target, the Board recognises that it has an important role to play in creating an environment in which all contributions are valued, different perspectives are embraced, and biases are acknowledged and mitigated. In the course of the year, the Committee approved plans which focus on achieving the diversity targets set by the Board in 2019 for the period to 2030. Fiona MacAulay also attended and presented at a women in leadership event for senior female managers held at the close of a two-month leadership development programme held at the Group’s operations. As of 31 December 2020, the Nominations Committee was composed of Vitalii Lisovenko, the Senior Independent Director, and Fiona MacAulay, an Independent Non-executive Director who joined the Committee in January 2020. I joined and took over the chairmanship of the Committee in December 2020, following my appointment as Board Chair in August 2020. At the date of this report, the Committee is continuing to progress recruitment to make a further appointment of a suitable independent Non-executive Director to strengthen the Board and allow for the appointment of a second Executive Director. As part of its recruitment process, the Committee will be focusing, in particular, on identifying diverse candidates with knowledge and experience of the Ukrainian business environment. Lucio Genovese Chair of the Nominations Committee 16 March 2021 Ferrexpo plc Annual Report & Accounts 2020 Membership and meetings The Nominations Committee is chaired by Lucio Genovese and its other members are Vitalii Lisovenko and Fiona MacAulay. Steve Lucas served as Chair of the Committee until he retired in July 2020, following which the Committee remained quorate with two members up until the appointment of Mr Genovese as Chair of the Committee on 3 December 2020. The Nominations Committee meets at least once a year, as required by its terms of reference, and met on five scheduled occasions in 2020. Other informal meetings also occurred to consider management changes, Board Chair succession and to progress the recruitment of an additional independent Non-executive Director to advance diversity on the Board. Appointment process and succession planning Succession planning and Board transition were a priority for the Committee in 2020, and will continue to be in 2021. During the year, the Committee discussed and interviewed candidates for various positions on the Board. Following Steve Lucas’s announcement of his intended retirement from the Board following the 2020 AGM, Savannah Group was retained to conduct a market benchmarking exercise to find a new Board Chair. Based on a role specification approved by the Committee, Savannah Group shortlisted a number of high calibre candidates with the relevant skills and leadership qualities requisite for the role of Chair. In accordance with a skills and leadership matrix, the candidates were then ranked by Savannah Group and the Group’s Chief Human Resources Officer, and such rankings were reviewed and discussed by the Committee. Mr Genovese ranked the highest and most suitable candidate based on this assessment. The Committee also carefully considered the dynamics of the Board. The members of the Committee were confident with the process conducted and their recommendation to the Board to appoint Mr Genovese as Board Chair. This appointment was confirmed by the Board on 24 August 2020. It was carefully considered at the time that Mr Genovese would not be independent on appointment as Board Chair, and that his tenure had exceeded nine years from the date of his first appointment to the Board. This meant that his appointment as Board Chair would not be in compliance with the Corporate Governance Code. Notwithstanding this, the Committee and the Board considered he was the best candidate given his experience, leadership qualities and detailed knowledge of the Group. The appointment process for a new Board Chair was initially led by members of the Committee, other than Steve Lucas who recused himself from discussions during meetings in respect of his successor. The Committee did, however, seek input from Steve Lucas where appropriate. Following a tender process involving three search firms, Caldwell and Partners was selected by the Committee to assist with the search for a new independent Non- Executive Director. The firm is accredited under the UK Government’s Enhanced Code of Conduct for Executive Search Firms and the Voluntary Code of Conduct on diversity best practice. Caldwell and Partners has no other connection with the Company. Prior to the search commencing, the Nominations Committee agreed the skills and experience it considered necessary for the role and the skills mix required to enhance the balance of skills on the Board. Lists of potential candidates were then identified by Caldwell and Partners and discussed with Committee members to agree shortlists to be interviewed. In each case, the initial list of potential candidates included gender-diverse candidates. Shortlisted candidates were interviewed by members of the Committee and, where practical, other members of the Board before being formally recommended to the Board for consideration and appointment as a Director. Following the above processes, the Nominations Committee recommended the appointment of Ann-Christin Andersen, who joined the Board on 1 March 2021. The Nominations Committee and the Board also progressed a number of management changes during the year, including the appointment of Brett Salt as Group Chief Marketing Officer replacing Jason Keys and Jim North as Acting CEO, replacing Chris Mawe. Mr North was subsequently appointed an Executive Director to the Board following Mr Mawe vacating his position as a Director in July 2020, after which Roman Palyvoda was appointed Acting CFO. 83 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Nominations Committee Report continued In the course of the year, the Committee also reviewed the Group’s talent pipeline and succession plans for business-critical roles at Group level, and confirmed development plans for identified high potentials which included actions to mitigate identified knowledge and skills gaps over the short to medium term. Independence and tenure of the Board Chair The Nominations Committee and the Board were conscious of and carefully considered that Mr Genovese would not be considered independent on appointment as Board Chair and his tenure had exceeded nine years, which is not in compliance with the Corporate Governance Code. Notwithstanding this, as further detailed above he was considered the best candidate to fulfil the role of Board Chair and to lead the Board during the next stage of the Group’s development. The Board is satisfied that he is fully independent from all the Company’s shareholders and has been during his entire tenure as a Non-executive Director. Additionally, the members of the Committee were comfortable based on their own experiences that Mr Genovese conducts himself with professional and personal integrity with an independent mindset and brings valuable challenge to the Board based on his in-depth understanding of the key drivers and challenges faced by the Group. The Board is satisfied that Mr Genovese’s continuance as Board Chair adds considerable value to the business. Election and re-election Jim North who was appointed an Executive Director in 2020 and Ann- Christin Andersen who joined the Board in March 2021 will stand for election by shareholders at the Company’s AGM in May 2021. In accordance with the Corporate Governance Code, all other Directors will stand for re-election by shareholders at the same meeting. Board diversity policy The Nominations Committee and the Board recognise the importance of diversity in terms of cultural and professional background, expertise and gender, and believe that the present composition of the Board is broadly satisfactory, although as noted above it is seeking to appoint a further independent Non-executive Director and as part of this process will be focused on identifying diverse candidates. 84 Board diversity policy update Board objective Progress in 2020 Foster a diverse and inclusive workplace culture aligned with the Company’s Values, Purpose and Strategy through an organisational structure that is fit for purpose, resourcing this structure with the right capabilities and empowered leadership able to deliver required business outcomes. – Operational human resources policies reviewed to identify, eliminate or mitigate any disadvantage or actual or potential discrimination to under- represented groups. – Operational facilities audit conducted to ensure accommodation of people with disabilities. – Women in leadership programme held to foster the advancement of women into senior leadership roles. – Integrated mining operating model developed and in Increase Board gender diversity and women in management below the Board. execution. – Skills matrices developed to enhance the assessment of workforce technical skills and training by the FPM Training Centre to ensure workforce capability supports business requirements. – Board skills matrix reviewed, including diversity requirements and communicated to recruitment partners; only firms adhering to the Voluntary Code of Conduct on diversity best practice used. – The Committee’s search for a Non-executive Director during the year resulted in the appointment of Ann-Christin Andersen to the Board on 1 March 2021. This increased the Board’s gender diversity to 29%. – Initiatives in progress to enhance gender diversity across the Group, from 18.2% women in management in December 2020 (2019: 17.5%) to a target of 18.4% by end 2021. – Total female representation as percentage of the workforce currently at 29.2% (2019: 29.3%). – Board review conducted of the Group’s talent pipeline and succession plans for senior business-critical leadership roles, including identification of female candidates for accelerated development. – Undergraduate bursary programme targeting women approved for launch in 2021. Monitor diversity programme outcomes and make adjustments to ensure overall objectives are met – Plans developed in 2019 are in execution over the next five years. These include diversity and elimination of unconscious bias training for middle and senior management; Science, Technology, Engineering and Mathematics (“STEM”) ambassador visits to local schools and colleges; roll-out of flexible and remote working policy for mothers of small children; and “bring a daughter to work” days. Following approval in 2019 of an Equality, Diversity and Inclusion policy (“Diversity Policy”), the Committee reviewed and approved plans in support of the Company’s diversity targets. The Diversity Policy seeks to ensure that a broad range of suitable candidates are taken into account when drawing up shortlists of candidates for appointment to the Board, and seeks only to engage executive search consultants who have signed up to the Voluntary Code of Conduct for executive search firms. The final decisions to make appointments to the Board are, however, made on merit against objective criteria, so as to ensure that the strongest possible candidate for the role is recruited. The Committee will continue to ensure that the Diversity Policy is considered when conducting all searches for Board positions, and will take account of the recommendations of the Hampton- Alexander and Parker reviews regarding gender balance and ethnic diversity on boards. The Board is committed to promoting behaviours that support an inclusive and diverse workplace, and which reflect the Company’s values. This commitment is set out in the Diversity Policy, which recognises the important leadership role the Board needs to play in creating an environment in which all contributions are valued, different perspectives are embraced, and biases are acknowledged and mitigated. The Diversity Policy aims to address gender diversity imbalances in the workforce while also delivering sustainable talent pipelines for succession to senior leadership roles. The Board shares ownership with the Executive Committee of the Diversity Policy and progress updates are presented to the Board for review every six months to assess progress against the targets and enable adjustments to be made to the programme where necessary. In the course of 2020, the Committee approved plans and Ms MacAulay personally participated in a women in leadership programme aimed at supporting the career progression of senior women managers at the Group’s operations. Management and staff diversity Ferrexpo’s policy is to employ a diverse workforce and thought is given to recruit as widely as possible, taking into account, amongst other things, gender, race, social background, education and disability. Gender diversity Currently, 29.2% of the workforce is female of which 18.2% hold management positions and the aim of the Board is to increase this figure to 25% by 2030. The percentage of women in management has increased from 2019 (17.5%) but progress was lower than planned due to an overall moratorium on recruitment as part of a broad range of measures taken to manage the global COVID-19 pandemic in respect of the Group’s workforce, particularly at operations. Diversity targets in respect of 2021 have been included in the Company’s strategic business scorecard for the first time to provide for additional focus and attention on the achievement of this strategic imperative. The target set for 2021 at 18.4% represents the appointment of an additional five women in leadership positions by the end of the year. This ambition poses a challenge in the face of the limited number of women pursuing technical careers in the mining industry, which is made more acute in Ukraine where women are still legally prohibited from pursuing certain professions requiring night shift work and working in hazardous environments. To support the achievement of the target for women in management, steps are planned to lobby government for changes in the law and a variety of programmes have been launched to recruit, retain, develop and promote women within the workforce. Externally, these programmes include the introduction of an undergraduate bursary scheme in 2021 specifically targeting women pursuing STEM studies, sponsorship of local science expositions and robotics competitions, as well as continued support for local secondary schools offering maths and science studies. Internally, initiatives are focused on retaining and growing internal talent, including individual mentorship and coaching of identified successors. In taking this into account, the Committee notes that the Group’s operations are primarily based in Ukraine which is partially reflected in the Board and senior management. The diversity of the Board and senior management reflects the broader societal aspects of Ukraine, where the majority of the Group’s workforce is based. The Group is undertaking certain actions to promote diversity as set out in this report. Ferrexpo plc Annual Report & Accounts 2020 Long-term strategies to improve female diversity in senior management of the organisation and their direct reports include: – a graduate bursary scheme to – encourage female applicants to specific sectors; lobbying the Ukrainian government to relax legislation to allow female workers greater access to working in mining areas and in carrying out previously male-orientated roles; – expanding the awareness of school programmes detailing the opportunities open to females of STEM careers in mining; female support/mentorship scheme for career development; and – – continued leadership development for women in mining. Disability Ferrexpo is proud to employ registered disabled staff representing more than 4% of our Ukrainian workforce. This helps us to reflect the diversity in wider society as well as deliver on our legal obligations. The Corporate Governance Report was approved by the Board on 16 March 2021. Lucio Genovese Chair of the Nominations Committee 16 March 2021 85 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report Fiona MacAulay Chair of the Remuneration Committee The Committee is chaired by Fiona MacAulay. The Committee consists of three independent Non-executive Directors as required by the Code and is also attended by the Chair of the Board and, by invitation, the Acting Group Chief Executive Officer and the Group Chief Human Resources Officer. Main objective To establish and maintain on behalf of the Board a policy on executive remuneration to deliver the Company’s strategy and value for shareholders; to agree, monitor and report on the remuneration of Directors and senior executives and to review wider workforce remuneration and other policies in accordance with the 2018 Code. The Committee strives to align the interests of the executives with shareholders, and the Board keeps under review the structure and level of remuneration afforded through share- based incentives and ownership in relation to variable and fixed pay. Membership and attendance Committee member Fiona MacAulay Graeme Dacomb Vitalii Lisovenko Meetings Eligible to attend Attended 4 4 4 4 4 4 86 A statement to shareholders from the Chair of the Remuneration Committee1 As Chair of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2020. In line with the regulations requiring a vote at least every three years, the Directors’ remuneration policy was presented to shareholders at the 2020 AGM and was approved by 89% of our shareholders. The policy brought to the AGM was, however, substantially unchanged from the 2017 policy due primarily to the timings of both my appointment to the Board and the Committee taking place in the second half of 2019 in addition to other Board changes during the year. The approval sought in 2019 was therefore for a period of 12 months. During the course of 2020, the Committee has worked with both internal and external stakeholders to develop a policy that reflects our evolving strategy and the views of our major shareholders and of course reflects developments in institutional investor expectations for approval at the 2021 AGM. This report is split into the following sections: 1. the Statement from the Chair of the Remuneration Committee – summarising the decisions taken by the Committee; 2. an “At a glance” overview of remuneration; 3. the Directors’ remuneration policy, to be approved by shareholders at the 2021 AGM; 4. the Annual Report on Remuneration, setting out how we have paid Directors in 2020 and how we intend to operate the new policy in 2021. Our approach to remuneration It is the policy of the Board to align executive and shareholder interests by linking a substantial proportion of executive remuneration to performance, basing rewards on a balanced portfolio of performance measures, and assessing remuneration packages against the relevant market to ensure that Ferrexpo can attract, motivate and retain talented executives. This approach applies across the executive leadership team and has resulted in a robust link between pay and performance to date. 1 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 2008 (as amended in 2013, 2018 and 2019) and the UK Corporate Governance Code. The elements subject to audit are highlighted throughout. Key activities of the Committee in 2020 The Committee’s key activities during the 2020 financial year were: February March – Determining the 2019 bonus – Determining the size of 2020 outturn. – Determining vesting of the 2017 long-term incentive awards. – Setting 2020 annual bonus targets. long-term incentive awards and the performance targets. – Approving awards under the Company’s share plans. – Signing off the 2019 Remuneration Report. Ferrexpo plc Annual Report & Accounts 2020 Remuneration Policy Over the past year, the Committee has reviewed the Directors’ Remuneration Policy to ensure it supports our evolving strategy, is aligned with shareholders and takes into account the latest views on corporate governance. Whilst we considered alternative pay models and recognised their merits, we ultimately concluded that the executives should continue to be paid through the operation of our current pay model that includes a salary, annual bonus and a long-term incentive. The Committee has, however, agreed the following changes with respect to how these elements of pay operate: Pension: The overall pension maximum in our policy will be reduced to 10% of salary from 15% of salary unless there is a higher local statutory requirement in the location in which the executive is based. None of our executives currently receive a pension in excess of 10% of salary and this, additionally, is the maximum rate for all employees across our workforce through pension or alternative statutory schemes. The Committee considered it appropriate to realign our policy with current market practice. Our Acting Chief Executive does not currently receive a pension benefit per se but is eligible for an equivalent statutory gratuity benefit payable post-employment that accrues at a rate of approximately 8.33% per annum in his location of employment, Dubai. Any new Executive Director appointments will be eligible to receive a pension (or equivalent) benefit in line with the workforce in the relevant location that they are employed within the Company. Short-Term Incentive Plan (“STIP”): No change is being made to the current maximum bonus opportunity at 150% of salary. Part deferral of the annual bonus into shares will be introduced for the first time from 2021 financial year. 25% of any bonus earned will be the deferral amount which, at the discretion of the Committee, may be awarded as a right to receive the shares in two years’ time or the after tax amount will need to be used to acquire and hold the shares for the two-year deferral period. This approach ensures immediate alignment between the executive and shareholders. These deferred shares will count towards the executive’s in employment shareholding requirements (on an after tax basis). Additionally, the target bonus is to be reduced from its current 67% of maximum to 50% of maximum in line with current market practice expectations. Long-Term Incentive Plan (“LTIP”): No change is being made to the current maximum annual award limit (which is 200% of salary and 300% of salary in exceptional circumstances). In practice, however, awards are limited to a substantially lower face value and for 2021 the Committee intends to grant an award over 87,800 shares (which, based on a share price of c.340 pence, would result in an award value at grant to the Acting Chief Executive of c.43% of salary). There will be a continuation of the current three-year performance monitoring and vesting and an additional two- year holding period on vested shares. We have clarified that whilst performance will primarily be measured against relative TSR, other performance metrics will also be introduced to support delivery against our long-term strategy and, specifically, ESG aspirations. Share ownership guidelines: The 200% of salary ‘in service’ share ownership guideline (introduced at the 2020 AGM) will be retained with the expectation being that all shares deferred under the annual bonus (from 2022 onwards on an after tax basis) and all shares which vest under existing and future LTIP awards (after tax) must be retained towards satisfying the guideline. In addition, a post-employment share ownership guideline will also be introduced under which departing Executive Directors will be expected to retain the lower of their share ownership at cessation of employment and 200% of salary for a minimum period of two years. July December – Engaging with shareholders and advisory bodies in relation to the operation of the remuneration policy. – Considering AGM feedback. – Reviewing the remuneration policy. – Determining the remuneration of the Acting Chief Executive and Company Chair. – Reviewing 2021 annual bonus targets. Key activities of the Committee in 2021 The Committee’s anticipated key activities in 2021 are to: – consider AGM feedback; – implement the revised remuneration policy (subject to shareholder approval at the 2021 AGM); – consider the evolution of performance conditions in line with the business strategy within the context of the COVID-19 pandemic; – monitor senior management remuneration in line with the Code. 87 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report continued As with the ‘in service’ share ownership guideline, the guideline relates to shares that are deferred under the annual bonus from payments under the 2021 bonus onwards and shares which vest under existing and future LTIP awards (after tax). Board changes During 2020, there were changes to both the Executive and Non-executive members of the Board. Jim North was appointed as Acting CEO on 28 May and an Executive Director with effect from 5 July 2020. In connection with his appointment, and in recognition of his additional responsibilities above those of his role as Chief Operating Officer, his base salary was increased by US$100,000 to US$959,050. As Mr North is employed out of the Dubai office, in line with local practice, he does not receive any pension benefit from the Company. However, under local legislation he is entitled to a lump-sum gratuity payment on leaving employment equivalent to c.8.33% of salary per year of his service. Should his employment be relocated elsewhere within the Company he would be eligible to participate in the pension arrangements in the relevant location in line with the workforce. He will also be eligible to participate in the annual bonus plan and long-term incentive plan as detailed above under the new policy. Full details of how we intend to operate the policy in 2021 are set out on pages 91 to 97. As an expatriate employee, Mr North is also eligible for housing and schooling allowances (which would be capped at a maximum of US$200,000), but he has not used these allowances during 2020. Chris Mawe, who held the position of Acting CEO until 28 May 2020, and then returned to his previous role as CFO and proceeded on notice on 4 July 2020, stepping down from the Board with immediate effect. Mr Mawe commenced a period of gardening leave on 29 July 2020 and, under his contract of employment, is expected to cease employment with the Group on 31 July 2021. Mr Mawe continues to receive his basic pay and benefits during this period and any other payments made in connection with his termination will be disclosed by the Company in due course. As detailed in last year’s Directors’ Remuneration Report, Kostyantin Zhevago stepped down as CEO in October 2019 and was appointed a Non-independent Non-executive Director, in accordance with the terms of his Relationship Agreement with the Company. Given that his base salary as CEO had historically been set significantly below the market in light of his level of share ownership in the Company (being greater than 50% of the issued share capital) he continued to receive the same rate of remuneration during the period he was a Non-executive Director in 2019 (US$240,000 plus benefits). From engagement with the Company’s major institutional shareholders following the 2020 AGM, it was understood that the reason for the less than 80% vote in favour of the Directors’ Remuneration Report at the 2020 AGM was due to Mr Zhevago receiving remuneration at the same rate following his change in role to reflect his broader responsibilities and time spent in providing ongoing support to the Acting CEO as compared to the other Non- executive Directors. In response to this feedback, the remuneration arrangements for Mr Zhevago have been revised and with effect from 1 December 2020 he receives the same remuneration as other Non-executive Directors of US$135,000, in addition to a limited consultancy fee set at US$90,000 per year. This additional consultancy fee reflects the expected time commitment of his role, which continues to be broader than that of the other Non- executive Directors given the important role he plays in stakeholder engagement in Ukraine, providing support to the Chief Marketing Officer in relation to the Company’s marketing strategy and sales portfolio and providing guidance to the Acting CEO in respect of the Company’s organic growth plans. The need for this consultancy fee, and the rate at which it is set, will be kept under review. He will not receive any wider Company benefits in connection with his role and Mr Zhevago has no executive responsibilities as part of this consultancy arrangement. Steve Lucas, having announced his decision to retire from the Board at the 2020 AGM, stepped down from the Board following a detailed independent search for a successor and was succeeded by Lucio Genovese as Board Chair with effect from 24 August 2020, who was evaluated against a number of external candidates as having the most relevant skill sets despite not fulfilling the criteria for independence (given his previous tenure on the Board from June 2007 until August 2014). In recognition of the expected time commitment of the role as Board Chair, his fee was set at a rate of US$500,000 for services to the Company. The fee reflects the fact that the role significantly exceeds the one and a half to two days per week of a typical FTSE 250 Board resulting from (i) the jurisdictions in which the Company operates (ii) the need to engage proactively with the broad range of Company stakeholders and (iii) the objective of enhancing the governance structures within the Company. During 2020, the Board (excluding the Non-executive Directors) reviewed the Non-executive Directors’ fees and determined that all Non-executive Directors should receive a consistent base fee of US$135,000 (replacing the existing practice of some Non-executive Directors receiving US$135,000 and others US$100,000, depending on the timing of appointment). Given the significant time commitment involved, the Board (excluding the Non-executive Directors) was comfortable this was an appropriate base fee for all Non-executive Directors. Performance and reward in 2020 As detailed in the Strategic Report, 2020 was a year of progress with strong operational and financial performance delivered against the challenging backdrop of the COVID-19 pandemic. The Board, Executive Committee and all employees responded quickly to the impact of COVID-19 implementing controls to keep our people safe and well, maintain safe and reliable operations, and support our communities. The early response to protect the Company’s financial position, including reprioritising capital expenditure, maintaining control of operating costs and optimising production enabled the Group to deliver strong operating results and ensure that the business remained resilient while facing a period of economic uncertainty. Responding to the impact on the market environment in the first half of 2020, sales to China were increased where demand remained robust and the Group also benefitted from the successful ramp up of the Group’s concentrator and pellet line expansion projects which resulted in a 7% year-on-year growth in iron ore pellet production, an increase in the proportion of our production that is of the highest grade quality at 65% Fe and 67% Fe (from 96% to 99%) and total full-year sales volume increased by 17%. Ferrexpo has also not applied for or received a government-funded wage subsidy programme in any jurisdiction in which the Group operates, nor have there been any redundancies as a result of the COVID-19 pandemic. 88 Ferrexpo plc Annual Report & Accounts 2020 While policies are understood and are generally considered to be working effectively, further work to align remuneration with individual performance outcomes is needed, particularly within some of our operations. This will be an area of key focus in 2021 for the Chief Human Resources Officer to review the policies and address the concerns raised, overseen by the Senior Independent Director, who has been designated by the Board to lead workforce engagement. Fiona MacAulay Chair of the Remuneration Committee 16 March 2021 In line with historic practice, long-term performance in respect of the LTIP will primarily (75%) be based on Ferrexpo’s relative total shareholder return performance measured against an Index comprising of Iron Ore and Composite Miners. However, for the first time in 2021 financial year, 12.5% of the award will also be subject to three-year production targets that directly align with our core strategic objective of improving our product mix to higher grade iron ore pellets. We are targeting increased production in pellets above 65% Fe (i.e. DR pellets) of between 3% and 7% over the period to the end of 2023 financial year. This grade of pellet improves the productivity of blast furnaces and reduces their carbon footprint by 40% for every tonne of sinter fines replaced (Source: CRU). In addition to driving production in greener steel, a separate target, which also contributes 12.5% of the total, is also to be introduced to align with our long- term objective of reducing carbon emissions. This will also operate for the first time in 2021 financial year with the target set to align executives with reduced carbon emissions of between 3% and 5% p.a. across the period to 2023 financial year. Any shares vesting under this award will be subject to a two-year post vesting holding period. Full details are set out on page 104. Consideration of shareholders and employees We consulted with shareholders in 2020 in relation to the one-year rollover of our existing remuneration policy and received over 89% support for that resolution and are bringing to the AGM this year a suite of fully considered amendments to the remuneration policy which brings the Company in line with market practice. In relation to the 2019 Directors’ Remuneration Report, we received just over 76% support. As noted above, the key reason we understood that votes were cast against the resolution related to Kostyantin Zhevago’s remuneration which has subsequently been reduced and restructured during the year under review. Full details of his revised arrangements are set out on page 104. The Committee also noted feedback from employees, elicited through the Company-wide annual Employee Engagement Survey. The survey tested a range of employee engagement elements including the effectiveness of remuneration and benefits policies. 89 – This robust performance resulted in a 2020 annual bonus under the STIP payable at 67% of maximum for Jim North. Full details of the financial targets and actual performance against them are set out on page 101 along with details of the non-financial targets and the level of performance achieved. In determining the 2020 STIP outcome for Jim North, the Committee applied downward discretion to scorecard outcomes achieved in the year to reflect the higher than expected iron ore prices and lower than budgeted input costs. Bonus payments were also made to the broader workforce using similar principles. With regard to the 2018 LTIP, as in prior years, our three-year total shareholder return performance was measured relative to the performance of a bespoke Index of comparable Iron Ore and Composite Miners. Since we under- performed the Index by an average of 19.6% p.a. over the three-year period, 0% of the award is eligible to vest. The Committee considered the remuneration earned in relation to 2020 financial year to be appropriate in the context of strong Company performance in the year and continued progress against our medium-term strategy of expanding production in a cost effective manner. Applying the remuneration policy in 2021 In addition to the policy changes noted above, the Committee has agreed a number of modifications to how it applied policy in 2020 financial year to further align the Directors’ pay arrangements with Company strategy from 2021 financial year. The key points to note include: – The annual bonus performance targets will continue to be assessed against a balanced scorecard of financial, operational and personal targets set with reference to the Company’s financial plans and the individual’s responsibilities. Minor changes are to be made to the current scorecard with the inclusion of additional ESG targets to improve our gender balance at leadership levels and to reduce carbon emissions in production. The choice of metrics reflects Ferrexpo’s portfolio of financial, operational, health and safety, personal and strategic targets. Full retrospective disclosure will continue to be provided in relation to performance against targets in the Remuneration Report each year. Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report continued AT A GLANCE (NOT SUBJECT TO AUDIT) payment/ accrual performance period holding period Element Operation Time-horizon 2021 2022 2023 2024 2025 Salary: To attract and retain talent by ensuring base salaries are competitive in the market in which the individual is employed Pension & benefits: To provide market competitive benefits – Annual review by Committee – Increases typically in line with wider workforce – Aligned with pension and benefits offered to local workforce 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 – Maximum opportunity of 150% of salary – Target opportunity of 75% of salary – Performance measures based on a scorecard of financial, operational and personal objectives – Safety underpin – 25% of bonus deferred into shares for two years 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 – Policy maximum of 200% of salary – Performance based primarily on relative TSR (75% weighting) in conjunction with production (12.5% weighting) and carbon emissions (12.5% weighting) – Performance measured over three years with two-year post vesting holding period Share ownership guideline: To provide alignment of interests between Executive Directors and shareholders – Executive Directors required to build and maintain a shareholding of 200% of salary – Applies for two years post-cessation of employment 200% of salary Business scorecard Total Shareholder Return 90% 80% 60% 40% 20% 0% ) y r a a s l f o % ( t n e m y a p s u n o B 90 Group EBITDA Net Debt Safety – LTIFR FPM Production volume FPM Full cash costs (C1) FPM Total movement costs Realised DAP/FOB proce Zero harm Total Actual Seaborne freight per wmt compared to C3 300 200 100 0 31 Dec 2017 — Ferrexpo — 2020 LTIP Index — FTSE 250 Index — FTSE All-Share Index Ferrexpo LTIP FTSE All-Share 31 Dec 2018 31 Dec 2019 31 Dec 2020 Ferrexpo plc Annual Report & Accounts 2020 PART A: POLICY SECTION (NOT SUBJECT TO AUDIT) As detailed in the Statement to Shareholders from the Chair of the Remuneration Committee, having rolled over the policy at the 2020 AGM in light of the changing make-up of the Board, the Committee has undertaken a full review over the past year and has set out a revised remuneration policy that takes account of our evolving strategy and acknowledges recent changes to the governance landscape. Overview of changes to the policy The changes to the policy are summarised below: Pension STIP LTIP SOGs Confirming alignment of pension rates in line with the local workforce, and reducing the maximum rate to 10% of salary (unless there is a higher local statutory rate). In line with investor expectation, the target STIP payout has been reduced from 67% of maximum to 50% of maximum (delivering 75% of salary). A requirement to defer 25% of any STIP payment into shares for two years has also been included to provide further alignment with shareholders. No significant changes although clarified that additional metrics may be used in conjunction with relative TSR. Formalised the requirement for a shareholding of 200% of salary to be built and maintained by Executive Directors and introduced a requirement for the shareholding requirement to apply for two years post-cessation of employment also at 200% of salary (or the shareholding on cessation, if lower). Newly acquired shares count towards this guideline. NED & Chair No change. Service contracts and leaver provisions No change. Committee The terms of reference for the Committee were updated during the year to comply with changes made to the UK Corporate Governance Code. The revised terms of reference were approved by the Board and its duties include the determination of the policy for the remuneration of the Chair of the Board, Executive Directors, the members of the Executive Committee, and the Company Secretary 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; – link an appropriate proportion of remuneration to performance; – reward based on a balanced portfolio of performance measures (e.g. Total Shareholder Return (“TSR”) relative to sector peers, annual business priorities, financial and operational targets and individual performance); and – provide rewards that are competitive in the relevant markets to help 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. From the policy review undertaken, the Committee is satisfied that the remuneration policy and its application takes due account of the six factors listed in the UK Corporate Governance Code: – Clarity – our policy is well understood by our management team and has been clearly articulated to our shareholders. A key part of our Chief Human Resources Officer’s role is engaging with our wider employee base on all our people matters (including remuneration) and we monitor the effectiveness of this process through the feedback received. The Board is comfortable that our remuneration policy is clearly understood by our employees. 91 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report continued Key principles of the remuneration policy continued – Simplicity – the Committee is very mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver unintended outcomes. Therefore, one of the Committee’s objectives is to ensure that our executive remuneration policies and practices are as simple to communicate and operate as possible, while also supporting our strategy. – Risk – our remuneration policy is designed to ensure that inappropriate risk-taking is not encouraged and will not be rewarded via: (i) the use of a balanced scorecard in the short-term incentive plan which employs a blend of financial, operational and non-financial metrics; (ii) the use of equity in our long-term incentive plan (together with shareholding requirements); and (iii) malus/clawback provisions. – Predictability – our incentive plans are subject to individual caps, with our share plans also subject to market standard dilution limits. The scenario charts on page 95 illustrate how the rewards potentially receivable by our executives vary based on performance delivered and share price growth. – Proportionality – there is a clear link between individual awards, delivery of strategy and our long-term performance. In addition, the significant role played by incentive/at-risk pay, together with the structure of Executive Directors’ service contracts, ensures that poor performance is not rewarded. – Alignment to culture – Ferrexpo has a strong operational focus which is reflected in its incentives with safety at the heart of its activities and this is supported through the use of a specific safety measure in the annual bonus and the ability to reduce the formula- based outcomes based on safety performance. Executive Director policy table This section of our report summarises the policy for each component of Executive Director remuneration which will be effective from the 2021 AGM subject to shareholder approval. The principles below also apply where appropriate to the members of the Executive Committee. Purpose and link to strategy Operation Opportunity Performance metrics Business and, where relevant for current Executive Directors, individual performance are considerations in setting base salary. Not performance related. Fixed pay Base salary To attract and retain talent by ensuring base salaries are competitive in the market in which the individual is employed. 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. Pension To provide retirement benefits. Executive Directors will, as appropriate, be offered membership of a scheme which complies with relevant legislation (where necessary, additional pension entitlements will be provided) or cash in lieu of pension. For information, pension for UK-based employees is currently set at 5% of salary with pension for Swiss-based employees set at 10% of salary. Whilst pension in Dubai is not typically provided a statutory lump sum gratuity is accrued each year and will be payable on termination in line with the relevant legislation. 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 inflation rate) on an annualised basis over the period over which this policy applies. 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 receive a pension that is aligned with the typical (i.e. most common) practice for employees in the location that the executive is based. The employer contribution will normally be limited to a percentage of base salary. Associated benefits and variable pay will only be included where there is a statutory requirement to do so. The employer contribution will be limited to 10% of salary or higher subject to compliance with local statutory requirements to reflect actual practice in the Company. Benefits Competitive in the market in which the individual is employed. 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, accommodation allowances, travel, enhanced sick pay, relocation/ expatriate relocation benefits, tax and legal advice. Benefits’ values vary by role and eligibility and costs 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. Not performance related. 92 Ferrexpo plc Annual Report & Accounts 2020 Purpose and link to strategy Operation Opportunity Performance metrics Maximum opportunity of 150% of salary. Performance related. The target opportunity is up to 50% of maximum and the threshold opportunity is up to one-third of maximum. Performance measures can include financial, non-financial and personal achievement criteria measured over one financial year. 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. The LTIP provides for annual awards of performance shares, options or cash 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 threshold opportunity is 20% of maximum. The Committee reviews the LTIP performance conditions, in advance of granting each LTIP cycle. Relative TSR will be the primary performance measure. Other performance measures may, however, be used in combination with relative TSR. 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, and expanding geographically. 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. 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 or amount of bonus payable, taking into account such factors as it determines to be relevant, including factors outside of management control or where it believes the outcome is not truly reflective of individual performance or in line with overall Company performance. Normally paid as a mixture of cash and deferred shares with the cash portion paid following the publication of the audited results. The deferred share portion will normally be a minimum of 25% of the total bonus (with after tax bonus used to acquire shares or the deferral taking place through a deferred share award) with the shares eligible for release after a period of two years. Dividend equivalents may accrue on deferred bonus shares. Malus and clawback provisions will apply in the case of individual gross misconduct, an error in assessing performance against the condition, corporate failure (for which the individual was partly or wholly responsible) and/or in the event that the individual is found legally responsible for: – a material misstatement of the Annual Accounts; or – a failure of risk management or reputational damage to the Company. The LTIP framework was approved by shareholders at the 2018 AGM. To the extent that an LTIP award vests, this will include the applicable dividends on the shares earned during the vesting period. Subsequent dividends on shares held by participants are paid in shares. Vesting of LTIP awards is subject to performance measured over a period of at least three years. In addition, for any shares to vest, the Committee must be satisfied that the outcome is a fair reflection of Ferrexpo’s underlying business performance. For LTIP awards from 2018 onwards a two-year holding period applies to shares vesting under the LTIP. Malus and clawback provisions will apply in the case of individual gross misconduct, an error in assessing performance against the condition, corporate failure (for which the individual was partly or wholly responsible) and/or in the event that the individual is found legally responsible for: – a material misstatement of the Annual Accounts; or – a failure of risk management or reputational damage to the Company. 93 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Remuneration Report continued Key principles of the remuneration policy continued Purpose and link to strategy Operation Opportunity Performance metrics Not performance related. Executive Directors are required to build and maintain a shareholding to the value of at least 200% of salary. The lower of 200% of salary and the value of shares held on cessation must be held for two years post cessation. Share ownership guideline To provide alignment of interests between Executive Directors and shareholders. The Company operates a shareholding requirement which is subject to periodic review. As a minimum, Executive Directors are expected to retain all of the post-tax shares vesting under the LTIP and shares deferred under the annual bonus (from 2022 on an after tax basis) until the shareholding requirement is met. Following cessation of employment, Executive Directors are expected to hold the lower of 200% of salary and the value of shares held on cessation for two years. The Committee maintains discretion to disapply the policy as it considers appropriate in exceptional circumstances (e.g. death). The guideline will apply to shares deferred under the annual bonus (from 2022 on an after tax basis) and shares which vest under existing and future LTIP awards (after tax). 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 set with reference to 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 are 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 Part B of the Remuneration Report for the year immediately following the year in which the grant is made. Part of the LTIP will normally also include other performance metrics (e.g. production or sustainability metrics) for a minority of the award to ensure that the long-term targets are appropriately balanced in light of the Company’s strategic objectives. Remuneration of senior executives below the Board The policy and practice with regard to the remuneration of senior executives below the Board is broadly aligned with that of the Executive Directors. Senior executives participate in the LTIP with the same performance measures applied as for the Acting CEO. 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. 94 Ferrexpo plc Annual Report & Accounts 2020 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 Not performance related. 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. Annual fee for the Chair. Annual base fee for Non-executive Directors. Additional fees are paid to the Senior Independent Director and the Chairs of the Committees and/or in relation to the Non-executive Director who will be a representative of employees 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. Changes to Non-executive Director fees are applied in line with the outcome of the review undertaken by the Chair and Executive Directors. Additional remuneration may be provided in connection with fulfilling the Company’s business (e.g. any expenses incurred fulfilling Company business may be reimbursed including any associated tax). The maximum aggregate fees, per annum, for all Non-executive Directors allowed by the Company’s Articles of Association is £5,000,000. Pay-for-performance: scenario analysis For the Acting CEO, who is currently the sole Executive Director, the graph below provides estimates of the potential future reward opportunity and the potential split between the different elements of remuneration under four different performance scenarios: “Below threshold”, “On-Target” and “Maximum” and “Maximum assuming 50% share price growth”. The scenario has been prepared using his base salary as allowing for the current premium for being Acting CEO as detailed on page 99. In illustrating potential reward opportunities, the following assumptions have been made: Scenario Fixed pay STIP LTIP Below threshold On-target Maximum No STIP (0% of salary) No LTIP vesting (0% of maximum) On-target STIP (75% of salary) On-target vesting of LTIP (40% of maximum) Base salary, pension and benefits as applicable for 2021 financial year1 Maximum STIP (150% of salary) Maximum, assuming 50% share price growth Maximum STIP (150% of salary) Full vesting of LTIP (100% of maximum) – assumed normal policy maximum of 200% of salary although in practice awards to Executive Directors are significantly lower As for Maximum, but modelling the impact of a 50% increase to share price 1 Benefits have been included at c.US$190,000 based on the annualised historic benefit provision to Executive Directors. Acting CEO US$ (‘000) Minimum 100% 1,150 Target 51% 32% 17% 2,253 Maximum 21% 21% Maximum with 50% share price growth 0 32% 26% 43% 35% 4,507 18% 5,466 1,000 2,000 3,000 4,000 5,000 6,000 Fixed Pay Annual Bonus LTIP LTIP value with 50% share price growth 95 Strategic ReportCorporate GovernanceFinancial Statements Ferrexpo plc Annual Report & Accounts 2020 Remuneration Report continued 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 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. 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 Director is employed under a contract of employment with Ferrexpo Middle East FZE, a Group company (the “employer”). The Committee sets notice periods for the Executive Directors at six months, which reduces the likelihood of having to pay excessive compensation in the event of poor performance. The principal terms of the Executive Director’s service contract (which has no fixed term) not otherwise set out in this report is as follows: save in circumstances justifying summary termination, Mr North’s service contract with the employer is terminable on not less than six months’ notice to be given by the employer or not less than six months’ notice to be given by Mr North and has no special provisions in the event of a change of control. Executive Director Position J North Acting CEO Date of contract 30 September 2015 Notice period From employer 6 months From employee 6 months Under his service contract, the Executive Director is entitled to 25 working days’ paid holiday per year plus public holidays and other forms of leave in accordance with applicable legislation. The Executive Director’s service contract contains 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, and accrued but untaken holiday where applicable and required under law for the extent of the notice period. 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. Under UAE law, upon loss of office the Executive Director is entitled to a one-way economy class ticket to his country of origin and the service gratuity payment referred to on page 88. Policy for loss of office payments The following principles apply when determining payments for loss of office for the Executive Director 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); 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; – reimburse reasonable relocation costs where an Executive Director (and, where relevant, their family) had originally relocated to take up the appointment; 96 Ferrexpo plc Annual Report & Accounts 2020 – 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). If the individual is considered a “good” leaver (e.g. for reasons of death, ill-health, injury or disability, retirement, redundancy, their employing company ceasing to be a member of the Group, the business (or part) of the business in which they are 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, except in the case of death, 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 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 light of developments in best practice. The Executive Directors’ service contract is 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 CEO and Chair of the Board and which should be notified to the Board. No external directorships of quoted companies are currently held by Executive Directors. Details of Non-executive Directors’ letters of appointment The Chairman and Non-executive Directors have each 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 a general meeting; in 2011 the Company adopted the practice of annual re-election of all Non-executive Directors. The key terms of current letters of appointment are as follows: Non-executive Director L Genovese G Dacomb V Lisovenko F MacAulay K Zhevago Date of first appointment Date of re-election Position Chair Non-executive Director 12 February 2019 10 June 2019 Non-executive Director 28 November 2016 Non-executive Director Non-executive Director 12 August 2019 1 December 2020 2021 AGM 2021 AGM 2021 AGM 2021 AGM 2021 AGM 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 changes 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, or by correspondence, or at 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 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. 97 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report continued PART B: ANNUAL REPORT ON REMUNERATION (AUDITED) The following section provides details of how the remuneration policy was implemented during the year. Throughout this report, the remuneration of Directors who are paid in foreign currencies are disclosed in local currencies to facilitate year-on-year comparisons, uninfluenced by exchange rate fluctuations. Committee membership in 2020 The Committee comprises three Independent Non-executive Directors. Fiona MacAulay was appointed Chair of the Remuneration Committee with effect from 12 August 2019. The other members of the Committee during the year were Graeme Dacomb and Vitalii Lisovenko. The Committee met four times during the year. Attendance at meetings by individual members is detailed in the Corporate Governance Report on page 71. A summary of the topics discussed at meetings in 2020 is set out in the Chair’s Introductory Statement on pages 86 to 87. The CEO (or Acting CEO) and the Chief Human Resources Officer (the “CHRO”) usually attend meetings of the Committee at the invitation of the Chair of the Committee, and the Company Secretary acts as secretary to the Committee. The Company Chair, other Non-executive Directors and other members of management may also attend meetings by invitation where appropriate. No Director is present when their own remuneration is being discussed. Advisers Following a competitive tender, the Committee appointed Korn Ferry in October 2019 to provide advice to the Committee. Korn Ferry is a member of the Remuneration Consultants Group and adhere to its code of conduct. Korn Ferry’s fees for services provided to the Committee in 2020 totalled £115,816 which were charged on the basis of a fixed fee for specified services and on a time and materials basis for any work outside of this scope. Korn Ferry also provides general remuneration advice to management in respect of remuneration elsewhere in the Group. The Committee evaluates the support provided by its advisers periodically and is satisfied that advice received is independent and objective and that the advisers did not have any connections with Ferrexpo which may impair their independence. The CEO and the CHRO provide guidance to the Committee on remuneration packages of senior executives employed by the Group (but not in respect of their 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 2020 and the prior year. K Zhevago held the role of CEO until 25 October 2019 when he stepped aside with Chris Mawe, the Chief Financial Officer, being appointed Acting CEO until the 2020 AGM on 28 May 2020. Mr Mawe ceased to be a Director of the Company on 5 July 2020 and subsequently was put on notice by the Company. Jim North, the Chief Operating Officer, assumed the role of Acting CEO from the 2020 AGM and was appointed to the Board on 5 July 2020. Salary1 Benefits2 STIP3 LTIP4 Pension5 Total (single figure)6 Total fixed remuneration (single figure)6 Total variable remuneration (single figure)6 Executive Directors C Mawe (until 5 July 2020)8 CHF435,702 CHF100,291 – – CHF21,785 CHF557,778 CHF557,778 – C Mawe (2019) CHF698,417 CHF195,411 CHF865,000 £250,705 CHF69,848 CHF2,146,746 CHF963,676 CHF1,183,070 J North (from 28 May 2020)7 US$567,180 US$6,459 US$573,656 J North (2019) – – – – – – US$1,147,295 US$573,639 US$573,656 – – – – 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/provision and healthcare). 3 STIP: this is the total bonus earned on performance during the year. Further details are provided on pages 100 to 101. As at the date of this report, no decision has been made in respect of the treatment of Mr Mawe’s STIP for the financial year ending 31 December 2020 and details will be disclosed in due course. 4 LTIP: the market value of shares that vested on performance to 31 December of the relevant year (2020: 0% vested on performance; 2019: 97.32% vested on performance). The market value is based on the share price on the normal date of vesting: 31 December 2020 of 282.60 pence; 31 December 2019 of 158.95 pence. Mr Mawe does not hold a 2018 LTIP award. Further details are provided on page 102 in respect of shareholding by the Directors. The impact of share price appreciation on the value of the LTIP is reflected in the LTIP Award Vesting table on page 102. The 2019 LTIP figure for Mr Mawe includes the value of 11,746 shares in lieu of dividends and has been converted using the average exchange rate for 2019 for the purposes of the total single figure column. 5 Pension: Mr Mawe’s pension is 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. Mr North does not participate in a pension scheme in line with normal practice in Dubai. Whilst working in Dubai, under local legislation he accrues a lump-sum gratuity payment which is paid on leaving employment and is equivalent to c.8.33% of salary per year of his service. Within the reporting period an amount of US$24,457 was accrued towards the statutory gratuity. 6 Average exchange rates: 2020 – US$1=CHF1.0663, CHF1=£0.8308, £1=US$1.2843; 2019 – US$1=CHF1.0066, CHF1=£0.7882, £1=US$1.2770. 7 Mr North assumed the role of Acting CEO from the 2020 AGM on 28 May 2020 and was appointed to the Board on 5 July 2020. Remuneration disclosed is in respect of the period as Acting CEO i.e. from 28 May to 31 December 2020. 8 Mr Mawe was appointed Acting CEO on 25 October 2019 until 28 May 2020 and received a temporary additional annualised salary of CHF200,000 to reflect his additional responsibilities. Mr Mawe ceased to be a Director of Company on 5 July 2020. Remuneration disclosed is in respect of the period as a Director i.e. until 5 July 2020. 98 Ferrexpo plc Annual Report & Accounts 2020 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 2020 and the prior year. Non-executive Directors L Genovese (Chair)1 V Lisovenko (Senior Independent Director)3 G Dacomb2 F MacAulay4 K Zhevago5 Former Non-executive Directors S Lucas (Former Chair) All figures shown in currency of payment, US$000 2020 2019 Fees Benefits Pension Total Fees Benefits Pension Total 282 190 120 138 240 494 – – – – – – – – – – – – 282 190 120 138 240 88 227 67 46 40 494 440 – – – – 30 – – – – – 2 – 88 227 67 46 72 440 1 Mr Genovese retired from the Ferrexpo plc Board on 1 August 2014 and was subsequently re-appointed on 12 February 2019. He was appointed Chair on 25 August 2020. 2 Mr Dacomb was appointed to the Board with effect from 10 June 2019. 3 Mr Lisovenko was appointed Senior Independent Director with effect from 19 August 2019. 4 Ms MacAulay was appointed to the Board with effect from 12 August 2019. 5 Mr Zhevago stepped aside from the role of CEO on 25 October 2019 following which he was appointed a Non-independent Non-executive Director of the Company. He continued to receive an annualised fee of US$240,000 until 1 December 2020 when it was agreed that Mr Zhevago will receive a fee in line with other Non-executive Directors (i.e. US$135,000). In addition, and to reflect his wider role at the Company in providing strategic advice and managing key relationships with stakeholders, he will receive a consultancy fee set at US$90,000 per year. This fee reflects the expected time commitment of the role and will be kept under review. He will not receive any wider Company benefits in connection with his role. Prior to Mr Zhevago’s revised arrangements being agreed, he was entitled to 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. In 2019, the value of accommodation provided was US$90,837. 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. Mr North was appointed to the role of Acting CEO in May 2020 on a salary of US$959,050, which includes an “acting up” allowance of US$100,000 per annum to reflect his responsibilities as acting CEO in addition to his role as Chief Operating Officer. There will be no increase to salary awarded in 2021. Executive Director J North 1 This includes the “acting up” allowance of US$100,000 referred to above. Base salary at: Position 1 January 2021 1 January 2020 Acting CEO US$959,0501 US$859,050 Mr Mawe received a salary of CHF861,320 during the period he undertook the role of Acting CEO which included an “acting up” allowance of CHF200,000 per annum to reflect the additional responsibilities. Pensions and other benefits – audited The Group does not operate a separate pension scheme for Executive Directors. In line with standard company practice in Dubai, Mr North does not participate in a pension scheme. Whilst working in Dubai, under local legislation he accrues a lump-sum gratuity payment which is paid on leaving employment in the country and is accrued at a rate equivalent to c.8.33% of salary per year of his service. In the period, an amount of US$24,457 was accrued towards the statutory gratuity. Mr North is eligible for other benefits whilst he is an Executive Director as set out in the Executive Director remuneration policy earlier in the report. This includes an unclaimed (to date) allowance toward the cost of accommodation and schooling for dependent children in Dubai. Mr Mawe was a member 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. Contributions for all Swiss employees operate according to a sliding scale, increasing on an age-related basis to a maximum of 10%. No additional benefit is receivable on early retirement. Executive Director C Mawe Normal retirement date Increase in value for 2020 less Director’s contribution 31.01.27 CHF56,905 Ferrexpo AG provides Mr Mawe with CHF170,316 of accommodation allowance and CHF24,931 of health insurance per annum which is subject to annual adjustment in light of the insurer’s changes to premium rates. 99 Strategic ReportCorporate GovernanceFinancial StatementsFerrexpo plc Annual Report & Accounts 2020 Remuneration Report continued 2020 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 Directors and senior executives are motivated to enhance shareholder value both in the short term and over the longer term. Key performance targets based on the budget for 2020 were set for the Directors and senior executives and were weighted to reflect the contribution of the individual to the achievement of that target. Targets during the year related to financial performance, safety and operational performance, and sales and product marketing performance, as well as personal targets relating to operational, financial and people management objectives. Safety (behavioural safety initiatives and improvements in risk management) was included as a modifier, decreasing the total result in the event of a fatality. The Company does not disclose its financial and operational targets pre-emptively for the forthcoming year as these are considered commercially sensitive. We do, however, provide retrospective disclosure of the targets. The data for 2020 is shown in the table below. Financial and operational targets are normalised, as in previous years, to take account of actual iron ore prices and sales pricing outside of a 5% band, operating forex losses or gains, and other major raw material cost price items such as gas, electricity and fuel prices as appropriate, to the extent that these were not under the direct control of management. These adjustments ensure that the targets fulfil their original intent and are no more or less challenging than when set in light of the adjustments made. No adjustments were made to safety, sales or production indicators such as volumes and costs. The Committee has discretion to manage bonus outcomes retrospectively; it can confirm, increase, reduce or cancel bonus payments to reflect current market conditions and affordability. No payment is made under the STIP if performance is below threshold. In 2020, the threshold performance equated to a bonus potential of 50% of salary, on-target performance 100% of salary and stretch performance 150% of salary. It is noted that under the 2021 scheme, the bonus earned for on-target performance will be reduced to 50% of maximum bonus opportunity (75% of salary). The level of achievement against each of the targets for 2020, as determined by the Committee for Mr North as Acting CEO, is summarised below. Business scorecard (60% of STIP) KPI Measure/target Financial Group EBITDA (US$, million) Net debt (US$, million) Safety LTIFR

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