Resilience &
commitment
Ferrexpo plc
Annual Report & Accounts 2022
Contents & At a Glance
Looking towards
a low emissions
future and the shift
to Green Steel1
At Ferrexpo, we are focused on the future –
both the future of Ukraine and the future of
low emissions steelmaking. We are long-term
investors in Ukraine, which has demonstrated its
resilience throughout Russia’s invasion, and we
have demonstrated our resilience as a business
in Ukraine. Despite the war, we have maintained
supplies to our European customers throughout
2022, and we are committed to provide stability,
where possible, for our stakeholders in these
difficult times.
References to Ferrexpo plc
References in this report to “Ferrexpo”, the “Company”, the “Group”, “we”, “us” and “our” are all references
to Ferrexpo, Ferrexpo subsidiaries and those that work for Ferrexpo, albeit not a singular entity or person.
Such terms are provided as a writing style in this report, and are not indicative of how Ferrexpo or its
subsidiaries are structured, managed or controlled.
Words with the symbol A are defined in the Alternative Performance Measures section of the Annual Report
on pages 212 to 213.
1.
“Green Steel” is considered to be the production of crude steel without greenhouse gas emissions.
Please see page 15 of the Group’s Climate Change Report for more information.
Strategic Report
01
Chair’s Statement
War in Ukraine
CEO’s Review
Market Review
Our Business Model
Our Stakeholders
Strategic Framework
Key Performance Indicators
Financial Review
Operational Review
Responsible Business Review
Introduction
Chair’s Review
Safety and Our People
Environmental Stewardship
TCFD Disclosures
Diversity, Equity and Inclusion
Communities
Governance
Non-Financial Information Statement
Stakeholder Engagement – Section 172
Risk Management
Principal Risks
Viability Statement
02
04
06
08
12
14
16
18
22
26
30
31
32
34
37
42
44
46
47
48
56
58
75
Corporate Governance
Financial Statements
Additional Disclosures
Alternative Performance Measures
Glossary
77
138
211
212
214
STRATEGIC REPORT
High grade
production continues
Despite the war in Ukraine, we continued to
produce in 2022, demonstrating the resilience
of our operational and marketing teams. We
remain committed to high grade iron ore,
which represented 100% of our production.
See page 26
Pivoting to direct
reduction pellets
Output of higher grade, 67% Fe direct
reduction pellets, which represent a low
emissions pathway to making steel, rose to 6%
of total pellet production in 2022 (2021: 4%).
See page 6
Net cash position
supports balance
sheet resilience
Strong balance sheet metrics developed
through resilient business model, prudent
capital allocation and a focus on quality.
See page 22
Our values
Responsibility
Make it happen
Integrity
Diversity within one team
Continuous innovation
6.1MT
67% Fe
US$106M
See page 32
See page 31
See page 46
See page 42
See page 29
Ferrexpo plc
Annual Report & Accounts 2022
01
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Chair’s Statement
Resilience and
a commitment
to Ukraine
US$3.3BN
Committed to Ukraine with more than
15 years of investment since our IPO in
2007, amounting to over US$3.3 billion.
3%
Generating 3% of Ukraine’s export
revenues in 2022 (2021: 4%), despite a
decline in production and iron ore prices.
70+
The Ferrexpo Humanitarian Fund
has supported more than 70 projects
since the outset of the war in Ukraine,
providing direct assistance.
Image on the cover:
Championing selected
members of our
Ukrainian workforce
Thank you to all members
of our Ukrainian workforce
for their resilience and
commitment since the start
of the Russian invasion.
02
Ferrexpo plc
Annual Report & Accounts 2022
STRATEGIC REPORT The year 2022 will long be remembered as a consequence of Russia’s escalation
of its invasion of Ukraine. It is a significant moment in the history of our planet, and
we remain committed to Ukraine and our people at this difficult time.
At Ferrexpo, we are proudly Ukrainian.
Ferrexpo has successfully operated in
Ukraine for more than 15 years since our
listing, and we have consistently invested in
Ukraine, our people and our assets. Over
this time, our constructive relationships
have helped us build a company that is
capable of producing some of the highest
quality forms of iron ore that are
commercially available.
The world has supported Ukraine as it
defends itself from Russia’s invasion.
We have remained committed to Ukraine
throughout this conflict, through providing
vital humanitarian support to those in need,
whilst continuing production and our
contribution to the Ukrainian economy. We
have nearly 10,000 people in our workforce,
with 95% normally based in Ukraine, and
we have strived to support them, their
families and local communities throughout
this conflict. On a national scale, Ferrexpo
represents a significant contributor to the
Ukrainian economy through taxes and
royalties, as well as our consistent use of
Ukraine’s infrastructure and serving as a
major employer in our region of Ukraine. We
are proud that our resilient business model,
and focus on high quality products, has
enabled us to continue shipments to our
European customers throughout 2022.
Resilience and commitment
In reviewing what we have learnt from the
past year, two key themes are evident:
resilience and commitment. Ukraine’s
resilience has been apparent in newspapers
around the world for more than 380 days. At
our operations, we have seen our workforce
come together with local communities.
In an effort to streamline our support, we
established a dedicated humanitarian fund
early in the conflict, as it quickly became
apparent that large businesses would
need to support communities. Through
more than 70 individual projects, I am
proud to reflect on the direct support that
we have been able to provide, and will
continue to offer, with over US$19 million of
humanitarian aid provided to date. I am also
proud that Ferrexpo has supported 3,500
internally displaced people fleeing the war
as they pass through our area.
As the war enters its second year, we are
mindful of the wellbeing of our workforce
and the effects of living in a war zone. As
such, we are offering free support services
to those at our operations.
I am proud of the commitment that we have
shown to our stakeholders, and indeed
the commitment that they have shown
us. In Ukraine, we have worked closely
with communities to provide support
through our newly formed humanitarian
fund and the long-standing Ferrexpo
Charity Fund. Resilience is also evident
in our operations and marketing teams,
with their efforts enabling us to continue
shipping throughout 2022. As a modern
company, we are increasingly reliant on
electronic equipment for managing our
operations, and therefore protecting
our IT infrastructure from cyberattacks
has been critical since the war began –
more on our efforts here on page 72.
More broadly, we have also continued our
decarbonisation strategy in publishing our
Climate Change Report as scheduled in
4Q 2022, as well as providing clear and
timely communications with stakeholders
throughout the war. We are also grateful
to our customers, who have shown
commitment to our products, and I would
like to thank them for their continued
support, which is only possible through
long-standing positive relationships.
Understanding our role in Ukraine
We are a major business in Ukraine and,
as such, we are a significant contributor
to the local economy and economy of
Ukraine. In 2022, we contributed US$164
million in taxes and royalties, and we
have continued supporting our workforce
through our continued operations. We are
frequent and consistent users of Ukraine’s
utilities and infrastructure, helping to
contribute to the functioning of Ukraine
beyond our own operations. Through our
position as one of the world’s largest iron
ore pellet producers, we are able to be a
significant contributor to Ukraine’s exports,
representing 3% of total exports by value in
2022, despite a 46% decline in production
and 25% lower iron ore prices in 2022.
Our footprint in Ukraine extends beyond
our own operations, and we are proud
to support local businesses and local
communities. Of the people that we employ
in Ukraine, almost all are based in local
communities, and 79% of our recruitment
in 2022 was from local communities.
Board developments
The past year has brought a number of
changes to strengthen the Board; we
welcomed Fiona MacAulay into the role
of Senior Independent Director, Ann-
Christin Andersen in the role of Chair
of the Health, Safety, Environment and
Community (“HSEC”) Committee and
Natalie Polischuk joined the Board in
December 2021. Furthermore, Jim North
was appointed as permanent CEO in
February 2022. In addition, Non-executive
Director Kostyantin Zhevago stepped
down from the Board in December 2022.
Looking to the future
Reflecting on our long-term strategy as a
business, we remain committed to Ukraine
and its potential. There is a significant
challenge ahead, once the war ends, for
companies and communities to help with
the rebuilding and healing of Ukraine.
More broadly, we are pleased to see the
global shift in the steel market towards
higher grade, higher quality materials as a
route to lower emissions across the steel
value chain. High grade iron ore has been
a strategic priority of Ferrexpo’s since
listing in 2007, and we are proud to be
able to help facilitate decarbonisation in
the steel industry, which accounts for 7%
of global greenhouse gas emissions1.
The coming period will be difficult given
the continued war in Ukraine, but if we are
to look beyond the war, we continue to be
excited by Ukraine’s potential and the future
that lies ahead in Green Steel. Through
working with our stakeholders, we are
proud to have built the business that we
have today, and the potential that it has
for the future.
Finally, I would like to thank all of our
stakeholders, particularly those in Ukraine,
for their continued commitment to Ferrexpo.
I am hopeful that we will soon see an end to
the conflict, and then we can look towards
a brighter future for Ukraine.
Slava Ukraini.
Lucio Genovese
Chair, Ferrexpo plc
1. Source: International Energy Agency (“IEA”), link.
(Accessed February 2023.)
Ferrexpo plc
Annual Report & Accounts 2022
03
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Case Study: War in Ukraine
Effects of
operating
in a conflict
As a business operating in Ukraine at the current time,
we have been significantly impacted by the ongoing war.
Here we explore a selection of these impacts, and the
outlook for further consequences.
Our people
Our first priority will always be the safety
and wellbeing of our people. Currently, we
have more than 1,500 people absent from
our workforce, including approximately 650
members of our workforce serving in the
Armed Forces of Ukraine1, who we have
supported with key protective equipment
such as bulletproof vests. Certain areas
of our business are affected more by
absences than others, and the situation is
helped by our operations running below
capacity. We are increasingly working to
assist wellbeing – including a programme to
provide counselling to those returning from
the armed forces, and a rehabilitation centre
for those returning to work after service.
Regrettably, we are now aware of
20 members1 of our team have died
whilst serving in Ukraine’s military, and
we are supporting their families.
Local communities
It was quickly apparent in the early stages
of the conflict that the people of Ukraine
would need humanitarian support at this
difficult time. The Ferrexpo Humanitarian
Fund has helped channel support to more
than 70 projects since the start of the
war1 – see page 44 for more details.
Logistics constraints
The closure of Ukraine’s access to the Black
Sea has severely restricted our access
to seaborne markets and has therefore
limited our ability to pivot sales according
to regional demand around the world – as
seen previously during the global Covid-19
pandemic. Access to the seaborne market
04
is possible today, but at an elevated
cost and with additional restrictions.
Power supply
In late 2022, Russian attacks on civilian
electrical infrastructure increased, with a
significant impact on electricity generation and
supply. Following the onset of this phase of the
war, the Group was not able to achieve stable
production for approximately ten weeks of
4Q 2022. As a means of reducing operational
risk around further power shortages, we are
replenishing pellet inventories at strategic
locations, as well as exploring our options
around self-generation of electricity.
Local currency and economy
The Ukrainian hryvnia depreciated by 34%
during the course of 20222, and this has
impacted operating costs and carrying
value of assets – see page 22 for more
details. Looking forward, it is expected
that, should the war continue, the Ukrainian
hryvnia will continue to depreciate further.
Furthermore, the Ukrainian economy
experienced an inflation rate of 27% in 20223.
Supplier constraints
Throughout 2022, we have continuously
adapted to an ever-changing operating
environment, including changing suppliers
for key inputs as individual suppliers are
forced to close their operations or divert
logistics paths. We expect to have to
continue to adapt and evolve our supply
arrangements, to ensure supply and reduce
risk, for as long as the war continues.
Information as of 10 March 2023.
1.
2. Source: National Bank of Ukraine (“NBU”), link.
(Accessed 3 March 2023.)
3. Source: Reuters, link. (Accessed 3 March 2023.)
Ferrexpo plc Annual Report & Accounts 2022
Image: School bell
at Ferrexpo Class.
Image: Armoured
ambulance donated.
Remembering
those we have lost
As of 10 March 2023, we are aware of a
total of 20 members of our team that have
sadly died whilst serving in the Armed
Forces of Ukraine, and we are supporting
their families at this difficult time.
Dmytro Belikov Age 32
Oleksiy Bridnya Age 33
Andriy Chernya Age 37
Oleksandr Chugainov Age 54
Maksym Chystyakov Age 24
Andrii Dukanych Age 33
Oleksiy Khanilevych Age 24
Serhiy Kharlamov Age 57
Serhii Kondyk Age 31
Denys Koshovyi Age 30
Rostyslav Ledovskyy Age 25
Dmytro Lysachenko Age 28
Roman Lytvynenko Age 31
Kostyantyn Orchikov Age 30
Oleksandr Scherbakov Age 28
Denys Svyrydov Age 50
Yaroslav Taran Age 50
Oleksandr Terlenko Age 48
Oleksiy Yatskov Age 36
Anatoliy Zakupets Age 37
Slava Ukraini.
STRATEGIC REPORT Displaced workforce
and communities
Currently c.650 members of our
workforce are serving in the Armed
Forces of Ukraine with additional
numbers absent as they seek safety.
See page 44
Health and wellbeing
Mindful of the stress caused by long-term
living in a war zone, we are offering a
range of support to our workforce.
See page 32
Power supply
Attacks on state-owned electrical
infrastructure resulted in ten
weeks of intermittent power in
4Q 2022.
See page 26
Closure of Ukraine’s
Black Sea ports
Historically, we shipped around
half of our output via Ukrainian
ports, and closure limits the
markets we can serve.
See page 11
Humanitarian support
US$19M
Local currency
The depreciation of Ukraine’s currency
and local inflation have impacted our
accounts in a variety of areas.
See page 22
Customers
Clear communications
have been required with our
customers throughout the war.
See page 69X
Impact on
infrastructure
Ukraine’s railways have come
under constant attack and
seen increased demand from
displaced trade. Diverting sales
via alternative logistics corridors
comes at an increased cost.
See page 11
Supplier constraints
Suppliers’ facilities have been
attacked, and business partners
have had to shut down.
Local communities
The war has placed significant strain on
the ability of local authorities to provide
consistent support to communities.
See page 59
See page 44
Ferrexpo plc Annual Report & Accounts 2022
05
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CEO’s Review
Stakeholder
support and
looking ahead
The morning of 24 February 2022 will live long in the
memory. Russia’s invasion of Ukraine has defined our
year, but we are proud of the resilience shown by our
workforce in continuing to support Ukraine’s economy.
We have a workforce of 10,000 people,
with more than 95% of them based in
central Ukraine and it is our duty to protect
and support them. I am proud to have
been a part of Ferrexpo in 2022, as we
have sought to engage with our workforce
and communities across Ukraine at such a
difficult moment in history, to understand
what we could do to help.
Supporting Ukraine
Through the creation of the Ferrexpo
Humanitarian Fund, we have been in a
position to provide direct support to those
in need, as well as help our suppliers and
customers provide contributions to fight
the effects of the humanitarian crisis that
is unfolding in Ukraine. Through this fund,
and additional support projects provided
directly by our subsidiaries, we have
provided more than US$19 million of
targeted humanitarian assistance to date,
supporting over 70 initiatives across eight
regions of Ukraine. Each individual project
is reviewed and approved by the Health,
Safety, Environment and Community
(“HSEC”) Committee to ensure good
governance practices remain, even in a
war zone. For more on our humanitarian
efforts, see page 45.
Despite the war in Ukraine and the difficulties
our people have experienced in 2022, our
safety performance has remained strong.
We remain fatality-free for the second year
running, and our lost time injury frequency
rate continues to be materially below the
level recorded by our peers. See page 32
for more on our safety performance.
Drive towards Green Steel
As a constituent of the steel value chain, we
understand the importance of climate change
and how this point in time represents a pivotal
moment for the steel sector, with major
investment planned in the coming decades.
As a producer of a form of iron ore that helps
steelmakers reduce emissions, we are in a
position to supply the global steel industry
with blast furnace pellets today to reduce
emissions by 40%1 as they switch away from
sinter fines. In parallel, we are developing
our offering of direct reduction pellets,
which represent a potential pathway to low
emissions Green Steel, positioning us well
for the future.
Our progress in decarbonisation, which to
date has seen us realise a 31% decrease in
emissions since our baseline year, has begun
well and we intend to maintain our positive
momentum in reducing our emissions. We
are excited by our stakeholders’ desire to
understand our decarbonisation pathway,
and we are looking into ways to collaborate
together going forward. Through our work
with environmental consultants Ricardo Plc,
we were also able to present expanded
targets for our emissions reduction
programme – please see our Climate Change
Report, which was published in December
2022, for more details.
Operating in a time of war
Production volumes fell by 46% in 2022,
primarily reflecting the constraints imposed
by the war in Ukraine and the deterioration
of the economic environment in Europe
as energy prices and inflationary risks
rose throughout the year. The war’s
restrictions on our access to the Black
Sea have made logistics routes for sales
outside of Europe less cost effective,
but this topic is a clear catalyst for 2023
should our Black Sea access resume.
Sales volumes in 2022 reflected accessible
markets, with sales in the first quarter
remaining buoyant as short-term supply
disruption led to steelmakers building
raw materials inventories. Subsequently,
sales declined throughout the year as
the complexity of the restrictions on our
business increased. We did, however,
continue to deliver our products to
our European customers throughout
the year, which is a testament to the
resilience and commitment of our
marketing and operations teams.
A committed leadership team
Given the conflict in Ukraine, it is easy to
overlook our achievements in bolstering
the management and governance of our
business. My appointment as permanent
Chief Executive Officer was announced
in February 2022. In the same month,
Fiona MacAulay and Ann-Christin
Andersen were appointed as Senior
Independent Director and Chair of the
HSEC Committee respectively, and on
30 December 2021 we announced the
appointment of an additional Independent
Non-executive Director, Natalie Polischuk.
The appointments of Fiona, Ann-Christin
and Natalie bolster our leadership from a
diversity perspective, and we are seeing
progress in our executive management
team – Yaroslavna Blonska was appointed
Acting Chief Marketing Officer in October
2022, and in 2022 the proportion of our
management positions held by women
increased to 20.9% (2021: 20.1%).
It is important to thank all of our
stakeholders for their commitment to
Ferrexpo in 2022. It is our committed
workforce, the communities that grant us
our licence to operate, our long-standing
customer and supplier relationships, and
other key relationships, that have helped to
support us throughout this war. Through
operating a resilient business model, we
aim to come through this difficult time as a
stronger company, and this would not be
possible without this continued support.
Jim North
Chief Executive Officer, Ferrexpo
1. Source: Independent research provided by CRU.
06
Ferrexpo plc
Annual Report & Accounts 2022
STRATEGIC REPORT Revenue generated in 2022
US$1.2BN
2021: US$2.5BN
Underlying EBITDA A in 2022
US$765M
2021: US$1,439M
Underlying EBITDA A margin in 2022
61%
2021: 57%
Ferrexpo plc
Annual Report & Accounts 2022
07
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Market Review
Resilient pellet premiums
amid lower iron ore price
environment
Reduced levels of price volatility
were seen in 2022 compared to
2021. Whilst iron ore prices declined
by 25%, blast furnace pellet
premiums rose by 20%, which
reflects shifting demand for high
quality products.
Yaroslavna Blonska,
Acting Chief Marketing
Officer
The Group primarily generates its revenues
through the sale of iron ore pellets, the pricing
of which is governed by a number of quoted
market benchmarks, generating a net
realised pellet price. The main contributing
components to the pricing of Ferrexpo’s
pellets are the high grade (65% iron, “Fe”)
iron ore fines index, the pellet premium, a
rate applicable for the freight component
of transporting material to customers, and
any applicable additional premiums and
discounts. The Group currently only
produces high grade products, grading
either 65% Fe or above, and therefore the
following text focuses on the high grade
index for iron ore fines pricing.
Iron ore fines prices
The index for high grade (65% Fe) iron ore
fines began the year at US$140 per tonne
and rose to more than US$190 per tonne as
of early March, before steadily declining to a
low of US$91 per tonne in late October. The
primary factor behind this initial rise during
1Q 2022 was the rising risk of conflict in
Ukraine, ultimately followed by Russia’s
invasion commencing in February, which
put pressure on global iron ore prices as
steelmakers sought to source alternative
suppliers to Russian iron ore. This short-term
tightness in the iron ore market largely
persisted into 2Q 2022, before the impact of
elevated energy prices and concerns over the
global economic outlook, particularly for the
Chinese economy, began to erode confidence
in end-user markets. Prices declined by
approximately US$40 per tonne between
early June and early July, before exhibiting a
more gradual decline thereafter, with market
commentators citing concerns over steel
margins in China and local restrictions within
China related to the global Covid-19
pandemic as the reasons for this decline1.
Moving into 2H 2022, efforts by steel mills to
stockpile material slowed, as they began to
secure access to alternative raw material
supply channels, and demand for iron ore
started to normalise. As such, the drivers
behind price movements returned to Chinese
supply/demand dynamics for iron ore and
steel, with China representing the largest
market for seaborne iron ore and the main
determinant of iron ore prices globally. The
beginning of 2H 2022 coincided with weak
demand for iron ore and steel, especially
with sentiment dampened by strict Covid-19
restrictions in China. A key effect of these
restrictions was the impact on consumer
sentiment in local property markets, which is
a major user of finished steel in China. This
generated a gradual decline in iron ore pricing
until early 4Q 2022. Expectations arose in
October regarding a potential unlocking of
restrictions in China, but these were short-
lived after the Chinese government reiterated
existing policies, sending prices to the full
year low of US$91 per tonne in late October.
Iron ore prices did ultimately recover as
restrictions in China were eventually eased
08
Ferrexpo plc Annual Report & Accounts 2022
Customer sales in 2022
6.2MT
Sales of 6.2 million tonnes (46%
reduction), despite conflict-related
restrictions in 2022. Shipments to
Europe remained resilient, declining
by a lower degree (23%).
Five years of iron ore prices
(65% Fe Index)
US$ per tonne
2022
2021
2020
2019
2018
US$139/t
US$186/t
US$122/t
US$104/t
US$90/t
1. Source: S&P Global Commodity Insights.
STRATEGIC REPORT
Chart: Market indices 2022
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250
200
150
100
50
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Jan 22
Feb 22
Mar 22
Apr 22 May 22
Jun 22
Jul 22
Aug 22
Sep 22 Oct 22 Nov 22 Dec 22
S&P Platts’ Iron Ore Fines Index (65%)
Freight Rate (Baltic Capesize Index C3)
S&P Global Atlantic Blast Furnace Pellet Premium
S&P Global Direct Reduction Pellet Premium
towards the end of 4Q 2022, ending the year
at US$131 per tonne.
Overall, the full year iron ore price declined
by 25% in 2022, broadly reflecting weaker
demand as a consequence of the conflict
in Ukraine and concerns over the Chinese
economy. It should also be noted that the
comparative period (2021) represented a
robust year across the commodity space,
as governments worldwide continued to
supply fiscal stimulus in response to Covid-19,
with iron ore pricing in 2019 and 2020 being
US$104 and US$122 per tonne respectively
– in line with the figure for 20221.
Towards the end of 2022, it was widely
expected that 2023 would see a contraction
in global markets, with economies worldwide
already witnessing a slowdown in growth
during 2H 2022, as energy prices remained
elevated and central banks sought to contain
inflationary pressures by raising interest rates.
However, recent news and developments in
China, such as reports of a potential easing of
Covid-19 restrictions, have resulted in iron ore
prices rising to US$138 per tonne as at the
end of February 2023. Futures contracts
reflect the current uncertainty in the market,
with contracts for December 2023 deliveries
(62% Fe Index) trading at a level US$8 per
tonne below today’s spot market2.
The supply side of the iron ore fines market is
widely expected to remain balanced in 2023,
with supply from the major producers in Brazil
and Australia expected to remain largely in line
with the same level of output seen in 20223.
High grade premiums
The premium for high grade iron ore, being
the difference between the 65% Fe Index and
the 62% Fe Index, contracted in 2022 in line
with the benchmark indices, falling by 28%.
This contraction is expected at times of steel
market weakness, when steel margins are
reduced and steelmakers seek to utilise lower
grade inputs to reduce raw material costs,
reflecting a more conservative approach.
Similar to the fines index, the ferrum premium
of US$19 per tonne in 2022 was ahead of
levels seen in recent years (2019 and 2020:
US$11 and US$13 per tonne respectively) or
in line with other recent years (2018: US$21
per tonne). The year-on-year comparison,
however, shows a 28% reduction, with 2021
being a relatively high year for commodities
pricing (2021: US$26 per tonne).
Given the correlation of the grade of iron ores
and the degree of emissions produced by
steelmakers, with higher grade ores requiring
the production of lower emissions to generate
steel, it is expected that the ferrum premium
will continue to widen over the long term.
Pellet premiums
The pellet premium is a significant factor in the
cash flow generation of a pellet producer, with
this component of pricing typically representing
a significant additional premium over and
above the prevailing iron ore fines index.
For example, the Atlantic Pellet Premium1
represented a 60% premium above the 62%
Fe iron ore fines index in 2022 (2021: 38%).
The high level of the pellet premium (relative
to benchmark fines prices) reflects the
scarcity of iron ore pellets relative to the
global fines export market. In 2022, the
global pellet export market represented
approximately 111 million tonnes3, compared
to global fines export trade of 1.1 billion
tonnes4. In addition, iron ore pellets typically
offer steelmakers the opportunity to raise mill
productivity and lower emissions due to
higher grades and the lack of a requirement
for sintering, which is a process that typically
utilises coal as its energy source.
Global exports of pellets decreased by
approximately 15% in 20223, reflecting a
reduction in supply from almost all major iron
ore pellet exporters for a variety of reasons.
Pellet exports from Russia have seen the
largest year-on-year decrease, falling by
approximately 7 million tonnes as steelmakers
switch suppliers following Russia’s invasion of
Ukraine. Additionally, lower pellet demand
from Chinese steel mills, with this demand
down approximately 60% in 2022, has
resulted in lower export volumes for pellet
producers that have historically supplied this
market – with Brazilian and Indian exporters
accounting for approximately half of this
decrease3.
Regionally, 2022 saw a clear split in the health
of global steel markets, with those markets
more closely correlated to Russian energy
supply (such as Europe) seeing the greatest
decline in demand for pellets. European steel
mills imported approximately one third lower
volumes of iron ore pellets in 2022, with this
reduction seen in both Western and Eastern
Europe. Outside of China, Asian steel mills
saw a lower reduction in buying activity, with
a 14% reduction year-on-year. The Middle
East and North Africa (“MENA”) region, which
is a region less dependent on Russian energy
supply, saw a 7% increase in pellet buying
activity in 2022.
An additional factor helping to promote our
exports to the MENA region is that this region
typically purchases direct reduction (“DR”)
pellets. Since DR pellets have a lower
emissions footprint than other forms of iron
ore, we are directing our strategy towards this
product and actively growing our footprint in
this region.
As a result of tightness in pellet markets
outside of China in 2022, both the Atlantic
pellet premium and DR pellet premium rose
materially during the year, and therefore
trended in the opposite direction to iron ore
fines prices. This divergence is due to iron ore
fines and pellets having different key drivers
– China accounted for 75% of iron ore fines
imports in 2022 (2021: 76%)4, and is therefore
the dominant market for this product. For
pellets, the key markets are Europe and
markets in North East Asia, where
independent steelmakers5 in these two
regions collectively accounted for 60% of
defined pellet imports in 2022 (2021: 58%)3.
Factors related to climate change and
decarbonisation, with the pace of legislative
change faster in Europe than other markets,
are expected to have a greater bearing on the
pricing of iron ore pellets as a result of this link
to European buying.
Within the year, the Atlantic pellet premium1
rose by 41% in 1H 2022 (in contrast to the iron
ore fines price, which remained broadly flat).
Stockpiling efforts, which were in response to
increased risk of supply disruption following
Russia’s invasion of Ukraine in February 2022,
resulted in an increase in pellet premiums in
1H 2022. This buying activity was, however,
not matched by end-user demand and raw
material stockpile inventories increased,
particularly in Europe. With high prices for raw
materials and energy inputs, steel margins in
1. Source: S&P Global Commodity Insights.
2. Source: CME Group, Link (accessed 23 February 2023).
3. Source: Management estimate.
4. Source: CRU.
5. Defined as steelmakers that do not have material volumes of integrated iron ore supply,
excluding pellet imports listed without a defined destination (12% of the total pellet
market, typically relating to exports from certain producers in the Commonwealth of
Independent States (“CIS”) and India).
Ferrexpo plc Annual Report & Accounts 2022
09
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Market Review continued
Summary of industry key statistics
(All figures US$/tonne, unless stated otherwise)
Iron ore fines price (62% Fe, CFR China)1
Iron ore fines price (65% Fe, CFR China)1
Average 65% Fe spread over 62% Fe1
Atlantic (blast furnace) pellet premium1
Direct reduction pellet premium1
C3 freight (Brazil – China)2
C2 freight (Brazil – Netherlands)2
2022
120
139
19
72
87
24
13
2021
YoY change
160
186
26
604
734
27
144
(25%)
(25%)
(28%)
+20%
+18%
(9%)
(11%)
(4%)
Global steel production (million tonnes)3
1,832
1,912
Europe decreased in the middle of 2022,
subsequently prompting several blast
furnaces to suspend operations in Europe.
By October, a total of ten blast furnace
steelmaking facilities in the region idled at
least part of their operations5.
High pellet inventories, coupled with low blast
furnace steel output, resulted in a reduction in
pellet demand, and Atlantic pellet premiums
fell to approximately US$60 per tonne
towards the end of 4Q 2022.
Whilst pellet buying in European and
Asian regions declined in 2022, a significant
proportion of pellet sales are conducted via
long-term contract – providing an additional
degree of stability (for example, 96% of
Ferrexpo’s pellet sales in 2022 were under
long-term contract). This therefore provides
stability for individual pellet producers, and
the overall pellet market, throughout the
commodity cycle.
Looking ahead to 2023, it is expected that
the overall size of the pellet export market will
revert to a similar size as seen in recent years
(c.130 million tonnes), with the pace of this
recovery dependent on the war in Ukraine
and any resulting easing of constraints related
to energy supply (particularly energy supply
into Europe)6. China’s expected easing of
Covid-19 restrictions boosted iron ore fines
pricing in late 2022, albeit with relatively little
firm evidence of increased economic output.
Should China deliver a recovery in its growth
rate, which saw 3% growth in 2022 compared
to 8% in 20217, it should be expected that
blast furnace pellet premiums will stabilise at
current levels. Pellet demand from European
steel mills in 2023 is expected to be linked to
energy prices, inflation rates and the outlook
of the war in Ukraine. To mitigate risks to the
Ferrexpo business, it is important for the
Group to resume access to ex-European
markets in 2023 to provide support for
realised pellet premiums.
Freight rates
During the year, the C3 freight rate, which
describes the cost of shipping dry bulk
materials from Brazil to China, rose from a
low of US$17 per tonne in January to a peak
of US$38 per tonne in May, with this increase
associated with rising energy costs and
buoyant commodity markets. In 2H 2022,
the same freight index declined to US$22
per tonne by the end of 3Q 2022, where it
then largely remained for 4Q 2022. This
decline in 2H 2022 can be attributed to an
economic slowdown in China, partially related
to local “zero Covid” rules, lower energy
prices and lower commodity pricing driving
reduced demand for shipping.
At US$24 per tonne, the average C3 freight
rate for 2022 represented a level US$3 per
tonne below the previous year as global
demand for dry bulk cargoes weakened.
Looking ahead, freight rates are expected
to remain above historical averages seen in
years prior to the global Covid-19 pandemic,
with elevated levels already seen in 2021 and
2022. This shift reflects higher energy costs
and the potential for costs associated with
stricter environmental regulation to be passed
on to end users.
Steel
Ferrexpo’s iron ore pellets are used by
steelmakers to produce steel. Factors
such as global steel production, pricing
and margins therefore have a direct
impact on the benchmark indices
used in the pricing of pellets.
World steel production in 2022 fell by 4%
to 1.8 billion tonnes, with a 2% contraction
in China and larger declines in developing
economies such as the European Union
(11% decrease), Japan (7% decrease) and the
United States (6% decrease)3. Even before the
war in Ukraine started, production rates were
slower at the start of the year than in 2021,
with global output down 6% as of February
2022. This deficit largely remained intact
throughout the remainder of the year.
Pricing for hot rolled coil (“HRC”) in Europe
began the year at €960 per tonne, before
rising sharply to over €1,400 in late March,
as steelmakers were able to transfer the
rising cost of raw material inputs to end users.
European economies demonstrated slowing
growth throughout 2022, as a consequence
of Russia’s invasion of Ukraine, elevated
energy prices and inflationary pressures,
and consequently have shown lower levels of
end-user demand for steel. As a result, HRC
steel prices declined to below €700 per tonne
by the end of the year, representing a level
33% below the start of the year. A similar
trend was seen in China throughout 2022,
albeit to a less pronounced extent, due in
part to a lower exposure to Russian energy.
Chinese HRC prices rose in 1Q 2022 to
approximately 10% above the start of the
year, then declined to 21% below this level
as of the end of the year 8.
Looking ahead to 2023, the World Steel
Association’s Short Range Outlook,
issued in October 2022, projects a small
recovery in steel production, with 1%
growth to 1.8 billion tonnes. This growth is
attributed to infrastructure demand, despite
concerns over high inflation, monetary
tightening and China’s slowdown.
Developments in Green Steel
A number of major steel producers announced
initiatives to produce Green Steel in 2022,
which is the manufacturing of steel without
the use of fossil fuels9, often announcing
agreements with end users (typically with
the automotive sector) for the offtake of
this material. The cost of Green Steel is
estimated to be up to 60% higher than
current prices, with this difference primarily
related to the expected additional cost of
producing and using green hydrogen10.
Whilst trial quantities of Green Steel were
produced in Sweden in 2022, widespread
commercial production is not expected to
commence until the medium to long term6.
1. Source: S&P Global Commodity Insights.
2. Source: Baltic Exchange.
3. Source: World Steel Association.
4. Figures restated compared to 2021 Annual Report.
5. Source: CRU (Iron ore outlook presentation, October 2022).
6. Management estimate.
7. Source: World Bank, link. (Accessed 3 March 2023.)
8. Source: Bloomberg.
9. As defined by the World Economic Forum, link. (Accessed 3 March 2023.)
10. Source: SteelOrbis link. (Accessed 3 March 2023.)
10
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT
Case Study: Logistics flexibility in a war
Logistics
flexibility in
2022
The war in Ukraine has highlighted the importance of
having flexibility and diversity within our logistics chain,
with Ukraine’s railways and our inland waterway subsidiary
providing essential services during the year.
Disruption due to conflict in 2022
As summarised on pages 4 to 5, the
war in Ukraine in 2022 has resulted in
several disruptive effects on Ukraine’s
logistics network, from the closure of
Ukraine’s access to the Black Sea, to
targeted attacks on the railway network.
Indirect effects of the war also included
the diversion of Ukraine’s grain shipments
to non-Ukrainian ports, putting additional
pressure on Ukraine’s railway network.
Owner-operator model
At Ferrexpo, we have long sought to own
and operate our logistics network, either
through the purchase of our own rail wagons,
operating our own inland waterway (barging)
subsidiary First-DDSG, or owning a stake in
a berth at a port in Ukraine. This practice
lowers operating costs (as utilising state-
owned railcars has an additional operating
cost associated with them), improves product
quality control (since we can manage the
maintenance of our own railway wagons and
vessels), and reduces operational risk. This
final point has been key during the war in
Ukraine, when accessing European
customers has been periodically difficult
via Ukraine’s railway network.
Resilience in logistics
Whilst total shipments declined by 46% in
2022, shipments to Europe (being the only
practical market for us during the majority of
2022) only declined by 23%, as we managed
to maintain vital logistics pathways to
European customers. This achievement is
in part thanks to our strong relationship with
Ukraine’s railway operator, which has
maintained its operations under exceptional
circumstances, despite numerous attacks.
A key consideration for us to increase our
production volumes will be when we will gain
additional clarity on our ability to deliver our
products to customers. A major development
would be the reopening of Ukraine’s ports, or
the re-establishment of access to seaborne
markets via an alternative port that is both
cost effective and capable of handling
material volumes. We are in advanced
discussions with an alternative port
operator and are looking to resume
seaborne shipments in the near term.
3,033
Number of Ferrexpo’s railcars
operating on the Ukrainian railway
network, providing operating
flexibility and helping to maintain
product quality. An additional 183
railcars were purchased in 2022,
despite the war in Ukraine. Our
railcars are purchased from Ukrainian
producers, helping to provide
investment and jobs in Ukraine.
218
Number of First-DDSG vessels
operating on the River Danube,
helping transport Ferrexpo’s products
to European customers. Independent
research shows that transport via
inland waterway (barging) has a lower
total environmental cost than road or
rail transportation 1.
1. Source: PLANCO Consulting GmbH.
Verkehrswirtschaftlicher und Ökologischer Vergleich der
Verkehrsträger Straße, Bahn und Wasserstraße. 2007.
Image: Ferrexpo railcars loaded with iron ore pellets at
our operations in Ukraine.
Ferrexpo plc
Annual Report & Accounts 2022
11
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Our Business Model
A clear strategy to help
grow stakeholder value
l
s
r
e
d
o
h
e
k
a
t
s
y
e
K
Workforce
Communities
Governments
Shareholders
The environment
Suppliers
Customers
Capital providers
i
c
g
e
t
a
r
t
s
y
e
K
s
n
o
i
t
a
r
e
d
s
n
o
c
i
Safety
Community support
Climate change
Diversity/inclusion
Value generation
for all
Underpinned by our values
Exploration
Mining
Processing
Logistics
s
e
i
t
i
v
i
t
c
a
s
s
e
n
s
u
b
e
r
o
C
i
High grade
iron ore pellets
l
t
n
e
m
p
o
e
v
e
d
r
e
h
t
r
u
f
r
o
f
t
n
e
m
t
s
e
v
n
e
R
i
Responsibility
See page 32
Make it happen
See page 31
Integrity
See page 46
Diversity within
one team
See page 42
Continuous
innovation
See page 29
12
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT
n
o
i
t
a
r
e
n
e
g
e
u
a
V
l
Ferrexpo’s business model is to work with its stakeholders and
their strategic priorities, to generate value for all stakeholders,
from its core business activities.
Employees
US$98M
(13%)
Environment
US$12M
(35%)
Wages and salaries paid
(2021: US$113M)
Funding of environment initiatives
(2021: US$19M)
Customers
US$1.2BN
(50%)
Revenue generated
(2021: US$2.5BN)
Suppliers
US$912M
(22%)
Government
US$164M
(42%)
Taxes and royalties paid
(2021: US$281M)
Investors
US$155M
(75%)
Suppliers of goods and services
(2021: US$1.2BN)
Shareholder returns (paid during year)
(2021: US$619M)
Communities
US$15M
+125%
Community support
(2021: US$6M)
Capital providers
US$49M
(78%)
Debt repayments and interest
(2021: US$221M)
Ferrexpo plc
Annual Report & Accounts 2022
13
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Our Stakeholders
Future
Positive
Ferrexpo is part of the global steel value chain,
producing the highest grades of iron ore that are
commercially available, which help steelmakers
to reduce emissions and improve productivity
through higher iron ore grades and a lack of
requirement for sintering. The steel industry is
set to evolve rapidly, with companies adapting
to produce low emissions products, and
ultimately we see a world based on Green Steel.
To succeed, we engage with our stakeholders,
to understand the material issues that lie ahead
and adapt our business for the future.
Read more on our Stakeholder
Engagement on page 48
Image: Ferrexpo uses sunflower husks as a biofuel for natural gas substitution in our pelletiser,
sourcing 21% of our pelletiser energy needs from husks in 2022 (2021: 18%).
14
Ferrexpo plc
Annual Report & Accounts 2022
STRATEGIC REPORT Our workforce
Protecting a workforce operating in a
war zone, helping their families to remain
safe and providing wellbeing initiatives.
See page 32
0.51
Injury frequency rate of 0.51 in 2022,
continuing below our historic average (0.83)1.
Local communities
Providing direct support to communities
and helping accommodate more than
3,500 internally displaced people.
See page 44
US$19M
Total funding of assistance provided,
including the Ferrexpo Humanitarian Fund.
Ukraine
Through building a resilient business
model, Ferrexpo was able to continue
selling throughout 2022, maintaining
our contribution to Ukraine’s economy.
See page 11
3%
Ferrexpo represented 3% of Ukraine’s export
revenues in 2022 (2021: 4%)2.
The environment
The environment represents a key
stakeholder, reflecting the interests of
future generations. Recent work has
enabled us to upgrade and broaden
our emissions reduction targets.
See page 34
Where we are today
0%
2019
31%
50%
2022
2030
Targeting a 50% reduction in Scope 1 and 2
emissions by 2030 (previously 30%)3.
1. Lost time injury frequency rate (“LTIFR”). Our historic average of 0.83 represents the five year full year average for previous years (2017-2021 inclusive).
2. Source: Government of Ukraine.
3 Scope 1 and 2 emissions combined, on a per unit of production basis.
Ferrexpo plc
Annual Report & Accounts 2022
15
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Strategic Framework
Understanding our strategic direction
Strategic goal
Goals
01
High quality
production
02
Elevating
sustainability
03
Low cost
operations
Future facing, high grade
iron ore products for a low
emissions future.
Through sustainable, ethical
partnerships, delivering
value for all stakeholders.
Prioritising support for
Ukraine, where possible.
Maintaining a competitive
cost of production relative
to global peer group.
04
A world class
customer network
Selling our products to best
in class steel producers,
developing successful
partnerships for the future.
05
Disciplined capital
allocation
Managing our business in
a prudent and sustainable
manner, developing our
assets for the future.
16
Ferrexpo plc
Annual Report & Accounts 2022
STRATEGIC REPORT Achievements in 2022
Strategy for 2023
– Quality improvement: Increasing direct reduction (“DR”)
pellets to 6% of pellet production (2021: 4%), helping us
to cut our Scope 3 emissions per tonne by 1% in 2022.
– High grade focus: 100% high grade output (65% Fe
and above) for the third successive year.
– War in Ukraine: Resilience in operating, despite
challenges faced in 2022, producing 6.1 million tonnes.
– Product portfolio: Continue to develop DR pellet offering, helping
to maintain our portfolio of high quality customers.
– High grade focus: Continue to invest in high grade forms of iron ore.
– War in Ukraine: Resume Wave 1 Expansion once conflict risks subside.
– Safety: Maintaining high safety standards in 2022, with
– Health and safety: Continue to deliver strong safety performance.
low injury rates and zero fatalities.
– War in Ukraine: Initiating Ferrexpo Humanitarian Fund,
providing direct support.
– Climate change: Lowering Scope 1 and 2 emissions
at our operations by 1% (per unit of production basis).
Simultaneously lowering Scope 3 emissions by 1%.
– War in Ukraine: Continue to work with our workforce and local
communities to respond to their needs; focus on wellbeing.
– Climate change: Publish life cycle assessment, representing
a study into the environmental impact of steel made from pellets,
benchmarked against steel production based on sinter fines.
– Community support: Initiatives via both the Ferrexpo Humanitarian
Fund and Ferrexpo Charity Fund.
– Cost control: C1 costsA rose by 49% amid conflict risks
limiting production volumes, and diverting logistics,
plus global factors (energy costs and inflation).
– War in Ukraine: Working within the confines of the war in Ukraine,
adapt to new operating constraints and target strategic sales in a
complex operating environment.
– Key driver: 64% decrease in total mining volumes
– Cost control: Balance supply risks for key consumables with
driving 19% cut to productivity of diesel consumption.
effective cost control, targeting lowest quartile pellet production.
– Key driver: 46% decrease in pellet production driving
6% cut to productivity of natural gas consumption.
– Modernisation programme: Utilise available technologies to pivot
away from hydrocarbon use and lower cost alternatives, helping
to also reduce emissions.
– Long-term partners: Sales into accessible markets
(Europe) only declined by 23% in 2022, despite the war
in Ukraine, demonstrating our supportive customer
relationships in this region.
– Future focus: Increasing offering of DR pellets to 6% of
total pellet production, reflecting pivot to new markets.
– Customer engagement: Maintaining a customer
portfolio with a lower carbon footprint1.
– Balance sheet strength: Net cash position maintained.
– Capital investment continues: US$161 million invested
in operations in 2022, with growth projects completed
(see page 29 for more information).
– Shareholder returns: 55% of free cash flow in 2022
(2021: 37%), reflecting the timing of distributions made
during 2022.
– War in Ukraine: Review cost effective solutions for returning to the
seaborne market, pending reopening of Ukraine’s Black Sea ports.
– Decarbonisation: Continue to liaise with customers and suppliers
on decarbonisation plans and pivot by steel producers towards
electric arc furnace technology (relevant for DR pellets).
– Pellet quality: Look to partner with existing and prospective
customers to help lower our Scope 3 emissions.
– Capital discipline: Ensure that the needs of all stakeholders are
met through a measured approach to capital investment and
shareholder returns, whilst maintaining the strong metrics of our
balance sheet.
– War in Ukraine: Approach in 2023 to be driven by conflict risks
in Ukraine, with the restart of investments in Wave 1 Expansion
should conflict risks subside.
1. Source: CRU. Natural gas based direct reduction without carbon capture.
Ferrexpo plc
Annual Report & Accounts 2022
17
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Key Performance Indicators (“KPIs”)
Measuring our performance in 2022
Financial KPIs
Underlying EBITDAA
US$765M
2022
2021
2020
2019
2018
US$765M
US$1,439M
US$859M
US$586M
US$503M
Link to strategy: 1, 2, 3, 4 and 5.
Definition
Underlying EBITDA A represents 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 A measures the Group’s ability to
generate cash as well as providing a useful
measure of operating performance excluding
certain non-cash items.
Underlying EBITDA A is an Alternative
Performance Measure – please see page 212
for more details.
The remuneration packages of the Group’s
executive management team, including the
Chief Executive Officer, include references to
the Group’s Underlying EBITDA A. Please see
page 124 for more details of the Group’s
incentive programme.
Our performance in 2022
Underlying EBITDAA declined by 47% to
US$765 million, in line with production
volumes, which declined by 46% as a result
of restrictions related to Russia’s invasion
of Ukraine in 2022. Additional factors
include the effect of lower production and
sales on operating costs, with reduced
economies of scale, as well as global
factors, such as rising energy prices and
inflation. The devaluation of the Ukrainian
hryvnia is also reflected in this metric,
providing a gain of US$339 million in 2022.
Looking forward to 2023
The Group expects to maintain a similar level
of Underlying EBITDA A margin in 2023 as
seen in previous years, which was 61% in
2022 and averaged 49% in the three years
prior to the war in Ukraine (2019–2021).
Production and sales volumes are largely
dependent on the easing of conflict risks
facing the Ferrexpo business, and therefore
a wide range of outcomes are possible in
the year ahead. Resumption of cost effective,
consistent access to the seaborne market
would be a potential trigger for increased
production and sales, since it would enable
us to deliver material quantities to a broader
range of global markets.
Profit after tax
US$220M
US$220M
Definition
In addition to Alternative Performance
Measures, Ferrexpo considers the IFRS
results of the Group to be an important
measurement of profitability. Profit after tax
is depicted in the Group’s Consolidated
Income Statement on page 151.
US$871M
Profit after tax is the earnings of a business
after all income taxes have been deducted.
2022
2021
2020
2019
2018
US$635M
US$403M
US$335M
Link to strategy: 1, 2, 3, 4 and 5.
Our performance in 2022
Profit after tax fell by 75% to US$220 million
in 2022, reflecting the factors discussed
above (conflict risks and operational/logistical
constraints related to the war in Ukraine, in
addition to global factors).
Looking forward to 2023
The Group’s outlook for the year ahead is
heavily dependent on the outlook for the war
in Ukraine and any easing of constraints
imposed by Russia’s invasion.
In addition to the factors discussed above in
the Underlying EBITDA A section, profit after
tax also considers the tax impact on the
Group and other factors such as interest
and finance expenses. Given that Ferrexpo
remains in a net cash position, with no debt,
these are currently not material in the Group’s
overall financial performance. In light of the
Group’s net cash position and location in
Ukraine, the Group does not expect to
undertake any new material debt facilities in
2023, but remains in contact with a number
of potential capital providers.
18
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Net cash flow from operating
activities
US$301M
2022
2021
2020
2019
2018
US$301M
US$1,093M
US$687M
US$473M
US$292M
Link to strategy: 1, 2, 3, 4 and 5.
C1 cash cost of productionA
(“C1 costsA”)
US$83.3/T
2022
2021
2020
2019
2018
US$83.3/T
US$55.8/T
US$41.5/T
US$47.8/T
US$43.3/T
Link to strategy: 1, 2, 3, 4 and 5.
Definition
Net cash flow from operating activities
represents the cash flow generation ability of
the Group, and is a measure indicative of the
funding a company brings in from its ongoing,
regular business activities, such as pellet
production and sales. It is depicted on the
Group’s Consolidated Statement of Cash
Flows on page 154.
Looking forward to 2023
The Group’s financial performance, including
net cash flow from operating activities, is
expected to be heavily reliant on the conflict
risks facing the Group in 2023, with a wide
range of potential outcomes. Despite the war,
the Group has continued its focus on high
grade, high quality forms of iron ore, as has
been the Group’s strategy since listing in 2007.
As a result of producing high margin products,
the Group expects to remain competitive
throughout the commodities cycle.
Net cash flow from operating activities
indicates the level of cash flow available
for investments, returns to shareholders
and debt reduction.
Our performance in 2022
The primary factor in the Group’s financial
performance, as discussed under the other
financial metrics presented in this section, is
the war in Ukraine and the operational and
logistical restrictions related to it. Net cash
flow from operating activities declined by
72% to US$301 million in 2022 following the
impact of the war in Ukraine – see discussion
opposite for Underlying EBITDA A for the key
drivers of the Group’s financial performance.
Definition
The C1 cash cost of productionA is the cost
of production processes to the factory gate,
divided by production. This is an industry
standard measurement and assesses
Ferrexpo’s relative competitiveness compared
with other pellet producers.
Looking forward to 2023
As discussed under the other financial metrics
presented in this section, the war in Ukraine
represents a material factor in the Group’s
outlook and a wide range of outcomes are
possible depending on how the conflict
evolves in 2023.
Should the conflict-related risks and
restrictions ease in the coming year, the
Group would expect its C1 cash cost of
productionA to reduce, as the Group would
benefit from economies of scale through
operating at, or close to, its nameplate
capacity. Energy costs and inflation persist,
however, and therefore it is expected that
costs will not fully return to historic levels until
these global factors, amongst others, return
to normal levels.
C1 cash cost of productionA is an Alternative
Performance Measure – please see page 212
for more details.
The remuneration packages of the Group’s
executive management team, including the
Chief Executive Officer, include references
to the Group’s C1 cash cost of productionA.
Please see page 124 for more details of the
Group’s incentive programme.
Our performance in 2022
The Group’s C1 cash cost of productionA rose
by 49% to US$83 per tonne in 2022 (2021:
US$56 per tonne), reflecting conflict risks in
2022 and associated restrictions on the
Group’s ability to operate and ship at its
nameplate level of capacity. Additional global
factors, including rising energy prices and
inflation, were key factors specific to 2022.
Ferrexpo plc Annual Report & Accounts 2022
19
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Key Performance Indicators (“KPIs”) continued
Non-financial KPIs
Lost time injury frequency rate (“LTIFR”)
0.51 LTIFR
2022
2021
2020
2019
2018
0.51
0.41
0.79
0.58
1.18
Link to strategy: 1, 2, 3, 4 and 5.
Diversity in management roles
20.9% female
2022
2021
2020
2019
2018
20.9%
20.1%
18.2%
17.5%
17.7%
Link to strategy: 1, 2, 3 and 5.
Definition
Safety is the Group’s highest priority. We
aim to ensure that our workforce operates
in a safe environment and is trained in safe
working practices.
An organisation’s LTIFR is a lagging indicator
of safety, and is calculated as the number of
lost time injuries incurred by an organisation’s
workforce (being employees and contractors)
per million hours worked. LTIFR is an industry
standard measurement and an important
indicator of how safe the work environment is.
The remuneration packages of the Group’s
executive management team, including the
Chief Executive Officer, include references to
the Group’s LTIFR. Please see page 124 for
more details of the Group’s incentive
programme.
Our performance in 2022
The Group’s LTIFR has remained at a
relatively low level for approximately four
years, falling from an average of 1.18
(2016–2018) to an average of 0.57 in
subsequent years. The result for 2022 (0.51)
Definition
Diversity is an important aspect of any
modern business, and Ferrexpo has initiatives
to promote diversity in many forms – including
diversity based on gender, disability, sexual
orientation and cultural diversity.
Gender diversity is measured through a
number of metrics, including total workforce
and female representation in management
positions, defined as roles that are grade 10
and above (based on the Group’s internal
grading system).
The Group prefers to focus on female
representation in management roles as it
is a reflection of women progressing their
careers at Ferrexpo, rather than including
entry-level roles.
The remuneration packages of the Group’s
executive management team, including the
Chief Executive Officer, include references to
the Group’s workforce diversity. Please see
page 124 for more details of the Group’s
incentive programme.
was in line with recent performance and
ahead of the Group’s historical (five year)
trailing average of 0.83. For context,
Ferrexpo’s iron ore producing peers in the
Pilbara region of Western Australia operated
with a LTIFR of 1.1 in the year to June 20211
(most recently published data).
Safety performance is also measured via the
number of fatalities at the Group’s operations,
which have remained fatality-free for more
than two years.
Looking forward to 2023
The Group has maintained a low level of
injuries and injury incidents in recent years,
with an incidence rate materially below its
industry peers. The Group aims to continue
this progress, through targeting no lost time
injuries. In 2022, Ferrexpo introduced a ‘Zero
Harm’ policy that aims to ensure all workers
return home safely from every shift. Please
see page 32 for more on our approach to
health and safety.
Our performance in 2022
The Group has seen significant progress in
increasing the level of female representation
in managerial positions, rising to 20.9% in
2022. This follows a multi-year trend, whereby
this figure has increased from 18% in 2019 to
the level seen today, with the Group setting a
target of achieving 25% by 2030.
Looking forward to 2023
The Group’s diversity programme is
targeting female representation in a number
of departments, at a range of levels within
our organisation. Our lead programme for
promoting gender diversity in management
roles is our “Fe_munity” women in leadership
programme, which is now in its third year of
selecting and training high potential future
female leaders of our business. This
programme has trained more than 200
participants since this project’s inception.
Please see page 42 for more on our approach
to diversity in our workforce.
20
1. Source: Government of Western Australia (link).
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Greenhouse gas emissions
91kg/t
2022
2021
2020
2019
2018
91kg/t
92kg/t
110kg/t
132kg/t
132kg/t
Link to strategy: 1, 2, 3, 4 and 5
Sales volume by region
83% to Europe3
2022
2021
2020
Region
Europe, incl. Turkey
(BF pellet market)
North East Asia
(BF pellet market)
2022
2021
2020
83% 58% 36%
4% 8% 5%
China & South East
Asia (BF pellet market)
11% 30% 56%
Middle East
& North Africa
(DR pellet market)
North America
(DR pellet market)
2% 0.4% 0%
–
3% 2%
Link to strategy: 1, 2, 3, 4 and 5.
Definition
The Group understands the importance
of climate change and we report emissions
of greenhouse gases (Scope 1, 2 and 3) as
a means of tracking progress in our
decarbonisation efforts. Given the short-term
volatility in our production due to the war in
Ukraine, and our long-term growth ambitions
for production, we consider emissions per
tonne as the most representative metric for
our performance.
The remuneration packages of the Group’s
executive management team, including the
Chief Executive Officer, include references
to the Group’s greenhouse gas emissions.
Please see page 124 for more details of the
Group’s incentive programme.
Our performance in 2022
Scope 1 and 2 emissions per tonne fell by 1%
in 2022, reflecting a reduction in the ancillary
activities as a result of the war. Total
emissions (Scopes 1, 2 and 3) fell by 1% in
2022 as a result of the increased output of
direct reduction pellets, with downstream
use of pellets (steelmaking) representing 89%
of total emissions. Please see page 34 for
more. To date, we have reduced Scope 1 and
2 emissions1 by 31% since our baseline year
(2019). Scope 3 emissions have been reduced
by 3% during the same timeframe.
Looking forward to 2023
The Group expects to continue its
decarbonisation pathway, aiming for a 50%
reduction in Scope 1 and 2 emissions1 by
2030. Individual years may vary depending on
operational activities and restrictions relating
to the war in Ukraine, but the Group retains
its strategic goal of net zero production by
20502. The Group also announced Scope 3
emissions targets on page 8 of its Climate
Change Report, published in December 2022.
Given the ongoing war in Ukraine and the
wide range of potential production outcomes
that could result in 2023, it is difficult to
estimate short-term achievements in
emissions reduction, but we remain focused
on our goals for 2030.
Definition
Ferrexpo believes it is important to have
a diversified customer base to be able to
withstand periods of volatility in specific
regions. Ferrexpo has, however, been
restricted in its sales portfolio in 2022 due
to the war in Ukraine, which has closed
Ukraine’s access to the Black Sea.
In the past, Ferrexpo has utilised its central
geographic location between Europe, the
Middle East and Asia, as a natural hedge
against risk during periods of market
upheaval. The global Covid-19 pandemic
in 2020 is a clear example of this, whereby
we successfully pivoted our sales portfolio
towards China, increasing sales to this market
to more than 50% of the total, in response to
rising demand in this market.
Over time, this KPI will demonstrate the
shift in our product portfolio towards greater
quantities of direct reduction (“DR”) pellets,
which, as of today, are primarily bought by
steelmakers in the Middle East and North
Africa (collectively “MENA”) and North
America. In the medium to long term,
it is expected that buying of DR pellets
will increase across global markets as
steelmakers seek to lower their emissions
of greenhouse gases.
Our performance in 2022
Given the Russian invasion of Ukraine in
2022, and related closure of Ukraine’s
access to the Black Sea, our sales portfolio
pivoted to customers in Europe as a result.
A proportion of our DR pellet production was
sold to a European customer, for onward
transport to a facility outside of this region.
Looking forward to 2023
The Group is seeking to re-establish a
consistent and financially viable link to the
seaborne export market via alternatives
to Ukraine’s ports. Should the Group be
successful in this endeavour, or should the
conflict in Ukraine ease in 2023, the Group
expects to gradually return to a sales mix
similar to previous years. In the event that
this does not occur, the Group expects sales
to be similarly weighted towards European
customers in 2023.
1. Scope 1 and Scope 2 emissions on a combined basis, per tonne of production.
2. Net zero production for Scope 1 and Scope 2 emissions combined. The Group has a Scope 3 target of a 50% reduction
by 2050 (per tonne basis).
3. Note ‘Europe’ category includes sales to Turkey.
Ferrexpo plc Annual Report & Accounts 2022
21
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Financial Review
Investments to create
a resilient, high margin
business
Through a focus on premium
products and effective cost
controls, the Group has
maintained strong margins on
our sales, facilitating a stable net
cash position year-on-year.
Nikolay Kladiev,
Chief Financial Officer
Summary
The war in Ukraine has shaped the
operational and financial performance of
our business in 2022, with production and
sales volumes 46% lower as a result of the
restrictions imposed by the conflict in Ukraine
(see pages 4 to 5 for a summary of the
impacts felt). Key drivers for the Group’s
financial performance in 2022 include a
significant impairment of US$254 million and
a net foreign exchange gain of US$276 million
(operating gain less non-operating loss), both
of which are related to the war in Ukraine.
The Group’s lower production and sales,
combined with escalating energy prices and
global inflation, C1 cash cost of productionA
(“C1 costsA”) rose by 49%, resulted in a decline
in Underlying EBITDAA and profit after tax by
47% and 75% respectively. Despite the war, we
continued to invest in our assets in 2022, with
a further US$161 million of capital investmentA.
Revenue
Group revenues declined by 50% to
US$1.2 billion in 2022 (2021: US$2.5 billion),
which principally reflects the restrictions
imposed on our business due to the war
in Ukraine (see pages 4 to 5 for a summary
of effects of the conflict), which reduced
pellet production by 46% to 6.1 million
tonnes in 2022 (2021: 11.2 million tonnes).
Additional factors governing the Group’s
revenue in 2022 include a 25% decline in
the benchmark iron ore price (65% Fe), a
6% reduction in freight rates, and an increase
in pellet premiums. For more information on
the market factors governing pricing of the
Group’s products, please see pages 8 to 11.
Furthermore, during the course of the year the
Group grew stockpiles of finished products
during 1H 2022 as the war in Ukraine created
instability in logistics pathways. Stockpiles
were subsequently reduced in 2H 2022 as
the operating environment for production
deteriorated, but sales volumes generally
continued. This pattern ultimately reflected in
total production and sales volumes remaining
broadly in line in 2022 (2021: in line).
Seaborne freight revenue arising from cost
and freight (“CFR”) sales decreased revenue
by US$94 million compared to 2021, reflecting
the net effect of lower sales volumes to
seaborne markets.
Revenues from the Group’s barging and
bunker operations, First-DDSG Logistics
Holding, increased by US$4 million in 2022
compared with 2021 as a result of higher
freight rates and bunker volumes and prices.
C1 cash cost of productionA
The Group’s average C1 costsA for 2022 was
US$83.3 per tonne, compared with US$55.8
per tonne in 2021, reflecting a 49% year-on-
year increase. Key drivers behind the higher
level of C1 costsA include the 46% reduction
in both iron ore pellet production and sales
volumes, with the war resulting in an
22
Ferrexpo plc Annual Report & Accounts 2022
Revenue
(50%)
Decline in revenues in line with 46%
reduction in sales volumes.
Underlying EBITDAA margin
61%
Growing our Underlying EBITDAA
margin by a further 4 percentage
points in 2022 (2021: 57%).
Capital investmentA
US$161M
Continued investments in 2022, with
a focus on near-term growth projects
(2021: US$361 million).
STRATEGIC REPORT amended logistics landscape in 2022. The
Group’s higher unit C1 costsA were impacted
to a greater extent by the Group’s fixed cost
base in 2022, as a result of 46% lower pellet
production volumes.
In addition to the factors discussed earlier
in this section, 2022 saw significant cost
inflation associated with energy prices and
global inflation, driven in part by the war in
Ukraine and restricted global energy supply.
As an example of the variability of energy
costs during the year, the Brent price of crude
oil rose from US$87 per barrel in January
2022 to a monthly peak of US$123 per barrel
in June 2022 (40% increase), before declining
to US$81 per barrel in December 20221. This
escalation in energy pricing during the course
of the year represents a significant factor in
the Group’s operating costs given that energy
has historically represented more than 40%
of the Group’s C1 costsA – see page 25 for
more information.
In more detail, the energy-related components
of the Group’s C1 costsA are electricity
(primarily used in beneficiation operations),
natural gas and biofuels (used in the Group’s
pelletiser) and liquid fuels such as diesel
(principally used in mining operations). These
energy costs represented a combined 49% of
the Group’s C1 costsA in 2022 (2021: 45%),
with natural gas prices in Ukraine increasing
by 129% between 3Q 2021 (at a time when
prices were in line with the average for 2021),
and 1Q 2022, when supply risks relating to
Russia’s invasion of Ukraine were realised.
Since this initial price spike, natural gas prices
declined by 31% between 1Q and 4Q 2022,
reflecting lower than expected demand in
global markets. Electricity prices in Ukraine
followed a similar trend in 2022, rising by 45%
between 3Q 2021 and 1Q 2022, before prices
subsequently retreated 18% by 4Q 20222.
As detailed in the Group’s 2021 Annual Report
and Accounts, Ukraine implemented a new
royalty regime for iron ore producers that
came into force in January 2022. This regime
comprises a royalty payment based on the
spot iron ore (62% Fe) fines price, with no
reference to pellet premiums or freight rates,
which is structured as follows: (1) at monthly
iron ore prices (62% Fe) less than or equal to
US$100 per tonne, a royalty rate of 3.5% will
apply to iron ore product sales, (2) at prices
less than or equal to US$200 per tonne, a
royalty rate of 5% will apply and (3) at prices
above US$200 per tonne, a royalty rate of 10%
will apply. Royalties are not tiered and therefore
the rate applied will apply to the full price of
the iron ore product being sold. The regime
outlined above compares to the previous
iron ore royalty calculation, whereby the
Group paid a flat royalty rate of approximately
US$3.5 per tonne of all tonnes sold. As
shown in the Market Review section (see
table on page 10), benchmark iron ore fines
Key Financial Performance Indicators
US$ million (unless stated otherwise)
Total pellet production (kt)
Sales volumes (kt)
Iron ore price (65% Fe Index, US$/t)3
Revenue
C1 cash cost of productionA (US$/t)
Underlying EBITDA A
Underlying EBITDA A margin
Debt servicing
Capital investmentA
Closing net cash
prices for material grading 62% Fe averaged
US$120 per tonne in 2022 (2021: US$160 per
tonne)3. Given the level of monthly iron ore
pricing in 2022, the impact of the royalty rate
on C1 costsA was US$7 per tonne in 2022.
In line with previous years, the Group’s C1
costsA represent 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 dollars
per tonne) is regarded as an Alternative
Performance Measure (“APM”). For further
information, please see pages 212 to 213.
Selling and distribution costs
Total selling and distribution costs were
US$236 million in 2022 (2021: US$340 million),
reflecting lower sales to seaborne markets due
to the war in Ukraine. As a result, international
freight costs from CFR sales decreased
by US$120 million compared to 2021.
General and administrative
expenses
General, administrative and other
expenses in 2022 were US$64 million (2021:
US$72 million), with this decrease mainly
due to the net impact of higher inflation and
lower production volumes, with the latter a
direct consequence of the war in Ukraine.
Currency
Ferrexpo prepares its accounts in
US dollars. The functional currency
of the Group’s operations in Ukraine
is the Ukrainian hryvnia, which has
historically represented approximately
half of the Group’s operating costs.
In 2022, the hryvnia depreciated by 34% from
UAH 27 per US dollar as of 31 December
2021 to UAH 37 per US dollar as of
31 December 2022. The National Bank of
Ukraine (“NBU”) set the exchange rate at
2022
6,053
6,183
139
1,248
83.3
765
61%
42
161
106
2021
YoY change
11,220
11,350
186
2,518
55.8
1,439
57%
215
361
117
(46%)
(46%)
(25%)
(50%)
+49%
(47%)
+4pp
(80%)
(55%)
(9%)
Ukrainian hryvnia vs. US dollar4
UAH per USD
Spot 28.02.23
36.5686
Opening rate 01.01.22
27.2782
Closing rate 31.12.22
36.5686
Average 2022
32.3423
Average 2021
27.2862
approximately UAH 37 per US dollar as of
21 July 2022, within the framework of the
Martial Law entered into force since
24 February 2022. As a result of the
introduced Martial Law, the NBU has
introduced significant currency and capital
control restrictions in Ukraine. These
measures limit the possibility to convert local
currency into US dollars, and the ability to
transfer US dollars between onshore and
offshore accounts of the Group. See Note 30
(Commitments, contingencies and legal
disputes) for further information.
Operating foreign exchange 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 Group’s Ukrainian subsidiaries’ US dollar
denominated receivable balances (from
the sale of pellets). The operating foreign
exchange gain in 2022 was US$339 million
compared to a loss of US$38 million in 2021,
when the hryvnia appreciated.
1. Source: Bloomberg.
2. Movements shown are based on quarterly averages.
3. Source: S&P Global Commodity Insights.
4. Source: National Bank of Ukraine.
Ferrexpo plc Annual Report & Accounts 2022
23
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Financial Review continued
Non-operating foreign exchange
gains/losses
Non-operating foreign exchange gains are
mainly due to the reclassification of US dollar
denominated inter-company loans from quasi
equity to operating loans. In 2022, the Group
recorded a non-operating foreign exchange
loss of US$63 million (2021: loss of
US$3 million), which was driven by a 34%
depreciation of the hryvnia during the year
against the US dollar, as well as fluctuations
in the euro/US dollar exchange rate. For
further information, please see Note 9
(Foreign exchange gains and losses) to
the Consolidated Financial Statements.
(“PXF”) facility in June 2021. Other than trade
finance lines (utilised only in Q1 2022 for an
average cost of 2.19%), the Group did not
have any financial debt in 2022 and, therefore,
no related financial expense (2021: average
cost of debt of 4.7% driven by the PXF that
was fully repaid in June 2021).
Further details on finance expense are
disclosed in Note 10 (Net finance expense)
to the Consolidated Financial Statements.
At the same time, interest income increased
by 46% to US$0.9 million compared to
US$0.6 million in 2021, reflecting the higher
global interest rate environment.
Underlying EBITDA A
Underlying EBITDA A in 2022 decreased by
47% to US$765 million, with this decrease
reflecting a 46% reduction in sales volumes,
lower market factors, including a 25%
reduction in the benchmark iron ore fines
price, and a 49% increase in C1 costsA.
The Group’s Underlying EBITDA A for 2022
includes a non-cash operating forex gain of
US$339 million (2021: non-cash operating
forex loss of US$38 million).
Interest
Interest expense on loans and borrowings
declined by 95% to US$0.5 million compared
to US$10 million in 2021, due to the
repayment of the Group’s pre-export finance
Tax
In 2022, the Group’s income tax expense
was US$119 million (2021: US$200 million).
The effective tax rate for 2022 was 35.0%
(2021: 18.7%). The increase in the effective
tax rate was predominantly driven by
an impairment loss of US$254 million
on the Group’s non-current operating
assets, which is not tax deductible.
In 2022, the Group paid income taxes of
US$110 million (2021: US$228 million), of
which US$91 million were paid in Ukraine
(2021: US$221 million).
Further details on taxation are disclosed in
Note 11 (Taxation) to the Consolidated
Financial Statements.
Items excluded from
underlying earnings
The Group has recognised an impairment
charge of US$254 million as a result of a
reduction in the carrying value of the Group’s
assets in Ukraine, and the devaluation of the
local currency exchange rate seen in 2022.
Please see Note 13 (Plant, property and
equipment) to the Consolidated Financial
Statements for more information.
In the prior period, an impairment charge
of US$231 million was recognised as at
31 December 2021, with this relating to
stockpiled low grade ore as it cannot be
reliably predicted as to when this material
will be processed.
Please see Note 17 (Inventories) to the
Consolidated Financial Statements for more
information.
Profit for the period
Profit for the period decreased by 75% to
US$220 million compared with US$871 million
in 2021, reflecting a 62% decrease in
operating profit, as well as a foreign exchange
gain of US$339 million compared to a foreign
exchange loss of US$38 million in 2021.
Cash flows
Operating cash flow before changes in
working capital decreased by 70% to US$434
million, while the working capital outflow in
Case Study: Factors leading
to the Group recording an
impairment loss
Despite the Russian invasion into Ukraine
on 24 February 2022, the Group continued
to operate throughout the majority of 2022,
albeit at a much lower capacity. However, the
situation in Ukraine continues to represent
a significant risk to the Group’s operations
and the point of time of the recovery of the
production and sales volumes to pre-war levels
is currently uncertain. As a result, the Group
continuously adjusts its long-term model
in order to reflect the latest developments
in terms of possible production and sales
volumes as well as latest market prices
and production costs, which are adversely
affected by lower production volumes. These
factors, combined with a higher discount
rate to be used as a result of an increased
Country Risk Premium for Ukraine, had an
adverse impact on the value in use of the
Group’s non-current operating assets.
In accordance with IAS 36 Impairment of
assets, the Group recorded an impairment
loss of US$254 million as of 30 June 2022 as
the carrying value of the assets was exceeding
the computed value in use by this amount.
Image: Iron ore pellet stockpile located at our assets in Ukraine,
where the Ukrainian hryvnia devalued by 34% in 2022.
24
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 2022 was US$20 million (compared to an
outflow of US$139 million in 2021). The overall
decrease in the working capital outflow
largely reflects a balance of lower trade
accounts receivable and higher inventories
and VAT receivable, and a decrease in trade
and other payables, which collectively
provided a lower net effect in 2022.
As a result of lower operating cash flow,
the net cash flow from operating activities
decreased by 72% to US$301 million
in 2022 (2021: US$1,094 million).
With respect to capital allocation, investment
decreased by 55% to US$161 million (2021:
US$361 million), while dividends paid during
the 2022 calendar year decreased by 75% to
26.4 US cents compared to 105.6 US cents
in 2021.
Capital investmentA
Capital expenditure in 2022 was US$161
million compared to US$361 million in 2021.
Of this amount for 2022, sustaining and
modernisation capex was US$57 million
(2021: US$113 million), covering activities at
all of Ferrexpo’s major business units. Given
operational and logistics constraints relating
to Russia’s invasion of Ukraine in 2022, the
Group maintained its levels of investment
relating to sustaining capital investment, and
reduced activities relating to expansion capital
investmentA, particularly in relation to projects
that are expected to deliver returns in the
medium to long term. As such, major projects
advanced in 2022 include US$25 million
spent on stripping activities for future
production growth, US$17 million spent on
the completion of the Group’s press filtration
complex and US$2 million on completion of
the MFC-2 project, which will help raise
pelletising capacity in the near term once
operations return to full capacity.
Ferrexpo continued to invest in the primary
crushers upgrade project, investing US$4
million. A total of US$37 million was spent
on the Group’s concentrator and pelletiser
as part of the Wave 1 Expansion Programme,
and a further US$4 million was invested
in infrastructure facilities. The Group also
spent US$11 million in the development and
exploration of the Belanovo, Galeschynske
and Northern deposits, and US$2 million in a
hydrolysis plant for the trial of hydrogen use
as a fuel in the Group’s pelletiser. The Group
also invested US$3 million in the procurement
of new railcars in 2022. For further information
on the Group’s activities to grow its
business in 2022, please see page 29.
Shareholder returns
Total dividends paid to date in respect of
2022 are 13.2 US cents (2021 total: 52.8 US
cents). The Group has a shareholder returns
policy outlining the Group’s intention to deliver
30% of free cash flows as dividends in
respect of a given year. To date, the Group
has announced dividends in respect of the
2022 financial year representing 55% of the
Group’s free cash flow in 2022.
Debt and maturity profile
Ferrexpo has maintained a strong balance
sheet in 2022, including low levels of gross
debt and had a net cash position as of
31 December 2022. As of 31 December 2022,
the Group’s net cash position was US$106
million (31 December 2021: US$117 million net
cash position). The Group had no debt
facilities as of 31 December 2022, compared
with US$50 million as of 31 December 2021.
The balance of cash and cash equivalents
held in Ukraine amounts to US$45 million
as at 31 December 2022 (31 December
2021: US$52 million). Despite the foreign
exchange control measures imposed
under Martial Law in Ukraine (see Note 30
Commitments, contingencies and legal
disputes), this balance is fully available to
the Group for its operations in Ukraine and
is therefore not considered restricted.
As of 31 December 2022, the credit ratings
agency Moody’s had a long-term corporate
and debt rating for Ferrexpo of Caa2, with a
negative outlook. The credit ratings agency
Fitch maintains a CCC+ rating on the Group.
While the credit rating of Ferrexpo is capped
by the sovereign credit rating of Ukraine, the
ceilings for credit ratings ascribed to Ferrexpo
by both Moody’s and Fitch are higher (one
notch above sovereign, Caa3, for Moody’s and
three notches above sovereign, CC, for Fitch).
During the course of 2022, as risks relating
to the Russian invasion of Ukraine escalated
after 24 February 2022, the credit ratings
agencies took a number of steps to update
their assessments of Ukrainian issuers. As
of 14 February 2023, Moody’s had a long-
term corporate and debt rating for Ferrexpo
of Caa3, with a negative outlook. Similarly,
as of 29 July 2022, Fitch had a long-term
corporate and debt rating for Ferrexpo plc
of CCC+. Whilst the credit rating of Ferrexpo
is capped by the sovereign credit rating
of Ukraine, the credit rating ascribed to
Ferrexpo by Fitch is higher. The credit ratings
agency Standard & Poor’s has temporarily
suspended the credit rating for Ferrexpo
plc, following an action to suspend coverage
of all Ukrainian issuers in March 2022.
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).
Breakdown of C1 costsA in 2022
US$83.3/t
(2021: US$55.8/t)
Electricity
Gas + Biofuel
Fuel (including diesel)
Maintenance and repairs
Personnel costs
Royalties and other taxes
Materials
Grinding bodies
Blasting
22%
19%
8%
20%
9%
9%
6%
6%
2%
Note: above numbers are rounded to nearest percentage.
Breakdown of C1 costsA
C1 costsA in 2022 increased by 49% in
2022 to US$83 per tonne, with this increase
principally related to the increasing unit
cost of energy such as natural gas, fuel
(principally diesel) and electricity. This
change is demonstrated in the chart above,
with energy-related costs comprising 49%
of our C1 costsA in 2022 (2021: 45%).
In light of the ongoing war in Ukraine, scaling
back of production activities and devaluation
of the local currency in Ukraine, maintenance
and repair costs fell to 20% in 2022 (2021:
22%), and materials costs reduced to 6% in
2022 (2021: 8%). The Group’s decision to
continue paying its workforce despite lower
production volumes resulted in a small
increase in percentage terms to 9% in 2022
(2021: 8%).
Royalties increased from 6% in 2021 to 9% in
2022 – please see page 23 for details of the
revised royalty regime that was implemented
at the start of the year.
Ferrexpo plc Annual Report & Accounts 2022
25
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Operational Review
Scaling operations in
line with accessible
markets
The Group managed to maintain
production throughout the majority
of 2022, and continued shipments to
customers for the entire year, despite
the challenges posed by the ongoing
Russian invasion of Ukraine.
Viktor Lotous,
Head of Ferrexpo’s
Operations in Ukraine
(FPM General Director)
As a producer of a bulk commodity, our
access to logistics is key in our ability to
produce and sell our products. As a
consequence of the war in Ukraine, our
activities in 2022 were therefore appropriately
scaled throughout the year, according to the
number of customers that were accessible
at any given time. Furthermore, attacks on
Ukraine’s state-owned electricity network
in 4Q 2022 limited our ability to produce.
Shipments were, however, maintained
throughout the year, which is testament
to the commitment of our operating and
marketing teams.
Health and safety
2022 represented our second successive
year with no fatalities, and we maintained
our strong performance in relation to our key
safety metric (lost time injury frequency rate).
Please see page 32 for more information on
our safety performance in 2022.
Reserves and resources
Ferrexpo controls licences covering a number
of deposits located along the Kremenchuk
Magnetic Anomaly, which is a magnetite
deposit that extends for more than 50
kilometres. The Group has active mines on
three deposits and additional licences for
deposits immediately to the north of our
active operations.
Across the Group’s three active mines, we
have a JORC-compliant Ore Reserve estimate
of 1.6 billion tonnes of iron ore, with an iron
(“Fe”) content of 32% Fe (2021: 1.6 billion
tonnes grading 32% Fe).
Our JORC-compliant Mineral Resource
estimate across our three active mines is
5.7 billion tonnes of iron ore, with an iron
(“Fe”) content of 32% Fe (2021: 5.8 billion
tonnes grading 32% Fe), which is inclusive
of Ore Reserves.
In addition, at a number of exploration
properties immediately north of our active
mines, we have exploration stage properties
with a combined non-JORC compliant
Mineral Resource estimate of 14 billion tonnes
of iron ore, grading 34% Fe (collectively
referred to as the “Northern Deposits”).
A table detailing the Group’s JORC-compliant
Ore Reserves and Mineral Resources as at
1 January 2023 is provided on page 28 of
this report.
Mining activities
Throughout the year, we have scaled our
mining operations according to the ore
requirement of the processing plant, which
has been set by the degree of accessible
customer markets. See pages 4 to 5 for
more information on the various impacts
imposed by the conflict in 2022.
Overall mining volumes across the Group saw
a total movement of 55 million tonnes across
our three mines in 2022 (2021: 152 million
tonnes), with this 64% decline in total
26
Ferrexpo plc Annual Report & Accounts 2022
Resilient production
6.1MT
Pellet production continues, despite
more than 250 days of Russia’s
invasion during the course of 2022.
Focus on quality
100%
Output continues to be comprised
entirely of high grade forms of iron ore.
Shifting to direct reduction pellets
6%
Increasing proportion of direct
reduction pellets to 6% of total
pellet production in 2022 (2021: 4%).
STRATEGIC REPORT Operational performance
(000’t unless otherwise stated)
2022
2021
YoY change
Production
Iron ore mined
Strip ratio
Iron ore processed
Concentrate production
Pellet production
– Direct reduction pellets (67% Fe)
18,837
33,764
1.9
17,375
8,430
6,053
353
3.5
31,111
14,655
11,220
431
– Premium blast furnace pellets (65% Fe)
5,700
10,790
movement reflective of the war in Ukraine
and the 46% decrease in sales volumes
during the year.
Following the outbreak of Russia’s invasion,
mining activities initially focused on both the
Poltava and Yeristovo mines, with strong
European demand for iron ore, and therefore
production volumes remained in line in 1Q
2022. Subsequently, production volumes in
2Q 2022 fell by 22% as logistics constraints
increased and European steel mills curtailed
buying activities having established larger raw
inventories to mitigate supply risks.
With additional logistics restrictions in 3Q
2022, principally relating to attacks on the
railway network and increased demand due
to the grain season in Ukraine, the Group
further lowered its production and focused
its ore mining activities on the Yeristovo mine,
to optimise mining costs.
Finally, in 4Q 2022, Russian attacks on
state-owned electricity infrastructure resulted
in a lack of power at our processing plant. In
response, mining activities were paused given
the lack of ore demand for production.
In light of the restrictions described above,
mining tonnages at all three mines fell by
between 50% and 80% during 2022, with
a lower reduction of ore mining activities
seen at both Poltava and Yeristovo mines
(30–50% reduction).
Processing activities
As referenced above, processing activities
were scaled according to accessible markets
throughout the year, given the ongoing war
in Ukraine. As such, processing volumes
decreased by 44% during 2022 to 17 million
tonnes, reflecting the above restrictions and
reduced demand for iron ore pellets as a
result of lower steel margins in Europe (being
the main customer market for the Group given
restricted access to seaborne markets).
A key area of focus of the Group’s processing
operations in 2022 was developing our
offering of direct reduction (“DR”) iron ore
pellets, which is a product that is typically
used in electric arc furnaces (“EAFs”). Since
an EAF represents a more energy efficient
process than the main alternative method of
steelmaking (blast furnace), DR pellets have
a materially lower Scope 3 carbon emissions
footprint for the Group, whilst also generating
higher pellet premiums for us through a higher
iron ore grade.
In 2022, we produced 353 kilotonnes of DR
pellets, which is a decrease of 18% on the
previous year, but the proportion of total pellet
output increased to 6% (2021: 4%). Through
further developing our understanding of this
product, as well as using 2022 as an
opportunity to establish new relationships
with potential customers, we are confident
that we will emerge from the conflict in
– Basic blast furnace pellets (62% Fe)
Commercial concentrate production
Iron ore sales
– Pellets
– Concentrate
– Total products sold
Ukraine with a more developed footprint for
global DR pellet markets.
The war in Ukraine has created delays and
uncertainty over our ability to sell our
production at specific points in 2022.
To maintain the strength of our balance sheet
throughout the conflict, we have sought to
avoid the creation of significant stockpiles
of finished iron ore pellets, as these capture
operating costs, but do not deliver immediate
opportunities to realise revenues. However,
iron ore pellets do not materially degrade if
stockpiled, and therefore it is not detrimental to
the Group if material is temporarily stockpiled.
Given fluctuations in logistics availability
during 2022, the Group accumulated a
stockpile inventory of 1.0 million tonnes by the
middle of 2Q 2022, with production scaled in
2H 2022 to ensure an effective drawdown of
these stockpiles. As a result, the Group
ended the year with stockpiles similar in size
to the Group’s stockpiles as at 31 December
2021 (approximately 0.1 million tonnes larger
as of January 2023). The Group’s stockpiles
are located at our operations in Ukraine or at
staging points across our logistics network,
either within Ukraine or at key rehandling
locations overseas.
Growth programme
Our Wave 1 Expansion programme,
which would see us increase our production
capacity by an additional three million tonnes
of iron ore pellets per annum, remains an
objective of the Group. Significant investment
in this programme remains on hold whilst
there are elevated risks associated with the
war in Ukraine, but it is our intention to
resume activities once the risk profile of the
Group normalises.
(44%)
(45%)
(44%)
(42%)
(46%)
(18%)
(47%)
–
(47%)
(46%)
(45%)
(46%)
–
124
6,055
128
6,183
–
234
11,115
234
11,349
Iron ore mined volume
(44%)
Iron ore mining volumes fell by 44%
in 2022, broadly in line with the level
of reduction seen in iron ore pellet
sales volumes.
Total movement by quarter: gradual
impact of conflict in Ukraine
4Q 2022
3Q 2022
2Q 2022
1Q 2022
2021
2020
(Quarterly Average)
(Quarterly Average)
Ferrexpo plc Annual Report & Accounts 2022
27
Read more on our KPIs on page 18
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Operational Review continued
Despite the war in Ukraine, a number of
growth projects were completed or continued
in 2022. These projects principally relate to
projects that were close to completion as of
February 2022, or represent low cost, high
value projects that were deemed suitable for
completion during the year. Please see page
29 for more information on growth projects
completed in 2022.
Sustainability programme
We continued to implement our various
sustainability initiatives throughout 2022,
reducing our Scope 1 and 2 emissions
footprint (combined basis) by 1% (now
31% below our baseline year of 2019),
and further increasing gender diversity
amongst our management team. Please
see pages 30 to 47 for more information
on our sustainability programme.
Logistics activities
A major impact of the war in Ukraine in 2022
has been on our ability to ship our products.
Please see pages 4 to 5 for a summary of the
impacts incurred due to the conflict.
The Group’s logistics network covers our use
of the Ukrainian railway network, and beyond,
for accessing European customers by rail. In
addition, we have our inland waterway
subsidiary First-DDSG for barging material
along the River Danube. Our access to the
seaborne market is typically via a berth at the
Ukrainian port of Pivdennyi (formerly known
as Yuzhny), but Russia’s invasion in 2022 has
limited Ukraine’s access to the Black Sea. We
have established potential routes into the
seaborne market via alternative ports, and we
are in advanced discussions to increase
volumes of material shipped via these routes.
The logistics capacity of the Ukrainian railway
network has remained under pressure during
the year as a result of (a) Russia’s attacks,
and (b) the grain season in the summer of
2022, which reduced spare capacity across
the network. Furthermore, power cuts across
Ukraine in 4Q 2022 placed additional limits
on the railway network’s carrying capacity.
In terms of barging operations, First-
DDSG’s operations provided logistics
flexibility at an important time for the
business, helping facilitate shipments
via an alternative logistics route.
Outlook
The Group expects that production volumes
will continue to be linked to the volume of
accessible sales in 2023.
We are currently operating with two of our
four pelletiser lines, with this production
predominantly being delivered to European
customers. Should Ukraine’s access to the
Black Sea be restored, or should we be able
to establish a port agreement that is
consistent, scalable and economically viable,
then returning to the seaborne market could
potentially represent a catalyst for increasing
output at our operations in the coming year.
The Group demonstrated its flexibility in
logistics during the global Covid-19 pandemic,
when pellet sales to customers in China and
South East Asia increased from 30% in 2019
to 56% in 2020, as demand in other regions
fell. It would be the Group's intention to utilise
this flexibility in global markets in 2023 if
regular access to seaborne markets were to
resume. An additional factor is the continued
availability of the railway network in Ukraine,
which is frequently subject to attacks by
JORC-Compliant Ore Reserves and Mineral Resources1
Russia. Additional factors affecting the
Group’s access to the railway network in
Ukraine may relate to demand from other
railway users, with shifting demand patterns
likely as Ukraine’s economy adapts to a
complex operating environment.
Furthermore, attacks on Ukraine’s state-
owned electricity infrastructure have
previously impacted our ability to operate,
and this is a factor that should be monitored
in 2023, should these attacks continue.
It is our intention to maintain our global
inventory of finished iron ore pellets at a
stockpile level in line with previous years,
but this may not be possible given periodic
fluctuations in logistics availability. Should
changes in the level of available logistics result
in an increased inventory of pellets, the Group
may elect to moderate production volumes
in 2023 to ensure a stockpile drawdown,
similar in scale to that seen in 2H 2022.
Given the wide range in potential logistics
and production outcomes in 2023, it is
difficult to provide a clear expectation on
overall production volumes for 2023. Should,
however, the conflict risks associated with the
war in Ukraine subside during 2023, then the
Group would expect to return to its nameplate
capacity as soon as it is practical to do so.
JORC-compliant Ore Reserves
Gorishne-Plavninske-Lavrykivske (“GPL”)
Yerystivske
Total
Proven
Probable
Total
Fe
total
%
Fe
magnetic
%
33
30
32
26
25
26
Mt
823
290
1,113
Fe
total
%
Fe
magnetic
%
31
33
32
23
26
24
Mt
1,126
501
1,627
Fe
total
%
Fe
magnetic
%
32
32
32
24
26
25
Mt
303
211
514
Measured
Indicated
Inferred
Total
JORC-compliant Mineral Resources
Mt
Fe
total
%
Fe
magnetic
%
Gorishne-Plavninske-
Lavrykivske (“GPL”)
Yerystivske
Bilanivske
Total
469
260
336
1,065
35
35
31
34
29
29
24
27
Fe
total
%
Fe
magnetic
%
30
34
31
31
22
27
23
23
Mt
744
382
217
1,343
Fe
total
%
Fe
magnetic
%
32
33
30
32
24
27
21
24
Mt
2,834
1,213
1,702
5,749
Fe
total
%
Fe
magnetic
%
31
34
31
32
24
27
23
24
Mt
1,621
571
1,149
3,341
1. The Group’s JORC-compliant Ore Reserves and Mineral Resources shown above are based on an independent review completed by Bara Consulting, and are shown on a depleted basis
as of 1 January 2023. The Group previously reported a resource estimate of 326Mt for the Galeschynske deposit, which is the subject of a legal dispute and is therefore not shown above;
please see page 199 for more information.
28
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Case Study: Investment in growth projects
Growth:
Continuing to expand
and develop in 2022
3%
Newly completed press filtration
complex expected to deliver a
3% reduction in natural gas
consumption1.
In light of the ongoing war in Ukraine, we
have paused our main expansion project –
the Wave 1 Expansion Programme, which
amounts to more than US$600 million of total
investment, growing our production capacity
by approximately 25%. The Wave 1 Expansion
continues to represent a significant growth
project, and we intend to resume activities
once the conflict risks in Ukraine are reduced.
The past year, however, did see a number of
growth projects completed at our Ukrainian
operations. Total investment during 2022 was
US$161 million, of which US$104 million was
in growth projects, and the majority of this
expenditure was on projects either nearing
completion as of February 2022 or those which
represent low cost, high return opportunities.
The main project completed in 2022 is the
press filtration project in our beneficiation
plant, which will help deliver more efficient
removal of moisture from concentrate as it
exits the beneficiation plant. The equipment
installed includes Metso press filtration
technology, which represents a modern
alternative to our existing vacuum filter system.
Benefits1 are expected to include:
– Lower moisture levels will result in lower
energy costs in the pelletiser, where we
heat pellets to cure and harden them.
Consequently, natural gas consumption
rates are expected to be 3% lower on
average across all pellet types, with
associated benefits for C1 costsA and
Scope 1 greenhouse gas emissions.
–
Improved product quality, since excess
moisture in green (unfired) pellets can lead
to cracking as they are heated. The Cold
Compression Strength (“CCS”) of our
pellets, which is a key metric for pellet
quality, is forecast to increase by 8% for
our Ferrexpo Premium Pellets (65% Fe).
– Through more effective moisture removal, we
will be able to increase throughput of material
throughout our processing plant, resulting in
3% higher throughput rates (on average).
– A more efficient process will also result in
lower losses of iron as concentrate is
converted to pellets. This will result in a
0.2% Fe uplift in pellet grades (average).
1. Note that figures shown here in this case study are
preliminary management estimates.
Image: The installation of an automated lathe in our maintenance department – an
example of modern equipment – has helped improve safety and performance.
Ferrexpo plc Annual Report & Accounts 2022
29
STRATEGIC REPORT
Responsible Business Review
Understanding the
role of sustainability
during a war
In reviewing the past year, our engagement with
local stakeholders in Ukraine has been key to
understanding our role. Companies have been
essential to the local response during Russia’s
invasion in 2022, supporting workforces, their
families and local communities.
US$19M
Total humanitarian support provided to date,
including the Ferrexpo Humanitarian Fund,
assisting more than 70 individual projects.
0.51
Strong safety performance continues with
lost time injury frequency rate of 0.51 in 2022
(2021: 0.41).
1% Reduction
Our greenhouse gas emissions footprint fell by
1%1 in 2022, despite the war in Ukraine.
Scan to read our latest
Responsible Business Report
30
Ferrexpo plc
Annual Report & Accounts 2022
01 Safety and
Our People
See page 32
02 Environmental
Stewardship
See page 34
03 TCFD
Disclosures
See page 37
04 Diversity, Equity
and Inclusion
See page 42
05 Supporting
Communities
See page 44
06 Corporate
Governance
See page 46
At Ferrexpo, we are proud to support
Ukraine. Through our local presence
and position as a long-term investor in
the country, we have been able to
provide targeted support throughout
the war. However, our efforts in 2022
have not been limited to humanitarian
aid, and we have continued to make
good progress in a number of areas.
Ann-Christin Andersen,
Chair, Health, Safety,
Environment and
Community (“HSEC”)
Committee
As a responsible business, we understand
our role in Ukraine today: supporting our
people and communities across Ukraine,
and providing this support through our
experience and in-country presence. We are
long-term investors in Ukraine, its people
and its economy, which is only possible
through positive, long-term partnerships
with our Ukrainian stakeholders.
Our community engagement and support
throughout the conflict in Ukraine has
primarily been conducted via our Ferrexpo
Humanitarian Fund (see page 44 for more
details). We also have our long-standing
Ferrexpo Charity Fund, which has been
providing direct support to communities for
more than 11 years now. In 2022, we were
also proud to publish our seventh Responsible
Business Report, which was published in
both English and Ukrainian for the first time
– an important step in us broadening our
engagement with our local stakeholders.
Understanding the task ahead
It is clear that the war will have a long-lasting
impact on Ukraine. At this point in time, it is
important to understand the various impacts
of the war on the people and communities
of Ukraine, as well as Ferrexpo. Through
this understanding, we can begin to tailor
our approach to our Responsible Business
activities in the future, in particular, our
efforts in respect of the health and wellbeing
of our people and local communities, as
well as targeted humanitarian support.
With this in mind, we intend to revisit our
materiality assessment of sustainability
topics in the coming year, once the risks
associated with the conflict have subsided.
An assessment today would likely be skewed
by a need for near-term humanitarian
support, which we are already providing.
With time, there will be an opportunity to
understand the longer-term needs of local
communities, and we will tailor our approach
according to the results of this work.
Safety and wellbeing
Health and safety is of paramount importance
to us at Ferrexpo, and I am proud that our
operations delivered another strong year in
safety. We have taken numerous measures
to protect our workforce from the threat
of the conflict in Ukraine. As the war has
progressed, we have also begun providing
support for the wellbeing of our workforce,
as we are conscious of the impact that living
in a war might have on an individual’s mental
and physical health (see page 32 for more).
Levelling up our climate reporting
Understanding our environmental footprint and
reducing our greenhouse gas emissions are key
topics for modern companies. In 2022, despite
the war in Ukraine, we continued to reduce our
emissions, which fell by a further 1% in 2022,
and this now puts us 31% below our baseline
year of 20191. We also maintained our focus
on developing our climate change strategy
in 2022, publishing our inaugural Climate
Change Report in December 2022, which
serves to summarise our first phase of work
with environmental consultants Ricardo Plc.
In this report, we highlight a potential net zero
pathway for our operations, as well as providing
a detailed look at various climate change
related risks and opportunities. Through this
bespoke work, and our progress in reducing
emissions to date, we were also able to
upgrade our Scope 1 and 2 target for 2030
to 50% (from 30%)1 and broaden our suite of
targets to include Scope 3 emissions – setting
reduction targets of 10% and 50% for 2030 and
2050 respectively2. Our Scope 3 emissions are
closely linked to our output of direct reduction
(“DR”) pellets, and more can be found on
this subject in our Climate Change Report.
Building an inclusive culture
We continue to make progress in our approach
to diversity. Our gender diversity initiative – the
“Fe_munity” women in leadership programme
– has recently accepted its third intake of
future female leaders of our business, and in
2022 we broadened this initiative to welcome
women from across Ukraine. To help drive
change, we are also now providing grants to
aid career journeys – more on this on page 42.
Driving change and transformation is an
integral part of being a sustainable business.
This can be through embedding a culture of
safety at our operations, which is now showing
tangible progress, through to our approach to
diversity, equity and inclusion (“DEI”), driven
by our first diversity and inclusion officer at our
operations. Looking forward, we are seeing
an emerging phase of cultural change in
biodiversity, with baseline studies underway.
I am proud to be a part of Ferrexpo, having
seen the good work in sustainability being
conducted in Ukraine during my most recent
site visit in late 2021. We are proud to support
communities across Ukraine at this time and
look to a more positive future, when the war
is over. It is a pleasure to witness the changes
underway in sustainability at Ferrexpo, and I
would like to thank everyone involved, from our
workforce for their efforts to drive this change,
to our customers, investors and suppliers for
their engagement on sustainability topics.
Ann-Christin Andersen
Chair, HSEC Committee
1. Scope 1 and 2 emissions combined, on a per tonne of
production basis.
2. Scope 3 emissions on a per tonne of production basis.
Ferrexpo plc Annual Report & Accounts 2022
31
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: Safety and Our People
Protecting
the safety of
our people
Our workforce comprises 10,000 employees and
contractors; with more than 95% of our team located
in Ukraine, it is critical that we protect our workforce
from immediate dangers, but also help support their
health and wellbeing at this difficult time.
Case Study: Supporting
wellbeing in a war zone
Image: Providing accommodation to internally
displaced people in Ukraine as they escape the war.
32
Ferrexpo plc Annual Report & Accounts 2022
Zero
Fatality-free for second successive
year (2021–2022), targeting a zero
harm working environment.
0.51
Ferrexpo achieved a lost time injury
frequency rate of 0.51 in 2022
(2021: 0.41).
4
Four consecutive years of low injury
rates, with results materially below
our historic average and also below
iron ore producing peers in Australia.
Businesses in Ukraine at the present time are
playing a critical role in supporting individuals
and communities within Ukraine. As a business
located outside of the main conflict zone,
Ferrexpo has been able to support more than
3,500 internally displaced people as they
relocate themselves and their families away
from danger, with accommodation available
at our hotels and other properties in the local
area. For our workforce, we have provided
psychological support, wellbeing classes
and on-site yoga. For communities, we have
trained local teachers to help extend our
wellbeing programme to local schools, and
are continuing to provide community support
via the Ferrexpo Humanitarian Fund and
Ferrexpo Charity Fund (see page 44 for more).
We are also supporting Ukrainian culture
at this critical time, with initiatives such as
marking Ukraine’s first Statehood Day in
July, hosting a poetry reading competition
and publishing a book of employee
poems to celebrate Ukrainian Writing and
Language Day in November 2022.
Scan to watch our employees
recite a Ukrainian poem,
“I want to live without war”.
STRATEGIC REPORT Protecting our people
At Ferrexpo, we have a global workforce
comprising almost 10,000 employees and
contractors, with more than 95% based in
Ukraine, and their safety is our first priority.
Given the scale of our workforce, it was never
an option to evacuate our people during the
war in Ukraine, and therefore we have had to
take extensive measures to protect our
workforce with a war unfolding.
Measures taken have included remote working
for those with suitable roles, to ensure that
they were as far from the front line as possible.
Measures for our on-site workforce have
included the provision of air-raid shelters,
adjusting shift patterns to align with night-time
curfews and the provision of free meals in light
of disruption to supply chains in local
communities. In the early phase of the conflict,
when uncertainty arose over the continued
provision of social services, the Group
commenced an on-site childcare facility for
the children of employees, which was staffed
by Ferrexpo volunteers, to ensure that children
could be close by and safe during such an
uncertain period of time. As the war evolved,
the need for such facilities diminished as life
began to resume in Ukraine, with schools
opening and a ‘new normal’ beginning.
As the conflict evolved in 2022, so did our
response – in 2H 2022, we focused our
efforts on the supply of key equipment such
as armoured ambulances and food packages
to towns along the front line. We have also
moved to provide wellbeing initiatives to help
our workforce and community as they adapt
to the stress of living in a war zone, with free
psychological support.
We now have approximately 650 employees
who are currently serving in the Armed Forces
of Ukraine1. We are proud of their efforts to
defend Ukraine, and have supported them by
providing personal protective equipment and
other non-lethal equipment.
Operational safety initiatives
maintained
Despite the focus on the war in Ukraine, we
are proud that our operations teams managed
to record another year of excellent safety
performance. In 2022, the Group recorded a
second successive year without a fatality, and
the Group’s lost time injury frequency rate
(“LTIFR”) continues at a level materially below
both our historic average2 and the Group’s
iron ore producing peers in Western
Australia3.
As demonstrated in the table above, the
Group’s performance in lagging indicators of
safety remained largely in line with 2021 on
lost time injuries and total injury frequency
rates. Near miss events saw a significant
decrease, as did significant incidents. In
terms of leading indicators, the Group’s
adoption of ISO 45001:2019 in 2021 resulted
Health and safety performance (2021/2022)
Safety indicators (lagging)
Fatalities4
Lost time injuries4
Lost time injury frequency rate (“LTIFR”)4
All injuries frequency rate (“AIFR”)5,6
Near miss events5
Significant incidents5
Restricted work days5
Severity rate (average lost days per incident)5
Safety indicators (leading)5
Health and safety inspections
Health and safety meetings
Health and safety inductions
Training hours
Hazard reports
High visibility management tours
2022
2021
Change
0
10
0.51
0.99
1
8
934
104
5,413
1,388
5,332
6,828
740
157
0
9
0.41
0.97
5
12
497
55
3,293
1,165
11,602
11,786
595
124
–
+11%
+24%
+2%
(80%)
(33%)
+88%
+88%
+64%
+19%
(54%)
(42%)
+24%
+27%
Chart: Ferrexpo’s five year safety record versus benchmark
)
s
r
u
o
h
n
o
i
l
l
i
m
r
e
p
(
e
t
a
r
y
r
u
n
j
i
e
m
i
t
t
s
o
L
2.0
1.5
1.0
0.5
0.0
2018
2019
2020
2021
2022
Ferrexpo
Peer Group (Years ended June) 3
in increased reporting of hazards in 2022
– demonstrating an improving culture for
reporting and understanding the safety of
the working environment. Health and safety
inductions and training hours were both
significantly reduced in 2022, reflecting the
indirect effects of the war in Ukraine, with a
large number of our workforce currently
located off-site and lower levels of recruitment
during the year.
External recognition for
wellbeing programme
In January 2022, the Group learnt that it had
passed a Sedex Members Ethical Trade Audit
("SMETA") social responsibility audit, which is
a study into a company’s occupational health
and safety, environment, working conditions,
and suppliers' goodwill, with the Group
undertaking this exercise for the first time.
In passing this audit, the independent
auditor highlighted the quality of medical care,
management of social security and medical
insurance provided by Ferrexpo to its
employees.
1.
Information as of 14 February 2023.
2. LTIFR full year average for 2017–2021.
3. Source: Government of Western Australia, link.
(Accessed 3 March 2023.)
Indicators shown on a Group basis.
4.
5.
Indicators shown for Ukrainian operations only.
6. Figure incorrectly provided as TRIFR in prior report.
Ferrexpo plc Annual Report & Accounts 2022
33
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Responsible Business: Environmental Stewardship
Developing
our net zero
pathway
Despite the war in Ukraine, we were able to publish
an upgraded suite of carbon emissions targets
following the publication of our inaugural Climate
Change Report in December 2022. Work
continues in our collaboration with environmental
consultants Ricardo Plc, with a life cycle
assessment to be published in 2023.
Case Study: Net zero
pathway developed in 2022
1. Scope 1 and Scope 2 emissions are presented on a per tonne of production basis.
2. Scope 3 emissions savings are presented on a per tonne of production basis.
34
Ferrexpo plc Annual Report & Accounts 2022
50%
Updated target for Scope 1 and 2
emissions reduction by 20301.
10%
Newly published target for Scope 3
(value chain) emissions reduction by
20302. See page 36 for more
information on Scope 3 emissions.
2050
Targeting net zero production for
Scope 1 and 2 emissions. Net zero is
defined as operating with minimal
avoidable emissions, as far as
possible, and offsetting any
unavoidable emissions.
In October 2021, we announced our
collaboration with environmental consultants
Ricardo Plc, with work completed to date
summarised in our first standalone Climate
Change Report, which was published in
December 2022. Details of this work are
provided in this section, and as part of this
bespoke piece of work, we were able to
present a potential net zero pathway for us
to achieve our carbon emissions goals for
2050 (covering all emissions except Scope
3 emissions from steelmaking). The pathway
developed shows a potential route to reduce
absolute emissions of carbon dioxide by 92%,
despite a projected 100% increase in output
of iron ore pellets in the same timeframe.
To achieve this pathway, we intend to
investigate a number of key modern
technologies across our operations, to
minimise our consumption in three key areas:
diesel (predominantly in mining), electricity
(processing) and natural gas (pelletising). These
three aspects of our business collectively
accounted for 77% of Scope 1 emissions and
100% of Scope 2 emissions in 2022. Shown
to the left are a number of the technologies
we intend to investigate to help reduce our
emissions and achieve our net zero ambitions.
STRATEGIC REPORT Climate Change Report published
Following the Group’s announcement of our
collaboration with environmental consultants
Ricardo Plc, and work throughout 2022,
the Group was able to publish its inaugural
standalone Climate Change Report in
December 2022. In this report, we cover
climate change related legislation that is
being enacted in the various jurisdictions into
which we sell our products, and the risks
and opportunities that these changes may
present to our business model. Through
this work, it is clear that legislative change
is fastest in the European Union (“EU”), with
an established emissions trading scheme
setting €98 per tonne of CO2 as the price of
carbon emissions within the region as of early
20231. The EU’s Carbon Border Adjustment
Mechanism, due to begin its implementation
phase in 2025, will result in significant, far-
reaching effects, well beyond the borders of
the EU. Further details of this legislation are
provided on page 17 of our Climate Change
Report (available at www.ferrexpo.com).
A second area of focus in the Climate Change
Report looks at the risks and opportunities
relating to climate change that are specific
to Ferrexpo, and these are summarised in
the Task Force on Climate-related Financial
Disclosures (“TCFD”) on page 37 of this report.
Our Climate Change Report also presents a
potential net zero pathway for decarbonisation,
highlighting the technologies required and
timing of investments, to achieve net zero iron
ore pellet production by 2050. Through this
work, we have established an estimated capital
cost of US$3.3 billion and a carbon abatement
cost of US$145 per tonne. The Group is able
to have a relatively low carbon abatement cost
due to the timing of capital expenditures for
decarbonisation at its operations. Since more
than 80% of the estimated capital cost of
decarbonisation relates to the implementation
of green hydrogen in our pelletiser and our
own renewables power, both of which are
projects that are predominantly implemented
after 2030, and therefore the net present
value of this capital investmentA is reduced
due to its timing. In the meantime, we are
fortunate to be able to rely on clean power
sourced directly from the Ukrainian grid, as
we have been able to selectively purchase
low carbon forms of electricity since 2019.
Carbon targets upgraded
Through the work to develop our
decarbonisation pathway that was completed
as part of our Climate Change Report, we
were able to announce updated and
expanded carbon emissions reduction targets
in December 2022. Following the success
seen across 2019 and 2020, with Ferrexpo
reducing its Scope 1 and 2 emissions
footprint by 30% over this period, we were
able to announce an increase to our 2030
goal, and we are now targeting a 50%
reduction in this timeframe. Through greater
understanding of our Scope 3 emissions, we
have also been able to introduce targets for
this category, and are now targeting a 10%
reduction by 20303.
A list of definitions for each Scope of carbon
emissions is provided on page 40 of the
Climate Change Report.
Scope 1 emissions
Our Scope 1 (direct) emissions principally
relate to three activities at our operations
– diesel consumption (primarily used in
mining activities), natural gas (primarily
used in pelletising activities) and gasoil
(primarily used in inland waterway logistics
activities). Collectively, these three sources
of emissions represented 97% of Scope 1
emissions in 2022 (2021: 98%). In addition,
we track a further 15 sources of Scope 1
emissions across our operations, ensuring
that multiple aspects of our operations
are covered in our emissions estimates.
Absolute Scope 1 emissions fell by 48% in
2022, reflecting the reduced level of production
as a result of the war. Despite the conflict,
we managed to reduce our emissions on a
per unit of production basis by 3%, which
reflects a reduction of stripping activities in
the Group’s mines and increased biofuel
consumption in the pelletiser. In line with data
for 2021, our calculations of our Scope 1 and
Scope 2 emissions have been independently
assured for a second successive year, with
this work aimed at providing additional
confidence in our climate change reporting.
Please see page 36 for more information.
Scope 2 emissions
Our Scope 2 (indirect) emissions relate
exclusively to our purchasing of electricity from
third parties, with electricity predominantly
used in our concentrator4. On an absolute
basis, this category of emissions fell by 45%,
in line with the lower level of production seen
in 2022 due to the war in Ukraine. On a unit
SCOPE 1 (“S1”)
EMISSIONS2
SCOPE 2 (“S2”)
EMISSIONS2
SUBTOTAL
(S1+S2)2
SCOPE 3 (“S3”)3
EMISSIONS
Our performance in 2022
(3%)
+2%
Our performance since benchmark year (2019–2022 inclusive)
(1%)
(52%)
Our medium-term goals (2030)
Our long-term goals (2050)
1. Source: European Union Emissions Trading System, link. (Accessed 3 March 2023.)
2. Scope 1 and Scope 2 emissions are presented on a per tonne of production basis.
3. Scope 3 emissions savings are presented on a per tonne of production basis.
4. Prior to the 2021 Annual Report and Account, Scope 2 calculations included the
purchase of steam for heating purposes, which have subsequently been excluded
following the independent assurance process completed in 2022. For more information,
please see the Reporting Criteria document provided alongside the 2021 Annual Report
and Accounts on the Group’s website.
(1%)
(31%)
(50%)
(1%)
(3%)
(10%)
Net zero
(50%)
Ferrexpo plc Annual Report & Accounts 2022
35
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: Environmental Stewardship continued
basis, Scope 2 emissions rose by 2%,
reflecting the impact of the war in Ukraine
and associated power outages in 4Q 2022,
in addition to the increased output of direct
reduction pellets, which require additional
processing compared to blast furnace pellets.
Scope 3 emissions
For Ferrexpo, this category of emissions
primarily relates to the type of iron ore pellet
produced, since the downstream processing
of iron ore accounted for 95% of Scope 3
emissions in 2022. Through increasing the
output of direct reduction (“DR”) pellets to 6%
of total pellet production (2021: 4%), we have
seen a reduction in Scope 3 emissions on a
unit basis by 3% since 2019, with DR pellets
carrying a 49% lower carbon footprint than
blast furnace pellets1.
Independent assurance
In line with the process completed for 2021,
the Group has completed an independent
assurance process for its Scope 1 and Scope
2 carbon emissions for 2022 (in addition to key
safety metrics). For more information, please
see the Limited Assurance Report, which is
provided alongside the Group’s full year
financial results. Our Scope 3 emissions are not
yet independently assured, with an expansion
of the remit of the independent assurance
process to include this category expected to
represent the next phase of this process.
Methodology
Ferrexpo’s methodology for calculating its
GHG emissions footprint utilises, where
possible, emissions factors provided by the
Greenhouse Gas Protocol, which is in line
with reporting requirements under the Global
Reporting Initiative’s (“GRI”) framework for
reporting sustainability topics. Through using
carbon factors provided by the Greenhouse
Gas Protocol, the Group is able to provide
carbon dioxide-equivalent emissions figures
(“CO2e”) that also account for emissions of
both methane (CH4) and nitrogen oxide (N2O).
Water
We operate in an environment where we have
multiple interactions with the water cycle,
from the water ingress into our mines, to
recycling water in our processing operations,
to the River Dnipro, which is located next to
our operations. Testing of water quality has
continued throughout 2022, despite the war
in Ukraine, with any discharged water quality
tested across more than 12 different chemical
elements or attributes. In our processing
plant, where water is utilised in the processing
of iron ore, we once again recycled 98% of
process water (2021: 98%). We are currently
reviewing the possibility of removing water
1. Source: CRU. Natural gas based direct reduction
without carbon capture. See page 10 of the 2021 Annual
Report for more information.
2. Source: TPI Centre, link. (Accessed 3 March 2023.)
Greenhouse gas emissions footprint and energy consumption (2021/2022)
2022 Data (% change to 2021)
2021 Data
Absolute basis
(kilotonnes CO2e)
Unit basis
(kg CO2e per
tonne)
Absolute basis
(kilotonnes CO2e)
Unit basis
(kg CO2e per
tonne)
Scope 1 emissions
Scope 2 emissions
341 (-48%)
223 (-45%)
55 (-3%)
36 (+2%)
Subtotal (S1+S2) emissions
564 (-46%)
91 (-1%)
Scope 3 emissions
Total emissions
Biofuels emissions (reported
separately)
7,642 (-47%) 1,237 (-1%)
8,206 (-47%) 1,329 (-1%)
Energy consumption (kWh)
3,052,942,993 (-44%)
– 5,489,232,550
6 (-37%)
1 (+18%)
10
649
404
1,053
14,362
15,415
57
35
92
1,254
1,346
1
–
prior to pumping material to our tailings dam,
which would have the advantage of reducing
water consumption as well as energy use,
with operations needing to pump a
significantly lower mass of material to our
tailings dam if tailings are dry stacked. It is
estimated that water consumption in the
processing plant would decline by up to 20%
through the use of this technology.
ISO-certified systems
Ferrexpo now has an ISO-compliant
environment management system (ISO
14001:2015) at both FPM and FBM, with the
latter achieving accreditation during 2022.
This is in addition to accreditation of our
Energy Management System (ISO 50001:2018)
at the same two subsidiaries, with FBM
also acquiring this accreditation in 2022.
Waste generation
The Group generates waste in the form of solid
waste in its mining operations (overburden
in the form of waste rock and sand), as well
as emissions of other gases and dust from
our mines and processing operations.
Waste removal in our mines declined by 70%
in 2022, which is as a result of the war in
Ukraine and lower production volumes (see
pages 4 and 5 for more details of the war’s
impact on our business in 2022). Overburden
and waste removed from our mining
operations is non-hazardous and is stored in
on-site waste dumps designed by our mine
planning department.
Aside from greenhouse gases, gaseous
emissions include those emitted from our
processing operations (NO2, SO2, and CO),
with emissions from such sources declining
by 50–60% during the year, in line with
mining volumes. A range of projects related
to dust suppression in our processing
complex were completed in 2022, resulting
in dust emissions falling by 62%, which
represents a level ahead of the production
decrease seen in 2022 (46% decrease).
Elsewhere in our operations, we expanded
our domestic waste recycling programme
to include additional operating subsidiaries
in Ukraine (FYM, FBM and Ferrostroy), with
collection bins and sorting facilities launched
in 2022. All four of our main operating
subsidiaries in Ukraine now have active
recycling programmes, and the focus for 2023
will be encouraging cultural change to increase
recycling rates throughout our business.
Biodiversity baseline expanded
Despite the pressures imposed due to the war
in Ukraine, our Environmental Department in
Ukraine continues to make good progress
on a range of initiatives at our operations,
including an update to the Zoo-biota interactive
map identifying species of animals in the
vicinity of our operations, including 58 of
more than 500 species listed in the Red
Book of Ukraine. Furthermore, work was
completed in 2022 on a second interactive
map, covering species of plants located in
the vicinity of our operations (including 24 out
of 410 species in the Red Book of Ukraine).
Climate change: reporting journey
The Transition Pathway Initiative Global
Climate Transition Centre (“TPI Centre”,
www.transitionpathwayinitiative.org/) is an
independent, authoritative source of research
and data on the progress of the financial
and corporate world in transitioning to a low
carbon economy. The TPI Centre publishes
a “Management Quality Staircase”2 that
allows companies and stakeholders to map
their progress in terms of climate governance
maturity against five levels, as shown in the
chart opposite. Following the publication of our
Climate Change Report and Scope 3 targets
in December 2022, in addition to independent
assurance work completed in July 2022, we
have assessed our progress to have reached
Level 4 of reporting. The TPI Centre’s Staircase
is particularly helpful for understanding the
forward-looking component of our reporting
journey that lies ahead, and highlights a need
for us to develop our understanding of the
impact of climate change on our business
costs as an area of focus for future work.
36
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Responsible Business: TCFD Disclosures
Broadening our reporting
Chart: TPI Centre’s Management Quality Staircase
Level 2
Building
capacity
Has set energy efficiency
(relative or absolute) GHG
emissions reduction targets
Has published information
on its Scope 1 & 2 GHG
emissions
Level 4
Strategic
assessment
Company has reduced its
Scope 1 & 2 GHG emissions
over the past 3 years
Company provides
information on its business
costs associated with
climate change
Company has set long-
term quantitative targets
(>5 years) for reducing its
GHG emissions
Company has incorporated
ESG issues into executive
remuneration
Level 3
Integrated into
operational
decision-making
Company has nominated
a board member or
committee with explicit
responsibility for oversight
of the climate change policy
Company has set
quantitative targets for
reducing Scope 1 & 2
GHG emissions (relative
or absolute)
Company reports on
its Scope 3 emissions
Has had its Scope 1 &
2 GHG emissions data
verified
Company supports
domestic and international
efforts to mitigate climate
change
Level 1
Awareness
Explicitly recognises climate
change as a significant
issue for the business
Has a policy commitment
to action on climate change
Level 0
Unaware
Does not recognise climate
change as a significant
issue for the business
INCREASING CLIMATE GOVERNANCE MATURITY
Recognising the need to provide
reliable information on climate-related
risks, opportunities and issues, and
preparing disclosures throughout the
year, including reporting informed by the
recommendations and recommended
disclosures produced by the TCFD.
Compliance Statement (FCA’s
Listing Rule 9.8.6(8)R)
For the purposes of Listing Rule 9.8.6R(8),
Ferrexpo considers that it has made climate-
related financial disclosures consistent with
the four TCFD recommendations and 11
TCFD recommended disclosures save in
relation to the following areas, where full
compliance remains a work in progress:
– Strategy Recommended Disclosure c)
(strategic and organisational resilience).
In developing the Group’s approach to
climate-related risks, we intend to perform
in-depth financial analysis of our operations’
exposure to such risks to determine
operational and strategic resilience once
baseline studies have been completed. It is
expected that future phases of work, which
will lead into this financial modelling, will
require site visits to our operations in Ukraine,
which are not possible at the current time.
We will provide further updates on this
workstream in due course.
In determining this, we have taken into
account the TCFD’s Guidance for All
Sectors and Supplemental Guidance for
Non-Financial Groups, as well as other
relevant materials. This assessment
reflects the progress that Ferrexpo has
made on its climate-related reporting over
the course of the year, as well as those
areas where full compliance with the TCFD’s
recommended disclosures (and some
aspects of the related guidance) forms part
of our ongoing work streams.
The following recommended disclosures
are set out in our Climate Change Report
2022 (published in December 2022), which
is available on the Group’s website at www.
ferrexpo.com/investors/results-reports-and-
presentations:
– Governance Recommended Disclosure a)
(Board oversight of climate-related risks
and opportunities) – see page 11.
– Governance Recommended Disclosure
b) (management’s role in assessing
and managing climate-related risks and
opportunities) – see pages 11 and 12.
– Strategy Recommended Disclosure a)
(description of climate-related risks and
opportunities identified over the short,
medium and long term) – see pages 14 to 37.
– Strategy Recommended Disclosure
b) (impact of climate-related risks and
opportunities on the organisation’s
businesses, strategy and financial planning)
– see pages 20 to 21 and 28 to 37.
– Risk Management Recommended
Disclosure a) (processes for identifying
and assessing climate-related risks) –
see pages 14 to 37.
– Risk Management Recommended
Disclosure b) (processes for managing
climate-related risks) – see pages 20 to 21
and 28 to 37.
– Metrics and Targets Recommended
Disclosure a) (metrics used by the
organisation to assess climate-related risks
and opportunities) – see pages 8 and 42.
– Metrics and Targets Recommended
Disclosure b) (Scope 1, 2 and 3 emissions
disclosures) – see pages 8 to 10.
We have set out these recommended
disclosures in this separate report to enable
us to provide information for interested
stakeholders in the context of our wider work
on mapping the Group’s carbon footprint
and exposure to climate-related risks and
opportunities, alongside details of the next
steps we are taking.
The following recommended disclosures are
set out in our Responsible Business Report
2021 (published August 2022), which is
available on the Group’s website at www.
ferrexpo.com/investors/results-reports-and-
presentations:
– Governance Recommended Disclosure
b) (management’s role in assessing
and managing climate-related risks and
opportunities) – see pages 77 to 81.
– Strategy Recommended Disclosure a)
(description of climate-related risks and
opportunities identified over the short,
medium and long term) – see pages 77
to 81.
– Strategy Recommended Disclosure
b) (impact of climate-related risks and
opportunities on the organisation’s
businesses, strategy and financial
planning) – see pages 77 to 81.
– Risk Management Recommended
Disclosure a) (processes for identifying
and assessing climate-related risks) –
see pages 77 to 81.
– Risk Management Recommended
Disclosure b) (processes for managing
climate-related risks) – see pages 77 to 81.
– Risk Management Recommended
Disclosure c) (identifying, assessing,
and managing climate-related risks are
integrated into the organisation’s overall
risk management) – see page 48.
– Metrics and Targets Recommended
Disclosure a) (metrics used by the
organisation to assess climate-related
risks and opportunities) – page 43.
– Metrics and Targets Recommended
Disclosure b) (Scope 1, 2 and 3 emissions
disclosures) – page 43.
We have set out these recommended
disclosures in this separate report to enable
us to provide in more granular detail an
overview of the various physical and transition
risks the Group is facing, the time horizons
over which these may emerge, their financial
implications and our risk mitigation efforts.
Ferrexpo plc Annual Report & Accounts 2022
37
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: TCFD Disclosures continued
Scenario
analysis
selection
1. International Energy Agency (“IEA”)
Sustainable Development Scenario
(“SDS”)
Description: a “well below” 2°C scenario,
achieved through policies that adhere to
the Paris Agreement.
Summary:
This path sets out a plausible path to concurrently achieve
universal access to energy, the objectives of the Paris
Agreement, and a reduction in air pollution.
In undertaking our modelling exercise,
climate scenarios were selected on the
basis of giving a range of outcomes (rate
of environmental change and severity of
change) as a result of different levels of
legislative ambition taken by governments
in the coming years. Scenarios were also
selected on the basis of being produced
by a range of reputable independent
authorities on climate change.
Source: Ricardo Plc.
Scenario metric
Characteristics:
Characteristics:
Characteristics:
– A well below 2°C pathway.
– Surge in clean energy policies and green investment.
– All existing net zero pledges achieved in full.
– Extensive efforts to realise near-term emissions
reductions.
– Number of western economies to reach net zero
emissions by 2050, China by 2060, and a number
of other countries by 2070 latest.
– In alignment with the United Nations Sustainable
Development Goals.
IEA SDS (Sustainable Development Scenario)
IEA STEPS (Stated Policies Scenario)
IPCC SSP4 (Shared Socioeconomic Pathway 4)
Average global temperature increase (°C) by 2050
Average global temperature increase (°C) by 2100
1.7°C
1.6°C
Policy intervention
Time horizon
Transition risks
(as a function of carbon price, with pricing correct as of
studies completed in June 2022)
Transition risks
(as a function of carbon intensity of steel production)
Orderly or disorderly transition
Potential overall impact on Ferrexpo (determined via stakeholder
interviews and desktop studies, categorised on basis of
occurrence and likelihood, see risk matrix on page 40 for more).
Low
Medium
High
Increased policy beyond what has already
been committed to, from 2021
Only policies that are active in 2021, including what has
Increased policy after 2030, demonstrating
been committed to and what has been proposed
a rapid transition to decarbonisation
Present day to 2100
HIGH
(US$95/t) in 2050
Global carbon price
HIGH
(0.6tCO2/t) by 2050
Orderly
“Well below” 2.0°C scenario (Paris Agreement aligned)
38
Ferrexpo plc Annual Report & Accounts 2022
2. IEA Stated Policies Scenario (“STEPS”)
3. IPCC Shared Socioeconomic Pathway 4
(“SSP4”)
Description: a worst case, “business as
Description: a worst case, “business as
usual scenario” (one of two modelled here).
usual scenario” (one of two modelled here).
A more conservative benchmark whereby
governments are assumed to not reach all
announced goals.
Summary:
Divided approach to climate change
continues to widen through unequal
investments in human capital.
Summary:
The STEPS scenario provides a more conservative
Inequality (A Road Divided). Highly unequal investments
benchmark for the future, because it does not take it for
in human capital, combined with increasing disparities
granted that governments will reach all announced goals.
in economic opportunity and political power, lead to
Instead, it takes a more granular, sector-by-sector look
increasing inequalities and stratification both across
at what has actually been put in place to reach these and
and within countries.
other energy-related objectives, taking account not just of
existing policies and measures, but also a look at those
that are under development.
– Sector-by-sector look at what has actually been put in
– A gap widens between an internationally connected
place to reach goals and other energy-related objectives.
society that contributes to knowledge and capital
– Takes into account not just existing policies and
measures but also those under development.
– Includes “Fit for 55” measures announced by the
European Commission in July 2021 (55% reduction in
emissions by 2030 compared with 1990 baseline).
intensive sectors of the global economy, and a
fragmented collection of lower income, poorly
educated societies that work in a labour intensive,
low-tech economy.
– Social cohesion degrades, and conflict and unrest
become increasingly common.
– Technology development is high in the high-tech
economy and sectors.
– Globally connected energy sector diversifies, with
investments in both intensive fuels like coal and
unconventional oil, but also low carbon sources.
2.0°C
2.6°C
Present day to 2100
MEDIUM
(US$90/t) in 2050
Global carbon price
MEDIUM
(1.1tCO2/t) by 2050
Potential for orderly or disorderly
Present day to 2100
MEDIUM
Regional carbon price in the short term,
global carbon price in the long term
2.2°C
3.7°C
N/A
Disorderly
STRATEGIC REPORT 1. International Energy Agency (“IEA”)
Sustainable Development Scenario
(“SDS”)
Description: a “well below” 2°C scenario,
achieved through policies that adhere to
the Paris Agreement.
This path sets out a plausible path to concurrently achieve
universal access to energy, the objectives of the Paris
Agreement, and a reduction in air pollution.
Characteristics:
– A well below 2°C pathway.
– Surge in clean energy policies and green investment.
– All existing net zero pledges achieved in full.
– Extensive efforts to realise near-term emissions
reductions.
– Number of western economies to reach net zero
emissions by 2050, China by 2060, and a number
of other countries by 2070 latest.
– In alignment with the United Nations Sustainable
Development Goals.
2. IEA Stated Policies Scenario (“STEPS”)
3. IPCC Shared Socioeconomic Pathway 4
(“SSP4”)
Description: a worst case, “business as
usual scenario” (one of two modelled here).
A more conservative benchmark whereby
governments are assumed to not reach all
announced goals.
Description: a worst case, “business as
usual scenario” (one of two modelled here).
Divided approach to climate change
continues to widen through unequal
investments in human capital.
Summary:
Summary:
Summary:
The STEPS scenario provides a more conservative
benchmark for the future, because it does not take it for
granted that governments will reach all announced goals.
Instead, it takes a more granular, sector-by-sector look
at what has actually been put in place to reach these and
other energy-related objectives, taking account not just of
existing policies and measures, but also a look at those
that are under development.
Inequality (A Road Divided). Highly unequal investments
in human capital, combined with increasing disparities
in economic opportunity and political power, lead to
increasing inequalities and stratification both across
and within countries.
Characteristics:
Characteristics:
– Sector-by-sector look at what has actually been put in
place to reach goals and other energy-related objectives.
– Takes into account not just existing policies and
measures but also those under development.
– Includes “Fit for 55” measures announced by the
European Commission in July 2021 (55% reduction in
emissions by 2030 compared with 1990 baseline).
– A gap widens between an internationally connected
society that contributes to knowledge and capital
intensive sectors of the global economy, and a
fragmented collection of lower income, poorly
educated societies that work in a labour intensive,
low-tech economy.
– Social cohesion degrades, and conflict and unrest
become increasingly common.
– Technology development is high in the high-tech
economy and sectors.
– Globally connected energy sector diversifies, with
investments in both intensive fuels like coal and
unconventional oil, but also low carbon sources.
Scenario metric
Average global temperature increase (°C) by 2050
Average global temperature increase (°C) by 2100
Policy intervention
Time horizon
Transition risks
(as a function of carbon price, with pricing correct as of
studies completed in June 2022)
Transition risks
(as a function of carbon intensity of steel production)
Orderly or disorderly transition
1.7°C
1.6°C
Present day to 2100
HIGH
(US$95/t) in 2050
Global carbon price
(0.6tCO2/t) by 2050
HIGH
Orderly
IEA SDS (Sustainable Development Scenario)
IEA STEPS (Stated Policies Scenario)
IPCC SSP4 (Shared Socioeconomic Pathway 4)
Increased policy beyond what has already
been committed to, from 2021
Only policies that are active in 2021, including what has
been committed to and what has been proposed
Increased policy after 2030, demonstrating
a rapid transition to decarbonisation
2.0°C
2.6°C
2.2°C
3.7°C
Present day to 2100
MEDIUM
(US$90/t) in 2050
Global carbon price
MEDIUM
(1.1tCO2/t) by 2050
Potential for orderly or disorderly
Present day to 2100
MEDIUM
Regional carbon price in the short term,
global carbon price in the long term
N/A
Disorderly
Worst case, “business as usual” scenarios
Ferrexpo plc Annual Report & Accounts 2022
39
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: TCFD Disclosures continued
Material topics
Risk matrix
(Note:
denotes key focus area for Ferrexpo.)
External factor
Key focus area?
Market and technology shift
Increasing demand for low carbon emissions
steelmaking
Movement towards circular economy principles
Mineral commodity shift: From iron ore to other
minerals
Policy and legal
Shipping: Targets and regulations on carbon
emissions
Carbon pricing/tax: Targets and regulations on
carbon emissions
Energy crisis in Ukraine
Reporting: Targets and regulations on carbon
emissions
Increase in insurance costs
Reputation
Increased consumer and investor climate
consciousness
Climate action transparency: Increased demand
from consumer and investors
Physical risks
Water stress (chronic)
Sea level rise (chronic)
Increase in storm intensity (acute)
Climate-induced conflict
Surface temperature rise
Opportunity for increased community and host
country engagement over climate change related
issues
The information above is taken from the work completed in our
collaboration with environmental consultants Ricardo Plc, with a full
summary provided in our inaugural Climate Change Report, which was
published in December 2022 and is available on the Group’s website
(www.ferrexpo.com). The results presented above emerged from the
scenario analysis described on pages 22 to 37 of this report.
As shown above, the top three risk areas identified are (1) low carbon
steel (risk relating to market and technology shift), (2) shipping targets
and regulations (policy and legal risk), and (3) carbon pricing and tax
(also a policy and legal risk).
In respect of low carbon steel, we have commenced a process to
produce greater volumes of direct reduction (“DR”) pellets, which are a
higher grade form of iron ore and are a known technological pathway
to low emissions Green Steel (via the electric arc furnace method of
steelmaking). Independent research shows that Ferrexpo’s DR pellets
have a 49% lower greenhouse gas emissions footprint than our blast
furnace pellets, and therefore offer us a substantial Scope 3 emissions
saving1.
E
C
N
A
C
I
F
I
N
G
I
S
(Note: Bubble size denotes the scale of the potential impact on the Ferrexpo business.)
LIKELIHOOD
Code
Issue area
Matrix score
Top risk areas
identified
CC
Climate-induced conflict
CEP
CP
Movement towards circular
economy principles
Carbon pricing/tax: Targets and
regulations on carbon emissions
CPU
Energy crisis in Ukraine
IIC
LCS
SCE
SI
SR
Increase in consumer and
investor climate consciousness
Demand for low carbon emissions
steelmaking
Shipping: Targets and regulations
on carbon emissions
Increase in storm intensity (acute)
Sea level rise (chronic)
#3
#1
#2
Low
Low/Medium
Medium
Medium/High
High
In respect of efforts to understand potential climate change related risks
for the other key risk areas (shipping targets and regulations and carbon
pricing), please see pages 31 and 32 of our Climate Change Report.
In terms of next steps with regard to climate change reporting, we are
currently finalising a life cycle assessment of iron ore pellets, which will
be a peer-reviewed study into the environmental emissions footprint
of iron ore pellets during their entire life cycle, benchmarked against
the most commonly traded form of iron ore (sinter fines). In order to
capture the emissions generated through converting iron ore to steel,
which account for more than 89% of our total emissions in 2022 (2021:
89%), this study will look at the footprint of iron ore from mining through
to steel production, and will therefore cover the different emissions
footprints of blast furnace and electric arc furnace steelmaking.
This report is expected to be available in the first half of 2023.
40
Ferrexpo plc Annual Report & Accounts 2022
1. Source: CRU. Natural gas based direct reduction without carbon capture.
STRATEGIC REPORTLCSSICPUCCCEPSCESRCPIIC Summary disclosure against TCFD recommendations
Strategy
Climate-related risks and opportunities over the short, medium
and long term
Climate change is considered to be a Principal Risk to the Group, and this
risk is detailed on page 73 of this report, alongside risk mitigation actions.
A description of the specific climate-related issues potentially arising in the
short, medium and long term that could have a material financial impact
on the Group is included on pages 22-37 of the Group’s Climate Change
Report, available at www.ferrexpo.com. These include transition risks and
physical risks associated with the transition to a lower carbon economy. The
time horizons for these risks and opportunities to emerge are also described
being short-term (less than two years), medium-term (more than two but
less than ten years) or long-term (greater than ten years). The definition of
each time horizon is broadly aligned to the Group’s medium-term climate
change targets for 2030, with a ten-year window for action following the
Group’s baseline year, with short-term and long-term horizons set at either
side of this definition. The Group’s risk identification process is described
on pages 38 to 40 of this report.
Impact on the Ferrexpo business, strategy and financial planning
Consideration of topics relating to climate change is a fundamental aspect
of Ferrexpo’s business model (shown on page 12), with the Group releasing
a standalone report on climate change in December 2022. Through the
recent work completed with environmental consultants Ricardo Plc, the
Group was able to upgrade and broaden its suite of carbon emissions
reduction targets. The Group has a clear understanding of the likely
technologies to help meet these targets, and these are shown on page
35 of this report. Climate-related risks and opportunities have directed the
Group to increase its focus on direct reduction pellets, which have a lower
emissions footprint and represent a pathway to low emissions steelmaking.
In producing the Group’s products, Ferrexpo is seeking to research and
implement new technologies that will lower the Scope 1 and 2 emissions
footprint of the Group’s products, with the Group’s solar power pilot plant to
trial renewable power generation, and plans to build a hydrolysis plant to trial
the use of hydrogen as a fuel in the Group’s pelletiser as examples of such
activities. A summary of potential technological pathways to lower emissions
pellet production is provided on page 34 of this report. Climate-related
issues input into financial planning processes through the consideration of
the potential carbon emissions footprint of existing and proposed operating
projects and capital investmentA projects. Given the current war in Ukraine
and reduced level of operating activities in Ukraine, the Group is currently
not assessing new operational or capital investmentA projects. Following a
reduction in the risks associated with the war in Ukraine, it is expected that
new investments will be assessed using a price of carbon that is reflective
of the prevailing carbon price within the EU Emissions Trading System,
as was the case prior to the war in Ukraine. Climate-related factors are
expected to negatively impact financial performance in the short to medium
term (operating costs and increased capital investmentA), but present
opportunities in the long term through the expected rise in demand for iron
ore products that are relevant for low emissions steelmaking (Green Steel).
Resilience based on climate change scenarios
The Group has included an analysis of climate change scenarios, which
was conducted by environmental consultants Ricardo Plc as part of the
work completed for the Group’s Climate Change Report described in further
detail on pages 38 to 40. The Group intends to perform in-depth financial
analysis of our operations’ exposure to such risks to determine operational
and strategic resilience once baseline studies have been completed. It is
expected that future phases of work will require site visits to our operations
in Ukraine, which are not possible at the current time. The Group will provide
further updates on this work stream in due course.
Governance
The Board’s role in oversight of climate-related risks
and opportunities
The Board of Directors has ultimate oversight of the Group’s strategy,
including its approach to the effect of climate change on the Group’s
business model. Climate change was a standing agenda item at all five
scheduled Board meetings throughout the year. Further details of the
Board’s consideration of climate change and its oversight of the Group’s
goals and targets for addressing climate-related issues are on page 35.
The Health, Safety, Environment and Community (“HSEC”) Committee
has been delegated management of climate-related issues, which includes
three members of the executive management team, and reports the Group’s
progress on climate change related matters to the Board of Directors.
Independent Non-executive Director Ann-Christin Andersen is the Director
primarily responsible for climate-related matters and Chair of the HSEC
Committee, which met four times during the year (2021: four) and climate
change has been a standing agenda item at all scheduled HSEC Committee
meetings throughout the year.
Management’s role in assessing risks and opportunities
In addition to the role of the HSEC Committee described above, the Group’s
executive management team monitors and assesses climate-related risks
through its risk monitoring activities as part of the Group’s Finance, Risk
Management and Compliance Committee, which met ten times in 2022
(2021: ten). The Group’s process for risk monitoring is described on page
56. The HSEC Committee receives information about climate-related issues
through activities such as internal briefings by members of the executive
management team and briefings from external advisors. Feedback from
this Committee is provided to the Board on a regular basis.
Risk management
Processes for identifying and assessing climate-related risks
The Group regularly assesses risks applicable to the Group through its
Finance, Risk Management and Compliance Committee, which assesses
risks based on the probability of occurrence and severity of impact should
an event occur. An overview of the Principal Risks facing the Group, and
the risk mitigation measures that the Group has put in place in relation to
these, is provided on pages 58 to 74, with climate change identified as
a Principal Risk and detailed on page 73 of this report. Within the topic
of climate change, the Group’s management has identified specific risks
and opportunities relating to climate change, ranging from policy and
legal topics, physical effects, emerging technologies, market factors and
reputational differentiators.
Managing climate-related risks
The Group’s approach to managing and mitigating risks, including climate-
related risks, is provided in the Principal Risks section, on page 73 of this
report. Risks, including climate-related risks, are prioritised according to
their assessment under the Group’s materiality matrix set out on page 40.
How Ferrexpo integrates these risks into the Group’s overall
risk management
Ferrexpo’s governance relating to climate change risks has been designed
to ensure that the management of the financial risks from climate change
are integrated across the whole governance system and embedded into the
existing risk management framework. The Group’s approach to assessing
and managing risk, including climate-related risks, is described on page 56.
Risks relating to climate change are determined in the same way as other
principal and emerging risks, and the relative significance of climate risks
is assessed based on monetary impact, probability, maximum foreseeable
loss, trend and mitigating actions. A summary of the Group’s approach to
risk identification and risk mitigation activities is provided on pages 58 to 74
of this report.
Metrics and targets
Metrics used to assess climate-related risks and opportunities
The Group uses a wide range of climate-related metrics including
GHG emissions (Scopes 1, 2 and 3 and emissions intensity), as well as
consumption of diesel, electricity and natural gas – see further on pages 35
and 36. Metrics relating to carbon reduction progress are incorporated into
remuneration policies, as described on page 124 of this report.
Greenhouse gas emissions
Details of the Group’s Scope 1, 2 and 3 emissions are provided on page 36
of this report.
Targets
Our carbon emissions reduction targets are summarised on page 35 of this
report.
Ferrexpo plc Annual Report & Accounts 2022
41
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: Diversity, Equity and Inclusion
Fostering diversity
and inclusion
Ferrexpo has initiated a number of
diversity, equity and inclusion (“DEI”)
initiatives, which help us to form a baseline
understanding of our workforce
composition and to shape DEI efforts.
Greg Nortje,
Group Chief Human
Resources Officer
Ferrexpo’s diversity initiatives are focused on
helping us to develop a modern business with
a diverse workforce and an inclusive working
environment. Our efforts in DEI have
increased significantly in recent years, with
increased stakeholder focus and a greater
focus on companies having a sustainable,
inclusive culture. Our DEI efforts have
continued in 2022, despite the war in Ukraine,
as DEI helps to generate a positive working
environment that supports people’s mental
health and wellbeing, regardless of age,
gender or other characteristics.
Progress continues to accelerate following the
appointment of our first DEI officer in Ukraine
in 2021, and we are continuing to gain a
better understanding of our workforce and
corporate culture.
DEI progress in 2022
In 2022, we made significant progress in
advancing our strategy to implement a
360-degree approach to DEI. Further to the
Group’s Diversity, Equity and Inclusion Policy
that was established in 2019, our local
operating entities adopted a policy to further
define and understand definitions and
behavioural patterns for fostering a more
inclusive working environment. This policy is
designed to prohibit all forms of discrimination
(on the basis of disability, pregnancy and
parenthood, race, national or ethnic origin,
age, gender, sexual orientation, political
opinion, and social origin). As part of this
policy, we now have an internal mechanism
for addressing DEI-related concerns and
resolving potential incidents of discrimination.
In February 2022, Ferrexpo hosted an event
as part of the United Nations’ “HeForShe”
movement, which is aimed at providing
solidarity amongst the male population for
gender diversity initiatives. More than three
million men around the world signed
declarations of support, with 135 Ferrexpo
employees taking part at a mass-participation
event. Through their participation, Ferrexpo
aims to raise awareness of gender diversity
topics and help to fight discrimination.
Our Inclusion School, which is a training
programme for our employees in Ukraine,
began in 2021, and restarted in late 2022.
Topics covered in this programme are aimed
at fostering inclusiveness and diversity, and
how this can help Ferrexpo’s business model.
More than 200 of Ferrexpo’s employees
completed this course in 4Q 2022. Online
learning covers topics such as identifying
different forms of discrimination, why it is
important to eliminate prejudice and how
tolerance can help Ukraine to tackle its
wartime challenges. Similarly, the expansion
of our “Fe_munity” programme in 2022 (see
Case Study opposite), our Inclusion School
was also extended during 2022 to include
local authority employees who are keen to
learn more about challenging prejudice and
discrimination.
42
Ferrexpo plc Annual Report & Accounts 2022
28.7%
Positions held by women accounted
for 28.7% of our total employee
workforce in 2022 (2021: 29.2%)1.
20.9%
Women in management roles across
the Group increased to 20.9% in
2022 (2021: 20.1%)2.
25%
Target of 25% of management
positions to be held by women by
2030. Progress to date has seen an
increase from 18% in 2019 to 21%
in 2022.
1. Of the total employee workforce in 2022 (7,978), 2,290
positions were held by women and 5,688 held by men.
2. Of the total number of management roles workforce in
2022 (388), 81 positions were held by women and 307
were held by men.
STRATEGIC REPORT Additionally, through the Ukrainian translation
of the Group’s 2021 Responsible Business
Report, we have been able to communicate
our recent progress in DEI to a broader
audience within Ukraine – this report is
available on our website at: www.ferrexpo.
com/investors/results-reports-and-
presentations/.
Gender diversity targets for 2030
At Ferrexpo, we have a gender diversity target
of ensuring 25% of managerial roles are filled
by women by 2030. To date, our diversity
efforts have enabled us to progress the level
of women in management roles from 18% in
2019 to 21% in 2022, which has been
possible through a range of diversity initiatives
in Ukraine and across the Group, as well as
sustainability-linked incentives within the
Group’s remuneration policy (see page 124
for more details).
We are specifically targeting diversity at the
managerial level, rather than total diversity, as
this helps to encourage career progression
and opportunities for women, which may not
otherwise be available. Our workforce does,
however, include a higher proportion of
women (2022: 29%) than our mining-sector
peers that operate in the developing world1.
Women’s Empowerment Principles
As part of our DEI implementation plan,
Ferrexpo became a signatory to the Women’s
Empowerment Principles (“WEPs”) in October
2022, which is a United Nations-supported
initiative for business leaders to express
support for advancing gender equality. In
undertaking WEPs’ Gender Gap Analysis Tool
in 2022, Ferrexpo achieved a rank of “Leader”
within this framework, with this assessment
made on the basis of existing policies and
our approach to 18 different aspects of DEI,
including: addressing the gender pay gap,
parental leave and initiatives to create a
working environment free from violence,
harassment and sexual exploitation.
External recognition in 2022
Our DEI efforts are not going unnoticed, with
external recognition of the forward thinking
that Ferrexpo is introducing to its business.
In October 2022, the Group was ranked in the
top ten of employers in Ukraine for diversity,
equity and inclusion by the Ukrainian
Corporate Equality Index, which is a national
survey of corporate policies, rules and
practices of private companies to prohibit
discrimination in the workplace.
Diversity inclusion
As a large company operating within Ukraine,
we are subject to a local requirement for the
employment of our people to include a
minimum of 4% as those with a registered
disability, which is a requirement that
continues to be met through our employment
of 321 individuals with disabilities in 2022 (4%
of employee workforce). The majority of these
individuals are located at our operations in
central Ukraine, working at FPM and FYM.
Recently, we have published case studies
celebrating the contribution of those with
disabilities at our operations on our social
media channels, including individuals working
in our social services department, mining
department and in the local museum, which
we support through our Charity Fund. We
also sponsor disabled athletes to help
promote healthy lifestyles, and have
previously sponsored individuals to attend
World Championship canoeing events.
1. Comprising mining companies in the FTSE 350 Index
where the main focus of mining is outside of Australia
and Canada.
Case Study: DEI initiative
expands in 2022
Image: Olena Sitarchuk, participant in 2022 intake of
FEMUNITY.UA programme.
Our “Fe_munity” women
in leadership programme
expanded in 2022 to include
women from across Ukraine.
The “Fe_munity” programme commenced in
2020 and over the course of three intakes of
participants, has helped to form an integral
aspect of our efforts to meet our goal of
reaching 25% of managerial positions held
by women by 2030.
Given the events of 2022, the Group was
made aware of a need to support the careers
of women across Ukraine, and we decided to
open up enrolment into our “Fe_munity”
programme to all participants, irrespective of
the sector in which they work. In September
2022, the FEMUNITY.UA project hosted 50
female participants from all over Ukraine, with
lectures over three months, led by eight guest
speakers and 32 mentors.
In addition, "Progression Grants" are now
being offered to participants to help
accelerate their learning and career
development.
Ferrexpo plc Annual Report & Accounts 2022
43
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Responsible Business: Communities
Direct support
for communities
across Ukraine
US$19M
Total funding of humanitarian support,
including support provided via Ferrexpo
Humanitarian Fund.
70+
projects
Over 70 individual projects supported.
Eight
regions
Humanitarian support across eight
regions of Ukraine during 2022.
Ferrexpo’s assets have a long association with
local communities, and this connection has been
important in 2022, enabling us to provide direct
assistance to communities during Russia’s
invasion of Ukraine.
Work by the Ferrexpo Charity Fund focused
on providing budgetary support for local
authorities, support for educational and
medical institutions and direct aid to individuals
in the form of food and support packages.
Sustainability reporting for all
stakeholders
In August 2022, we published our latest
standalone Responsible Business Report,
with this timing in line with previous years
despite the impact of the war in Ukraine.
This is a credit to our communications team
in Ukraine, who managed to achieve this
timing despite spending many days in air-raid
shelters and in remote locations, sheltering
from the conflict.
We also achieved a significant milestone in our
sustainability reporting in 2022 – in November,
we managed to publish our first official
sustainability report in Ukrainian, helping our
local stakeholders to understand the efforts
being undertaken to support Ukraine and
develop our business at the current time.
We value all of our stakeholder groups, and
are proud to reach a broader spectrum of
stakeholders through reporting in Ukrainian.
Ferrexpo Humanitarian Fund
In the early stages of the war, it quickly
became apparent that large organisations
within Ukraine would play an important
part in supporting the people of Ukraine,
particularly as the government of Ukraine
focused on fighting a full scale invasion. As
a result, the Board of Directors approved
the formation of the Ferrexpo Humanitarian
Fund early in the conflict, with the goal of
providing direct assistance to communities
affected by Russia’s invasion in 2022. Each
project is individually approved by the
Health, Safety, Environment and Community
(“HSEC”) Committee members to ensure good
governance in the approval process. To date,
more than 70 projects have been implemented,
and details of this work are provided in the
Case Study opposite. Additional support has
been provided throughout the war, with our
help in funding the "Unbreakable Mother"
programme, which offers residential stays and
psychological support for women and children
who have been affected by the war in Ukraine.
Ferrexpo Charity Fund
Our Ferrexpo Charity Fund has operated in
Ukraine for more than 11 years, and aims to
provide direct support to local communities
situated close to our operations in central
Ukraine. Funding for the Ferrexpo Charity
Fund, which is in addition to the Ferrexpo
Humanitarian Fund (see above), was UAH
77 million in 2022 (2021: UAH 87 million).
44
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
Case Study: Humanitarian efforts
Direct support
for Ukraine
Across all initiatives, including direct
donations provided by Ferrexpo subsidiaries,
we have provided the equivalent of
approximately US$19 million of support for
Ukrainian humanitarian causes since the
outset of Russia’s invasion in 2022. Examples
of projects supported include:
– Medical support: Through liaison with
local medical facilities, we have provided
PPE for local hospitals, the equivalent of
US$600,000 of helmets and body armour
for emergency response workers in the
Poltava region and a total of nine
ambulances.
– Housing refugees: More than 3,500
internally displaced people have been
housed at our accommodation facilities.
– Providing free meals: Initially we
dedicated our catering facilities to
providing three free meals a day to
employees. More recently, these efforts
have been re-diverted to feeding local
communities. In total, we have donated
528 tonnes of food to local communities.
– Vehicle donations: Equivalent of over
US$5 million of vehicles donated to the
Ukrainian authorities (armed forces and
local territorial defence units). Donations
also include six armoured ambulances
donated in November 2022.
– On-site children’s centre: Throughout
the early phase of the war, schools
remained closed and children’s learning
was put on hold. In response, Ferrexpo
facilitated an on-site childcare facility to
keep employees' children close and allow
children to continue their studies, with up
to 120 children attending daily.
–
IT support: We provided the equivalent of
6,000 items of modern technology, such
as laptops, monitors, printers, mobile
phones and modems, to help to support
local authorities’ efforts to coordinate the
registration and housing of internally
displaced people.
In addition, to support Ukrainian culture, we
recently asked employees to express their
personal experiences of the war in poetry,
and we collated their words to form a
collective tribute: "I want to live without war".
In honour of Defenders Day in Ukraine, we
brought five of our colleagues together to
recite the poem, spreading a message of
hope for a peaceful future for Ukraine in these
difficult times. Please see the link below for a
video of this project.
We have also sought to preserve a record of
this point in Ukraine’s history, understanding
the need for documenting the experiences of
those suffering during Russia’s invasion. We
have invited displaced people to voluntarily
record details of the war with our in-house
communications team, with a goal of
preserving a record of the acts of bravery and
resilience in defending Ukraine for future
generations. This project has to date
recorded 45 hours of footage from 59
contributors, and we will continue to record
people's reflections as the war continues.
Scan to watch the full
story on LinkedIn
Image: Ferrexpo volunteers coordinating humanitarian
aid to vulnerable families in local communities.
Ferrexpo plc
Annual Report & Accounts 2022
45
Responsible Business: Governance
Governance:
Building trust
With good corporate governance, companies are able
to build trust with their stakeholders. Through trust,
companies can enjoy the benefits of a strong brand
that stakeholders can associate with.
Board composition
Effective corporate governance starts with the
Board of Directors (“Board”). As of the date of
this document, Ferrexpo’s Board comprises
seven Directors – including one Executive
Director (Jim North) and five Independent
Non-executive Directors. For more details of
the Board composition and activities during
the year, please see the Corporate
Governance section of this report (page 88).
Board changes
In December 2022, Non-executive Director
Kostyantin Zhevago resigned from the
Board. Mr Zhevago is the ultimate beneficial
owner of the Group’s largest shareholder –
Fevamotinico S.a.r.l (“Fevamotinico”). Due to
the proportion of the Group’s issued shares
held by Fevamotinico, a relationship agreement
exists between Ferrexpo and Fevamotinico,
under which Mr Zhevago has the right to
appoint a nominee to the Board. Further
details are available on page 79 of this report.
Board position appointments
During the year, Independent Non-executive
Director Fiona MacAulay was appointed as
Senior Independent Director (“SID”), which is
an important role that helps facilitate dialogue
between fellow Directors and the Chair, and
enables shareholders to speak directly with
the Board.
In early 2022, following the appointment of
Fiona MacAulay as SID, the Board underwent
a number of changes. Independent Non-
executive Director Ann-Christin Andersen
moved to take up the role of Chair on the
Health, Safety, Environment and Community
(“HSEC”) Committee. Independent Non-
executive Director Natalie Polischuk, who
joined the Board in December 2021, was
appointed as a member of the HSEC and
Audit Committees in February 2022.
Finally, in February 2022, Jim North
was appointed as Chief Executive
Officer on a permanent basis, reflecting
Mr North’s successful period as
Interim CEO, with Mr North already
appointed as an Executive Director.
FTSE Women Leaders Review
The FTSE Women Leaders Review is an
independent, business-led framework
supported by the Government, which sets
recommendations for Britain’s largest
companies to improve the representation
of Women on Boards and in Leadership
positions. As a result of this work, the FTSE
Women Leaders Review recommends
that companies listed within the FTSE 350
have at least 40% female representation
at Board level by the end of 2025, as
well as at least one woman appointed as
chair, senior independent director (“SID”),
CEO or CFO by the end of 2025.
As of the date of this report, Ferrexpo’s
Board is 43% female (31 December 2021:
38%), meaning that Ferrexpo satisfies
the recommendation for Board gender
diversity set by the FTSE Women Leaders
Review, as well as the requirement for
a female in one of the stated roles, with
Fiona MacAulay as the Group’s SID.
The Group is also focusing on increasing
diversity further down its organisational
structure; details of this work can be found
on pages 42 to 43, and in the Corporate
Governance Report on page 87.
20%
Female representation on the Group’s
Executive Committee (one out of five
members).
43%
Female representation on the
Group’s Board of Directors (three
out of seven Directors).
33%
Target for gender diversity at Board
level, as set by the Hampton-
Alexander Review.
5
Five of the Group's seven Directors
appointed in the past four years.
46
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Parker Review
The Parker Review was an independent
review in 2021 led by Sir John Parker, which
considered how to improve the ethnic and
cultural diversity of UK Boards to better reflect
their employee base and the communities
they serve. In order to encourage progress
in ethnic diversity, the Parker Review
proposed a target of one Director from
an ethnic minority group on the Boards of
FTSE 250 companies by December 2024.
The search for an independent Non-
executive Director from a minority ethnic
group has been launched and is ongoing.
Corporate governance controls
The Group’s financial advisors are Liberum
Capital Limited (“Liberum”), which also
provide broking services to the Group. As a
London-listed company, it is best practice for
the Company to have a Sponsor to provide
advice and guidance on certain corporate
matters, with BDO LLP appointed in this role.
Stakeholder engagement
As a responsible, modern company, we
aim to engage with our shareholders, to
understand their concerns and priorities.
Shareholder engagement is conducted via
a range of methods – from various reports
published on an annual basis (Annual Report
and Accounts, Responsible Business Report
and Climate Change Report), to our corporate
website and social media channels.
We also endeavour to engage with
stakeholders located within Ukraine and
overseas, with this made possible through
communications in both Ukrainian and English.
In 2022, we communicated in both languages
across the majority of our social media
channels and the 2021 Responsible Business
Report, as well as selected press releases.
Please see page 48 for more details of how we
engage with each of our stakeholder groups.
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, and 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 discussed in previous Annual Report and
Accounts, the Committee of Independent
Directors (“CID”) conducted a review in
connection with the Group’s sponsorship
arrangements with FC Vorskla and concluded
its enquiry in March 2021. Arrangements were
put in place by Kostyantin Zhevago and his
associated entities, which were executed by
31 July 2022, and the CID can confirm that,
as of the date of this Annual Report and
Accounts, these arrangements have now
been completed.
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: 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
2021 available on the Group’s website and the report for 2022 expected to be released during the course of 2023.
Reporting requirements
Reports, policies and standards
Additional information
Environmental
Climate Change Report
Tailings Management
Employees
Ethics and Responsible Business Policy
Code of Conduct
Health and Safety Policy
Human rights
Human Rights Policy
Data Privacy Policy
Anti-Slavery and Trafficking Statement
Information Security
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
Whistleblowing Policy
Principal risks and
impact on business
activities
Non-financial KPIs
Greenhouse gas emissions (pages 35 to 36)
Energy consumption (page 36)
www.ferrexpo.com/responsibility/protecting-environments
Health and safety (page 32)
Diversity, equity and inclusion (page 42)
www.ferrexpo.com/responsibility/workforce-development
www.ferrexpo.com/responsibility/safety-performance
Diversity, equity and inclusion (page 42)
Ferrexpo Code of Conduct
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards
Chair’s Statement (page 2)
Social engagement (page 44)
www.ferrexpo.com/responsibility/supporting-communities
www.ferrexpo.com/responsibility/stakeholder-engagement
Chair’s Statement (page 2)
Governance (page 46)
Governance Report (pages 78 to 137)
www.ferrexpo.com/about-ferrexpo/corporate-governance/
policies-and-standards
www.ferrexpo.com/whistleblowing
Business model (page 12)
Risk management (page 56)
Viability Statement (page 73)
Going Concern Statement (page 135)
Key Performance Indicators (page 18)
Risks
Principal Risks,
pages 58 to 74
Principal Risks,
pages 58 to 74
Principal Risks,
pages 58 to 74
Principal Risks,
pages 58 to 74
Principal Risks,
pages 58 to 74
Principal Risks,
pages 58 to 74
Ferrexpo plc Annual Report & Accounts 2022
47
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Stakeholder Engagement – Section 172
Our stakeholders
Through stakeholder engagement and an understanding
of materiality for each stakeholder, the Group can focus
on generating value for everyone as well as limiting its
environmental impact.
Employees and contractors
Customers
Suppliers
95%
More than 95% of our workforce is based
in central Ukraine.
10+
Despite the war in Ukraine, we maintained
a diverse number of customers in 2022,
selling to a similar number of customers
as seen in 2021.
US$912M
Total paid to suppliers of US$912 million
in 2022 (2021: US$1.2 billion), reflecting
value generation through our production
processes.
Communities
Environment
Government
70+
The Ferrexpo Humanitarian Fund has
approved support for more than 70
initiatives across Ukraine, with approved
funding of US$15 million.
50%
Ferrexpo’s inaugural Climate Change
Report, published in December 2022,
announced a 50% emissions reduction
target by 2030 (previously 30%).
3%
Ferrexpo continues to represent a
significant proportion of Ukraine’s
export revenues, accounting for 3%
in 2022 (2021: 4%).
Investors
Capital providers
55%
Shareholder returns in 2022 representing
55% of the Group’s free cash flow,
meeting the target set under the Group’s
Shareholder Returns Policy.
US$106M
Ferrexpo continues to remain in a
net cash position, with US$106 million
as of 31 December 2022
(31 December 2021: US$117 million).
Image: Our workforce at our operations marking
Ukraine’s national Unity Day on 22 January 2023.
48
Ferrexpo plc
Annual Report & Accounts 2022
STRATEGIC REPORT 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
Employees and wider
workforce
– Case Study: War in Ukraine
– Responsible Business: Safety & Our People
– Responsible Business: DEI
– Case Study: DEI programme expands across Ukraine in 2022
Suppliers and
customers
Local communities
Environment
– Market Review
– Strategic Framework
– Responsible Business: Communities
– Case Study: Humanitarian efforts
– Responsible Business: Environmental Stewardship
– Case Studies: Net zero pathway developed in 2022
– Scenario analysis selection and TCFD disclosures
High standards of business – Responsible Business Review
Investors
– Responsible Business: Governance
– Risk Management
– Our Business Model
– Chair’s Statement
– CEO’s Review
– Our Business Model
Page
04
32
42
43
08
16
44
45
34
34
37
30
46
54
12
02
06
12
Those stakeholder groups the Board
considers to be fundamental to the Group
and their respective interests are set out on
pages 14 to 15, together with an explanation
of engagement activities undertaken during
the past year and the impact this has had on
Board-level decision-making. On page 55,
there is a more detailed case study of the
principal decisions taken by the Board during
the year in the context of the war in Ukraine
and how stakeholder interests were taken
into account.
The Board of Directors acts to promote
the long-term sustainable 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 and briefings in relation to
corporate governance developments and
stakeholder engagement. New directors
appointed to the Board receive tailored,
individual briefings on their duties and
obligations as part of their induction.
The following section outlines the Group’s
different stakeholder groups, engagement
activities conducted in 2022 and feedback
that was received as part of this work. Each
section provides an overview of the work
completed to date in response to this
feedback, and any further plans that the
Board has for the year ahead.
How considering stakeholders in
decision-making works in practice
The Group engages regularly with
stakeholders, with interactions largely led by
the day-to-day management team with
Board-level interactions where appropriate.
Where management-level engagement has
taken place, feedback is provided to the
Board by way of regular updates at meetings
to help inform decision-making and ensure
stakeholder views and considerations are
taken into account.
During Board discussions, the Board
considers stakeholders’ interests and the
potential impact of decisions on relevant
stakeholder groups for the purposes of Section
172 of the Companies Act 2006. This includes
considering competing stakeholder interests
and the differential impact certain decisions
may have on different constituencies.
Ferrexpo plc Annual Report & Accounts 2022
49
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Section 172 continued
Employees and wider
workforce
Ferrexpo’s talented and engaged workforce is
a key strength of Ferrexpo’s business, which
we continue to rely upon following Russia’s
invasion of Ukraine in 2022. Through a close
working relationship between employer and
employees, company and contractor, we are
able to address the needs of our workforce.
Our engagement activities in 2022
Ferrexpo aims to communicate with its
workforce, which is based in a number of
geographic locations and a range of settings,
in a variety of ways in order to communicate
effectively with different individuals and
groups in multiple languages. Traditional
methods of communication, such as printed
media and formal meetings may be effective
in one setting, but may not be effective at
reaching another stakeholder group
particularly where lines of communication
have been disrupted by the ongoing conflict.
We use a range of methods – from electronic
communications (email, online learning,
electronic bulletins, corporate websites and
social media channels) to printed newspapers
at our operations in Ukraine, social media
channels and national media in both Ukraine
and international locations where we have
corporate offices, including the United
Kingdom and Switzerland.
We aim to engage throughout the calendar
year. Given that more than 95% of our
workforce is located in Ukraine, it is important
that the Board maintains a strong presence in
the country, both in Kyiv and in the region in
which we operate.
In September 2022, Independent Non-
executive Director Vitalii Lisovenko visited
our operations and hosted a number of
engagement sessions with a range of
stakeholder groups within our workforce
– including alumni of our “Fe_munity”
women in leadership programme,
employees at the Yeristovo mine, middle
managers and people with disabilities.
Over the course of two days, Mr Lisovenko
met with more than 150 members from
a cross-section of the workforce.
In addition to direct engagement, such as
face-to-face meetings in the workplace, the
Group utilises its website, public reports and
social media channels. As of February 2023,
the Group had approximately 25,000 followers
across Facebook, LinkedIn and Instagram,
with the majority of subscribers being located
in Ukraine. The Group typically issues two to
three posts on social media a week, with each
post representing an opportunity to convey
a key message to stakeholders, including
messages from Board members – for example,
an interview with Independent Non-executive
Director Ann-Christin Andersen, which was
posted on LinkedIn in December 2022.
Workforce engagement occurs across
multiple languages, to ensure that the Group
communicates with both its Ukrainian and
international stakeholders. The Group has
communicated on social media platforms in
both English and Ukrainian for several years,
and in 2022 published its Responsible
Business Report in Ukrainian for the first time,
helping to keep local stakeholders informed of
the Group’s sustainability initiatives.
Our response to feedback
The Board understands the importance of
Ferrexpo having a strong presence within
Ukraine, where more than 95% of our
employees and contractors are based, in
order to ensure effective engagement. As
such, the Board includes two Independent
Non-executive Directors who are Ukrainian.
This has been of paramount importance
during Russia’s invasion of Ukraine in 2022,
for maintaining engagement despite travel
restrictions imposed as a consequence of the
war. Through this presence, Vitalii Lisovenko,
the Board’s nominated representative for
employee engagement, was able to visit our
operations in September 2022.
The Board regularly interacts with the Group’s
executive management team through its
various committees, and the Health, Safety,
Environment and Community (“HSEC”)
Committee comprises three Directors of the
Group and two members of the executive
management team.
Plans for engagement in 2023
Engagement activities will continue into 2023
to understand the evolving concerns and
requirements of our workforce. The Group
typically conducts an employee engagement
survey every year and intends to complete
such an exercise during 2023.
Customers
Our customers are key to the Ferrexpo
business model, with investments in high
grade and high quality forms of iron ore
designed to meet their needs. Through
constructive, long-term customer
relationships, the Group is able to succeed in
generating value for all stakeholder groups.
Our engagement activities in 2022
The past year has seen material disruption
to the Group’s logistics network and sales
portfolio, with Russia’s invasion of Ukraine
in February 2022 resulting in restrictions in
the Group’s use of seaborne vessels, the
Ukrainian railway network, our own railway
wagons and our own inland waterway barging
subsidiary (First-DDSG). Further details of the
restrictions imposed as a consequence of the
conflict are provided on pages 4 to 5.
As a result of the aforementioned operational
and logistics constraints, our ability to deliver
our products to customers was impaired in
2022, with 6.2 million tonnes sold during the
year (2021: 11.2 million tonnes). In the early
stage of the war, our marketing team held
extensive discussions with customers, and
through strong, long-standing relationships
the Group was able to navigate continued
sales to customers, which are typically
located in Europe (given logistical constraints
in accessing non-European markets).
Despite the war and its constraints, the Group
has been able to continue discussions with
prospective customers, particularly with
buyers of direct reduction (“DR”) pellets, with
the Group seeking to increase its presence in
this particular market. Through engagement,
we are developing our offering of DR pellets,
meeting the quality demands of this market.
In the early stages of the conflict, the Group
was forced to serve force majeure notices
to a number of customers that are only
accessible via seaborne markets. See page 8
for further information. Such activity requires
significant engagement for customers to
understand the nature of the situation and
potential outlook (which may be updated on a
frequent basis). The Group hopes to continue
or renew these valued customer relationships
in future when circumstances permit.
50
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Through engagement, the Group was proud
to raise awareness for humanitarian support
caused by the invasion and encouraged
customers to make donations directly to
various relief funds. We are grateful for these
acts of kindness. The Group is thankful for the
strong and supportive relationships that it has
with its customers.
Our response to feedback
Customers are increasingly focused on the
topic of climate change and sustainability,
which is particularly relevant in light of the
advent of Green Steel (being the production
of steel with low or zero associated emissions
of greenhouse gases). In order to provide
sufficient clarity to customers, the Board was
proud to issue the Group’s first standalone
Climate Change Report in December 2022,
and as part of this report, the Group was able
to upgrade and expand its existing suite of
carbon reduction targets. Changes included
an increase to the medium-term (2030)
emissions reduction target to 50% (from 30%)
and inclusion of Scope 3 emissions targets
within the Group’s suite of forward-facing
targets. For more information, please see
page 34 of this report.
For more information on the marketing team’s
efforts during the year, please see pages 8 to
11 of this report.
Plans for engagement in 2023
The Group is in regular contact with its
customer network, both in terms of existing
customers in relation to existing or future
orders, as well as potential new customers.
One specific area of focus for the Group is the
DR pellet market, which is a market typically
relevant for steel mills in the Middle East and
North Africa region (“MENA”) and North
America, but demand for DR pellets is also
growing in other regions of the world due to
the low emissions footprint associated with
this form of iron ore. As such, the Group has
recently hired a Regional Marketing Manager
for its office located in Dubai, with a purpose
of engaging with potential DR pellet
customers in the MENA region and beyond.
Plans for engagement in 2023
Supplier engagement is expected to continue
into 2023 with a similar focus as in previous
years – seeking local goods and services
where possible, to support the Ukrainian
economy, and engaging to ensure supplier
governance throughout Ferrexpo’s supply
chain. In addition, the Group is increasingly
engaging to understand the greenhouse gas
emissions footprint of suppliers, as this is
directly relevant to Ferrexpo’s Scope 3
emissions.
Communities
Without a social licence to operate, granted by
host communities, no business can succeed.
Ferrexpo has sought to develop close ties
to local communities over many years.
Our engagement activities in 2022
Over several years, the Group has developed
strong ties with local communities, since
Ferrexpo is the main employer in the local
area and a major employer and source of
revenue in the region of Ukraine where our
operations are located. We also understand
the connection between our workforce in
Ukraine and their families in local areas,
meaning that many more people rely on
Ferrexpo for the stability offered and value
generated by the Group.
This close relationship and historic
engagement was of paramount importance
in 2022, enabling us to quickly connect with
local communities and community leaders
from the outset of Russia’s invasion, to
understand the material issues and risks
facing communities during the conflict.
The Responsible Business Report was
published in Ukrainian to help engagement
with a wider audience on sustainability topics,
which are particularly relevant for local
stakeholders.
The Group regularly engages with communities
through traditional forms of communication
(for example, printed media and local television
channels), and electronic media such as
the Group’s websites, public reports and
dual-language social media channels.
Suppliers
The Group’s suppliers are key to operating
a successful, long-term sustainable business.
Suppliers represent a principal aspect of
the local and global footprint that the Group
creates through its day-to-day business
activities, which helps develop a positive
local presence and a well-known international
brand that is identifiable to other stakeholder
groups such as potential investors and
customers. Through conducting ourselves in
a clear and transparent fashion, we hope to
also promote Ukraine as a destination for
other businesses.
Our engagement activities in 2022
The Group’s operations paid a total of
US$912 million to suppliers in 2022 (2021:
US$1.2 billion). Given our the location of
our operations and the nature of events in
Ukraine, the Group has sought to engage
extensively with its suppliers in 2022 –
seeking clarification on the status of their
operations during the conflict and identifying
alternative suppliers where disruptions have
occurred or the risk of disruption is perceived
to be high.
Through engagement, the Group was proud
to raise awareness for humanitarian support
caused by the invasion and encouraged
customers to make donations directly to
various relief funds. We are grateful for these
acts of kindness. The Group is proud to have
long-standing relationships with a number of
local and international suppliers, which have
helped to support the Group during the
ongoing war in Ukraine.
Our response to feedback
The Group is an integral part of the local
economy in the region of Ukraine where
the Group operates, and therefore it is
important that it aims to develop
constructive relationships with suppliers,
for example by paying suppliers promptly.
By imposing a Code of Conduct and
engaging with suppliers, the Group aims to
reduce the risks associated to it through
issues in the supply chain such as
environmental concerns and modern slavery.
The Group’s Statement on the Modern
Slavery Act is available at www.ferrexpo.com.
Furthermore, engagement helps suppliers
improve their services, as well as gaining a
better perception of the Ferrexpo business, in
turn facilitating the Group’s ability to operate.
Ferrexpo plc Annual Report & Accounts 2022
51
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Section 172 continued
Our response to feedback
The Group regularly provides direct support
to local communities through the Ferrexpo
Charity Fund, which has been in operation
since 2011. During exceptional times, such
as Russia’s invasion of Ukraine in 2022 and
the global Covid-19 pandemic, the Board
has sought to provide additional support,
specific to the needs of a situation.
In the early stages of Russia’s invasion
of Ukraine, the Board established the
Ferrexpo Humanitarian Fund, which has
been a dedicated platform for reviewing and
approving funding and/or support of various
humanitarian projects in local communities
and across Ukraine. As the war in Ukraine
has evolved during 2022, the Board has
approved increasing levels of funding for
the Ferrexpo Humanitarian Fund, and as
of the date of this report, the Group has
provided humanitarian support amounting
to US$19 million, either via the Ferrexpo
Humanitarian Fund (with US$15 million of
approved funding) or via support provided
directly by our subsidiaries. Projects are
individually reviewed and approved by
members of the HSEC Committee, to ensure
that governance standards are maintained,
with over 70 humanitarian projects approved
in 2022. Many projects are raised by local
community leaders and groups. The
Group will continue to support Ukraine and
communities throughout the country through
the Ferrexpo Humanitarian Fund and the
Ferrexpo Charity Fund during this difficult time.
Plans for engagement in 2023
The Board approved the 2023 Ferrexpo
Charity Fund budget at UAH 77 million
(approximately US$1.8 million). This support
is provided in parallel to the Ferrexpo
Humanitarian Fund, which is specific to
relief efforts associated with the war in
Ukraine. To date, this fund has an approved
expenditure limit of US$15 million, with
a total of US$19 million of humanitarian
support provided to date by the Group.
The Environment
The natural environment is a key stakeholder
for the Group as it represents both the
present day success of our business with
multiple stakeholder groups and also
that of future generations. The natural
environment encompasses a number of
spheres, from greenhouse gas emissions
and emissions of other gases into the air,
to our interactions with the water cycle,
land rehabilitation and biodiversity around
our operations, amongst others.
Our engagement activities in 2022
Climate change is a key focus area for a
number of stakeholder groups, with rising
pressure to act to limit the effects of climate
change.
Engagement on the natural environment
occurs with local and national government
bodies to ensure compliance with local
legislation and best practice. Engagement
with local communities is conducted through
regular meetings with community leaders and
representatives. The Group interacts with its
workforce via regular staff meetings and
internal communications, which includes
feedback mechanisms to ensure local voices
are heard.
Our response to feedback
In response, the Board approved the
publication of the inaugural Climate Change
Report in December 2022. This report
represents the culmination of our collaboration
to date with environmental consultants
Ricardo Plc (“Ricardo”), which was a project
announced in October 2021. Through this
work stream, the Group has developed a
potential pathway to net zero iron ore pellet
production, as well as climate scenario
modelling to determine risks and opportunities
related to Ferrexpo’s business and industry
sector. For more information, please see
the Group’s website (www.ferrexpo.com).
The Group has also set revised, more
ambitious greenhouse gas emissions
reduction targets. The Group is now
targeting a 50% reduction in its Scope 1
and 2 emissions by 2030 (on a combined
basis per unit of production). For more
details of the Group’s emissions reduction
targets, please see page 35 of this report.
In addition, the HSEC Committee maintains
climate change as a standing item on the
agenda for all meetings, with meetings held
on a quarterly basis.
Executive remuneration is also aligned to
the Group’s climate change goals, with the
introduction of performance targets relating
to climate-related matters, please see page
124 of this report.
Plans for engagement in 2023
The Group is continuing to expand its
reporting of its environmental footprint in 2023
with the completion of the life cycle analysis
that is currently being finalised. This work will
serve to provide a peer-reviewed study of the
environmental footprint of iron ore pellets,
benchmarked against the most commonly
traded form of iron ore (sinter fines).
Government
Ferrexpo engages with governments in the
countries in which the Group operates through
regular and clear dialogue with representatives
of host governments and local authorities. In
each jurisdiction, the Group aims to develop
long-term, positive relationships through
regular and transparent interactions.
Our engagement activities in 2022
The Group has a number of legal permits and
licences required to operate in host countries,
which are administered by the Group’s
internal legal and government liaison teams,
as well as external advisors.
52
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Engagement with the Ukrainian government
has been particularly important in 2022 given
the ongoing war in Ukraine. Well-developed
lines of communication have been necessary
to allow the Board and management to
understand the numerous changes to the
operating environment, which has changed
significantly throughout the war, from port
closures, limitations to rail access and the
availability of electricity, amongst other
effects. Additionally, we have needed to keep
in constant contact with the government to
understand the needs of communities across
Ukraine as the war has evolved, helping to
meet humanitarian requests wherever we are
able to assist.
Our response to feedback
Through engagement, the Group aims to
establish a constructive line of communication
with host governments, to facilitate further
investment and continued operations in
each country. The Group has operations
and corporate offices across seven different
countries, in addition to marketing offices in
a further three countries, ensuring the Group
has a global presence in a global marketplace.
As part of the effort to raise awareness of
Ukraine’s needs during the Russian invasion
of Ukraine, the Group has sponsored two
policy papers, published in March and July
2022 “Global Britain and the Black Sea” and
“Deepening British-Ukrainian relations in a
more competitive era”. Both are available to
read at www.geostrategy.org.uk.
Plans for engagement in 2023
The Group aims to continue to proactively
engage with government stakeholders in the
jurisdictions where it operates, in line with
previous years.
Investors
The investment community is a key pillar
of the Group’s corporate brand, and
investment in Ferrexpo reflects both the
financial performance and reputation of the
Ferrexpo business. Through developing
close ties with investors of all sizes, the
Group can promote itself as well as raise
awareness of Ukraine’s potential.
Our engagement activities in 2022
The Group has maintained a premium
listing on the London Stock Exchange
since June 2007 and as a result has a large
investor base, comprising more than 500
institutions or organisations representing
retail shareholders as of January 2023,
located in more than 30 countries or
jurisdictions. The Group’s independent
shareholders range from international
investment funds managing billions of
dollars, to individual retail shareholders.
The Group regularly meets in person with
investors in London and Europe, and regularly
speaks to investors located around the world.
Direct engagement with investors can take
the form of ad hoc meetings, video calls or
telephone calls, as well as results calls
following either the full year or interim results
in March and August respectively. Following
each set of financial results, the Group will
liaise with the sales team at its broker Liberum
to arrange a series of investor meetings,
referred to as an investor roadshow.
Additionally, the Group regularly speaks to the
analyst community at a number of investment
banks, which for Ferrexpo, are typically
located in London or Kyiv. Through this
interaction, the Group is able to assist its
analyst following to produce accurate and
considered investment research on Ferrexpo.
In addition to the above activities, the
Group also hosts its Annual General Meeting
(“AGM”) usually held in May each year, which
represents an opportunity for all investors to
meet and engage with the Board.
Our response to feedback received
The Group aims to communicate with all
shareholders and uses a range of methods to
do so. In 2022, we have published three formal
reports for our stakeholders – an Annual
Report and Accounts in April, a Responsible
Business Report in August and a Climate
Change Report in December. The Responsible
Business Report was also published in
Ukrainian to help engagement with a wider
audience on sustainability topics, which are
particularly relevant for local stakeholders.
In January 2022, we unveiled a revamped
corporate website (www.ferrexpo.com),
which incorporates much of the content and
commentary produced for the Group’s social
media channels, which are available in both
English and Ukrainian (on Facebook and
Instagram).
Given investors’ increasing reliance on
sustainability data in making investment
decisions, it is evident that there is a need to
ensure the quality of this information is high.
As such, we have sought to undertake an
independent assurance process of our safety
and carbon emissions data for 2022, which
mirrors a similar process on data for 2021
that was completed in July 2022.
Throughout the war in Ukraine, we have
regularly updated our investors with clear
and consistent press releases, aiming to
keep them informed of the war’s impact on our
business. During 2022, we published 34 press
releases, representing a 42% increase on the
prior year. In addition, we provide corporate
presentations for all stakeholders on our
website, which also cross-references material
produced for our social media channels.
At the AGM in June 2022, more than
20% of shareholders voted against two
Board-proposed resolutions. Although
both resolutions were passed, following
the AGM, the Group has engaged with
shareholders to understand the reasons
for the voting patterns seen and address
any concerns. For more information on
this process, please see page 93.
Ferrexpo plc Annual Report & Accounts 2022
53
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Section 172 continued
Plans for engagement in 2023
The Group has a regular schedule of
engagement activities throughout the
calendar year, including (but not limited to)
the Group’s annual reporting suite, investor
roadshows associated with financial results,
quarterly production reports and a number
of investor conferences. In addition, the
Group provides numerous press releases,
presentations and social media output on an
ad hoc basis, which are produced as required
for company news events or otherwise.
Capital providers
Since listing in 2007, the Group has
consistently relied upon the banking
community and providers of capital to help
operate its business model on a day-to-day
basis and to help finance our investments for
future growth projects. Over this period of
time, we have sourced multiple sources of
funding, including the issuance of corporate
bonds and engaging with lenders for
pre-export finance (“PXF”) facilities.
Our engagement activities in 2022
The Group’s treasury department manages
our liquidity position, which includes our
various relationships within the landscape
of banks, providers of capital and other
relevant third parties. Relationships are
also maintained with the main credit ratings
agencies, with the Group’s corporate ratings
detailed on page 25 of this report.
Regular meetings and calls are held with
the above lenders and ratings agencies, to
maintain existing relationships, or develop
relationships for future lending or banking
arrangements. The above interactions involve
the provision of the Group’s press releases
and corporate presentations, in addition to
standalone presentations where required.
In addition to the normal course of business
activities and meetings held with capital
providers, additional engagement has been
required in 2022 in light of Russia’s ongoing
invasion of Ukraine, and the resulting
restrictions imposed on both Ukraine and
the Group (see pages 4 to 5 for a summary
of these effects).
Plans for engagement in 2023
It is expected the existing level of
engagement, which is at an elevated level
compared to previous periods, will continue
as long as the war in Ukraine continues to
restrict the Group’s ability to operate, and
factors specific to the Group and Ukraine, as
detailed on page 60 (Principal Risks: Ukraine
Country Risk), continue.
Typical engagement activities range from
formal face-to-face meetings and video calls,
to informal discussions on an ad hoc basis,
which are conducted as part of the day-to-
day operating of Ferrexpo’s business.
Additionally, in the past, the Group’s treasury
department has facilitated discussions with
other functions within the Group (for example,
Board members, CEO or CFO) and
representatives of capital providers or ratings
agencies, depending on the nature of topics
being discussed.
Given the focus of capital providers on
the Group’s balance sheet, market factors
represent an additional consideration given
the direct impact of iron ore benchmark
prices, pellet premiums and freight rates on
our ability to remain profitable. Therefore, the
Board is mindful of the need to ensure that
capital providers and ratings agencies are
suitably informed of such market factors, as
well as expectations around production and
sales volumes and the Group will continue to
provide these updates in the coming year.
As of 31 December 2022, the Group had a
net cash position of US$106 million with no
debt facilities and minimal lease obligations
(31 December 2021: net cash position of
US$117 million).
Our response to feedback
Key considerations for capital providers are
the Group’s liquidity position and strength of
its balance sheet, as well as additional factors
relating to corporate governance, growth
plans and ESG practices, amongst other
aspects of our business.
Providers of capital and ratings agencies are
increasingly focused on ESG related topics,
which is driving a requirement for broader
and more detailed disclosures across a range
of topics. Whilst we have provided detailed
summaries of this work under the Global
Reporting Initiative (“GRI”) in our Responsible
Business Reports since 2016, the Board
determined that further action was required to
remain in line with expectations. As such, in
October 2021, we announced our collaboration
with environmental consultants Ricardo Plc
and our inaugural carbon emissions reduction
targets. Following the completion of the first
phase of this collaboration, we published
our findings in our Climate Change Report.
In addition, good corporate governance is a
matter of paramount importance for providers
of capital and ratings agencies, and the
Group’s treasury department regularly
engages with these parties on the various
initiatives and frameworks that the Group has
developed to bolster its governance practices.
In certain instances, members of the Board
have engaged directly capital providers to
enable a greater degree of understanding on
these topics.
54
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Case Study: Protecting stakeholder interests
Board decision making during the
Russian invasion of Ukraine
The Board’s agenda during 2022 has been primarily focused on dealing
with the effects of the Russian invasion of Ukraine on the Group. This has
required the Board to make many challenging, time-pressured decisions
while considering multiple stakeholder interests.
Following the outbreak of the war, the
management team and the Board acted
swiftly to put in place appropriate measures
to protect the Group’s workforce based in
Ukraine – with the safety of people being of
the utmost importance, as well as ensuring
clear and regular lines of communication with
the workforce.
The Group also needed to take steps quickly
to protect the business. The Board took the
difficult decision to postpone performance
of various contractual obligations, including
suspending deliveries to seaborne customers
who could no longer be serviced due to the
closure of logistics routes. The Board and the
management team were aware of the negative
impacts this would have on the Group’s
customers, but sought to communicate
clearly with customers so that they
understood the steps being taken and to
preserve (often long-standing) relationships
where possible with a view to maintaining the
Group’s reputation for high standards of
business conduct, even in exceptionally
difficult circumstances.
The Board acted quickly to set up a dedicated
Humanitarian Fund to support both the local
communities surrounding the Group’s
operations and country-wide initiatives. With
input from the HSEC Committee, the Board
approved terms of reference for the Fund
to ensure there was clarity regarding the
humanitarian projects which the Fund
will support, and appropriate governance
arrangements to approve any funding
requests. Members of the workforce were
also given the opportunity to put forward any
proposals on how funds should be allocated
and suggestions were taken into account by
the Board and HSEC Committee. For further
details see page 44.
Given the uncertainties surrounding the war,
the Group has taken action to protect its
financial position and preserve liquidity. This
has involved suspending non-essential capital
expenditure and minimising sustaining capex.
The Board recognised the impact these
decisions would have on the Group’s
suppliers, and their potential to impact the
Group’s operations in the future, but ultimately
needed to prioritise the Group’s financial
stability. The Group also engaged with its
customers to reduce existing payment terms
where possible, to assist with cash flow
management. Engaging with customers and
suppliers has been key to maintaining existing
relationships during these unprecedented
times, and the Board has exercised oversight
of these matters throughout the year.
The Board also carefully considered
stakeholder factors at the time of declaring the
dividends made to shareholders in 2022. In
addition to their legal obligations concerning
distributions, the Board also considered
the Group’s overall financial position at that
time, forecast revenues and projected future
expenditures (including payroll obligations,
fixed overheads and supplier payments)
over a defined period, as well as applying
an additional buffer amount, to ensure that
the likely consequences of the dividends
over the long term had been assessed.
The Group and the Board continue to have
stakeholder considerations front of mind
when making decisions and recognise that
many of the difficult decisions being taken by
the Group during these unprecedented times
will inevitability have an adverse impact on
stakeholders, and that some stakeholder
groups will be impacted more than others.
Where feasible, the Board will continue to
take mitigating steps to reduce these impacts.
Image: Flags flying outside Ferrexpo’s administrative
offices at FPM (L-R: Poltava Region, FPM, Ukraine).
Ferrexpo plc
Annual Report & Accounts 2022
55
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Risk Management
Assessing and
managing risk
Ferrexpo identifies and assesses risks based on each
risk’s probability of occurrence and the severity of any
event. The Group aims to mitigate the potential impact of
each risk through its management of day-to-day activities,
taking a prudent approach to risk where possible.
Risk identification
Ferrexpo aims to manage risks across its
business through the early identification
of potential risks before they emerge,
with senior managers and the Group’s
executive management team responsible for
maintaining risk registers for each area of the
Ferrexpo business. Risk registers are regularly
reviewed and updated, with local risk owners
reporting to senior management teams on a
regular basis.
The Group risk register records risks on the
basis of the likelihood of occurrence and level
of potential impact on the Ferrexpo business.
A total of 44 risks were included on the Group
risk register as of December 2022, with risks
ranging from the war in Ukraine (both direct
and indirect), risks relating to operating in
Ukraine, operational risks such as the risk of a
pit wall failure, health and safety-related risks,
and risks relating to information technology
and climate change. Further to the Group risk
register, which records the risks with the most
serious potential impact and likelihood of
occurrence, operating entities maintain their
own local risk registers, which feed into the
Group risk register. In late 2022, the Group
implemented an enterprise risk management
(“ERM”) tool to help record and monitor risks,
which is the platform for the reporting and
assessment of risks within the Group.
The Group considers emerging risks to be
risks that are newly developing, or increasing
in potential severity of impact, or changing
risks that are difficult to quantify.
The risks that are assessed by the Group’s
management to be Principal Risks are
presented on pages 58 to 74.
Risk mitigation
Risks are inherent in operating a business and
it is through effective risk identification, risk
56
management, prudent decision making and
other risk mitigation measures, that the Group
can understand and reduce the risks that the
business faces. The Group’s management
team, however, understands that it cannot
eliminate risk. The Group’s approach to risk
mitigation for each of the Group’s Principal
Risks is presented opposite.
Risk governance framework
Risks are reported internally on a monthly
basis, as part of the Finance, Risk
Management and Compliance (“FRMC”)
Committee, with the Group’s senior
leadership team reviewing the Group-level
risk matrix, which plots the likelihood of
occurrence against the potential severity of
impact, and identifying material changes in
either variable to all of the risks listed. Over 40
risks are reported on the Group risk register
to the FRMC Committee on a monthly basis,
with each risk attributed a potential monetary
impact should an event occur. The FRMC
Committee reports to the Group’s Executive
Committee, which in turn reports to the
Board, which has the ultimate responsibility
for the Group’s approach to risk management.
The Audit Committee, a sub-committee of the
Board, assists the Board in its regular
monitoring of the risks faced by the Group.
The Group’s internal audit function assists
with the process of risk review, and conducts
ad hoc reviews of risk management controls
and procedures. For more information on
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 98.
Risk assessment for 2023
The risk matrix opposite depicts the Principal
Risks facing the Group.
Page 54 of the 2021 Annual Report and
Accounts highlighted a rising risk profile
Ferrexpo plc Annual Report & Accounts 2022
facing the Group in 2022, with significant
uncertainty relating to rising tensions between
Russia and Ukraine. Through the course of
2022, a number of these potential risks have
eventuated, following Russia’s invasion of
Ukraine in February 2022, which has had a
significant impact on the Group’s ability to
operate. Further details on the conflict risk
facing the Group are provided on page 59
of this report.
In addition to the war in Ukraine, a secondary
effect of the conflict is the increased political
alignment within Ukraine. It is unclear as to
the eventual impact of this change on the
Group, which in turn creates a potential risk
for the Group should the political landscape
shift adversely. Further details of the risks
associated with operating in Ukraine are
provided on page 59.
The ongoing global Covid-19 pandemic
remains a Principal Risk facing the Group,
despite the gradual unwinding of government
restrictions around the world relating to
containing infection rates and treating those
infected. Given the lower impact of more
recent strains of Covid-19, the direct impact
of this risk is seen as reduced compared to
previous years. For further details on this risk,
please see page 74.
Climate change is a rising Principal Risk,
and the Group is facing both physical and
transitional risks, with increased reporting
requirements likely in the near term. This
topic is covered on pages 34 and 73 of this
report, with particular reference to climate
change related risk reporting under the
Task Force on Climate-related Financial
Disclosures (“TCFD”) framework.
STRATEGIC REPORT 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
Executive Committee
– Supports the Board in monitoring risk
exposure and risk appetites.
– Reviews effectiveness of risk management
and control systems.
Assesses and mitigates Group-wide risk.
–
– Monitors internal controls.
Health, Safety, Environment and
Community (“HSEC”) Committee
– Oversees corporate social responsibility
related matters and performance.
– Has specific focus on safety and climate
change related risks.
Finance, Risk Management
and Compliance (“FRMC”) Committee
– Monitors centralised financial
risk management structures.
Monitors Group compliance.
–
Internal audit function
Operational level
–
–
–
Supports the Audit Committee in reviewing
the effectiveness of risk management.
Tests internal control systems and
recommends improvements.
Risk management processes and internal
controls embedded across all Ferrexpo
operations.
Materiality matrix
The Principal Risks identified in the heat map
to the right highlight which risks could have
the greatest severity of impact on the Group’s
operations and viability.
Key
1.1 Conflict risk
1.2 Ukraine country risk
1.3 Counterparty risk
2. Global demand for steel
3.1 Changes in pricing methodology
3.2 Lower iron ore prices
3.3 Pellet premiums
3.4 Seaborne freight rates
4.1 Risks relating to producing our products
4.2 Risks relating to the delivery of our products
4.3 Risks relating to health and safety
4.4 Risks relating to operating costs
4.5 Risks relating to information technology
and cybersecurity
Risks relating to climate change
Risks relating to the Covid-19 pandemic
5.
6.
Please see pages 58 to 74 of
this report for a full summary
of Principal Risks
T
C
A
P
M
I
F
O
L
E
V
E
L
6.
4.5
4.4
1.2
1.1
5.
1.3
3.4
2.
3.2
3.3
3.1
4.1
4.2
4.3
Ferrexpo plc Annual Report & Accounts 2022
57
LIKELIHOOD
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Principal Risks
Understanding risks and
our business model
Principal Risks are those considered to have the
greatest potential impact on the Ferrexpo business,
assessed on the basis of impact and probability.
Introduction
This section outlines the Principal Risks facing
the Group in 2022, each of which have the
ability to negatively impact the Group, either
in isolation or in tandem with other risk areas.
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. The Principal
Risks listed here are not exhaustive, nor are
they mutually exclusive, and therefore one risk
area may negatively impact another risk area.
Each Principal Risk is linked to the
aspects of the Group’s strategy that
could be impacted if an event were
to occur.
1. Produce high quality pellets.
2. Achieve low cost production.
3. Maintain strong relationships with
a network of premium customers.
4. Conduct business in a safe and
sustainable manner.
5. Retain a balanced approach to
capital allocation.
Risk currently considered
to be materially increasing
in significance to the
Group’s activities.
Risk currently considered to
be neither materially increasing
nor materially decreasing
in significance to the
Group’s activities.
Risk currently considered
to be materially decreasing
in significance to the
Group’s activities.
58
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.
of this report. This event has significantly
changed the operating environment
for businesses in Ukraine on an
unprecedented scale. Please see page 59
for more information on this risk area.
Risks are inherently unpredictable, 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 of impact
and/or likelihood of occurrence, 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 40 different risks
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 (“FRMC”)
Committee, which ultimately reports into the
Board for further review and approval of the
risk register. The Group 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. The Committee
includes the Chief Executive Officer, Chief
Financial Officer, Chief Marketing Officer,
Group Chief Human Resources Officer and
General Director of Ferrexpo Poltava Mining.
The Group’s management team continually
reviews and updates its view on, and
approach to, risks facing the Group. This
section of the Annual Report and Accounts
primarily covers risks facing the Group in
2022, but also early 2023, up until the
publication date of this report. A further
update on the Principal Risks will be
provided in the Interim Financial Results,
which is due to be published in August 2023.
Key theme: Russian invasion
of Ukraine in 2022
On 24 February 2022, Russia launched
a full scale military invasion of Ukraine,
with the conflict continuing as of the date
Ferrexpo plc Annual Report & Accounts 2022
Key theme: Ukraine country risk
This area has been listed as a Principal Risk
facing the Group since listing in 2007, and
the Group has successfully operated amid
challenging circumstances for more than 15
years. The war in Ukraine has served to
escalate a number of risks relating to Ukraine,
including risks relating to the political
environment and the independence of the
legal system. Please see page 60 for more
information on this risk area.
Key theme: climate change
An important topic for any modern business,
with discussions with multiple stakeholder
groups centring on the Group’s efforts to
reduce emissions both in the Ferrexpo
business, but also in the Group’s value chain
(Scope 3 emissions). As a consequence of
rising stakeholder focus on this topic, the
Group published its first standalone report on
climate change in December 2022. Please see
page 73 for more information on this risk area.
Key theme: cybersecurity
As a business seeking to modernise, the
Group is increasingly reliant on electronic
software for the management of key
operational and administrative activities. As
a business primarily operating in Ukraine, the
Group has faced heightened cybersecurity
threats from malicious parties since 2014,
coinciding with Russia’s initial invasion of
Ukraine’s sovereignty. Please see page 72
for more information on this risk area.
Key theme: Covid-19
The war in Ukraine has resulted in significantly
lower levels of testing for Covid-19 throughout
the country, and therefore this represents a
potentially unmonitored risk in the general
population of Ukraine. Please see page 74 for
more information on this risk area.
STRATEGIC REPORT 1. Country risk
1.1. Conflict risk (external risk)
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
On 24 February 2022, Russia began a full
scale invasion of Ukraine that has significantly
impacted every layer of the Ukrainian state,
including the focus of the government,
companies’ ability to operate and the health
and wellbeing of each individual within
Ukraine. Prior to this date, major concerns
were raised about the possibility of an
invasion, following a significant build-up of
military equipment and personnel along
Ukraine’s borders. Following 24 February
2022, people and companies within Ukraine
have faced direct military action in the form of
damage and destruction caused by military
conflict, as well as indirect impacts of the war,
such as electricity blackouts and the closure
of the Black Sea for Ukrainian ports.
Ferrexpo’s main operations are in the
Poltava region of central Ukraine, which
has not seen any direct combat between
Russian and Ukrainian forces. The entirety
of Ukraine has, however, faced numerous
missile strikes and power outages, and the
Poltava region is no exception. The Group’s
facilities have not been directly targeted by
Russian missile strikes, but a number of
neighbouring third party facilities such as the
Kremenchuk oil refinery and state owned
electricity infrastructure have been damaged
by such attacks. Such damage has materially
affected the Group’s ability to source fuel and
receive electricity, with damage to electrical
infrastructure in October 2022 resulting in the
partial suspension of production activities (as
announced on 11 October 2022). Following
repair work completed on the electrical grid
in the fourth quarter of 2022, the Group
resumed activities in December 2022, with
sufficient power to operate one pelletiser line.
This situation has continued, with the Group
restarting a second pelletiser line in March
2023, and the Group able to ship its products
throughout January and February 2023.
The war in Ukraine has placed an
unprecedented strain on the economy of
Ukraine, with a number of businesses closing,
rising unemployment, and tax revenues falling,
in addition to other factors negatively impacting
revenues. At the same time, spending on
the military and social programmes both
increased significantly in 2022. Consequently,
the government of Ukraine has sought to
increase revenues through changes to its fiscal
policies, such as increases to railway tariffs,
as well as implementing measures to stabilise
the economy, such as enacting laws for the
repatriation of funds and currency controls. A
number of these measures have the potential
to either directly or indirectly impact Ferrexpo
negatively through consequences such as
lower revenues and/or a more restrictive
operating environment. Furthermore, given
the strain placed on the economy of Ukraine,
the exchange rate for the Ukrainian hryvnia
depreciated significantly in 2022, with the
government introducing a peg for the hryvnia
to the US dollar. After the invasion of Ukraine in
February 2022, this peg was set at UAH 29.25
per US dollar, and was subsequently moved
to UAH 36.5 per US dollar in July 2022. Such
a rapid devaluation of the local currency in
Ukraine, which was approximately UAH 27.28
per US dollar as recently as the end of 2021,
has had a significant impact on the Group’s
costs, assets and shareholders’ equity. For
more information, please see page 22.
As a result of the war, a proportion of the
Group’s workforce in Ukraine has enlisted
in the Armed Forces of Ukraine, relocated
to safer locations and/or moved to care for
loved ones. Additionally, perceptions around
the negative outlook for Ukraine and/or the
Group may result in key individuals seeking
employment outside the Group. As such, the
Group faces potential risks around being able
to adequately staff its operations and other
functions within its business.
Additional risks related to the war in Ukraine
include, but are not limited to, restrictions
related to the cost effective and timely
transport of the Group’s products, restrictions
in accessing markets, rising costs related to
reduced output and/or alternative supply
arrangements and the impact on employee
wellbeing. A summary of the war’s impacts is
provided on page 4 of this report.
Risk mitigation
The health and safety of the Group’s
workforce, and those connected to the
Ferrexpo business such as suppliers and
logistics operators, is the primary concern.
Whilst it is difficult for a company such as
Ferrexpo to defend itself from direct military
activity such as Russia’s invasion or a
missile strike, the Group has taken several
measures over the course of the year to
help keep its workforce, and their families
and local communities safe from the threat
posed by Russia’s invasion. Measures
during the year have included remote
working for those able to do so, timing of
shift patterns to fit with curfew hours, the
provision of on-site childcare facilities to
ensure children are close and employees
are not having to travel unnecessarily, the
provision of air-raid shelters and the provision
of protective equipment such as armoured
vests and helmets for employees serving
in the Armed Forces of Ukraine. The Group
has also engaged in extensive discussions
with local authorities, and has stepped up
to provide financial assistance through the
Ferrexpo Humanitarian Fund, managed by
the Ferrexpo Charity Fund, with oversight by
the Board of Directors of Ferrexpo to ensure
good governance in all support activities.
Please see page 46 for more on this subject.
The Group will continue to take measures
as required to protect its workforce, and
their families and local communities, for the
duration of the war, and during the post-war
period where continued support is required.
The Group has a long track record of
providing direct support to the communities
in which it operates, with the Ferrexpo Charity
Fund in operation for more than 11 years.
Ferrexpo plc Annual Report & Accounts 2022
59
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
1. Country risk (continued)
1.2. Ukraine country risk (external risk)
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
The considerations outlined here are separate to
the risks relating to the ongoing war in Ukraine,
but some or all of them may be exacerbated by
the current conflict (see page 59 for risks relating
specifically to the conflict in Ukraine).
Ferrexpo’s main operations are in Ukraine,
which is considered to be a developing
economy under the classifications provided by
the World Bank1. Ukraine is a country that
placed 77th in the United Nations’ Development
Programme’s (“UNDP”) Human Development
Index2, and is therefore classified as having a
“high” level of human development (based on
factors such as life expectancy and levels of
education). This ranking places it in a similar
bracket to China (79th) and Sri Lanka (73rd),
other countries considered to be developing
economies. As a result of operating in a
developing economy, the Group is subject to
a number of elevated risks, such as the fiscal
and political stability of Ukraine, independence
of the judiciary, access to key inputs and capital,
exposure to monopolies and other influential
businesses (particularly those that are related
parties to the government of Ukraine), in addition
to a range of other factors. As a result of being a
business in a developing economy, the Group is
exposed to heightened risks around corruption,
with Ukraine placing 122nd in Transparency
International’s Corruption Perception Index
(“CPI”)3. Whilst Ukraine’s score in the CPI has
improved from a low of 25 in 2013 to 33 in 2022,
and its global position has improved by 28
places (including an improvement of six places
in 2022 alone), the country continues to remain
below the global average.
Through the Group’s exposure to an operating
environment in a developing economy, Ferrexpo
has been subject to a number of risk areas that
are heightened relative to those expected of a
developed economy. Risks associated with the
war in Ukraine are covered on page 59 of this
report, but there are indirect risks associated
with the war, such as the increasing political
unity within Ukraine and determination to drive
political, fiscal or economic change, the latter
of which is often associated with financial and
military agreements struck with western
governments and/or western organisations.
This change can be exhibited in a number of
practical applications, which can include, but
are not limited to, changes to the regulatory
environment, potential increases to tax and/or
royalty rates, increased disclosure requirements
or operational restrictions. Changes may be
made as a result of government decision
making, a third party international partner and/
or lender, or another party within Ukraine, and
therefore the rationale for changes may not
correlate with the official agenda of the
government of Ukraine. As a result of this local
instability, which is amplified by the war in
Ukraine (see page 59), sources of capital for
businesses deriving their revenues from Ukraine
are limited at the present time, which in turn
reduces the operational flexibility of the Group.
The independence of the judiciary in Ukraine has
been frequently referenced in the Principal Risks
section of the Group’s Annual Report and
Accounts, and this is a consideration that
remains particularly relevant for the Group today.
As described in Note 30 (Commitments,
contingencies and legal disputes) to the
Consolidated Financial Statements, the Group is
currently subject to several legal proceedings in
Ukraine that are similar in part to previously
heard legal proceedings, and it cannot be
guaranteed that the Ukrainian legal system will
always provide a ruling in line with the laws of
Ukraine or international law. As disclosed in the
2021 Annual Report and Accounts, the Group is
currently subject to a claim pursuant to which the
claimants are seeking to invalidate a share sale
and purchase agreement dated 2002 relating to
the acquisition of 40.19% of Ferrexpo Poltava
Mining, the Group’s main operating subsidiary
in Ukraine (the “Claim”). Following a first hearing
of the Claim in 2021, a court in Ukraine found
in favour of the Group. An appeal was heard in
September 2022, with the appeal court ruling in
favour of the claimants and ordering that 40.19%
of Ferrexpo Poltava Mining be transferred to the
claimants (as announced by the Group on
20 September 2022). Subsequent to this
ruling, the Group has moved to commence
proceedings at the Supreme Court of Ukraine,
with a preliminary hearing held on 1 December
2022 whereby it was agreed for the case to be
transferred to the Grand Chamber of the
Supreme Court, with the next hearing scheduled
to take place on 15 March 2023. As at the date
of this report the claimants have not sought to
enforce the appeal court ruling, but it remains
possible that they could seek to do so
notwithstanding the on-going proceedings
before the Grand Chamber of the Supreme
Court. If the Group is unsuccessful at the hearing
before the Grand Chamber of the Supreme
Court, and the original 2002 share sale and
purchase agreement is held to be invalid, this
would have a material adverse impact on the
Group, including through the loss of a significant
proportion of the Group’s main operating asset
in Ukraine.
As referenced in the Group’s previous public
reporting, including in the Group’s Interim
Results published in August 2022, there are
outstanding allegations relating to the Group’s
controlling shareholder, Kostyantin Zhevago,
that remain unresolved, and there is a risk that
assets owned or controlled (or alleged to be
owned or controlled) by the Group’s controlling
shareholder may be subject to restrictions, in
Ukraine or elsewhere, or that the Group may be
impacted by, or become involved in, legal
proceedings relating to these matters, in
Ukraine or elsewhere.
On 27 December 2022, it was announced that
Mr Zhevago had been detained whilst in France,
and subsequently released on bail, at the
request of the authorities in Ukraine, who are
reportedly seeking his extradition to Ukraine in
connection with allegations relating to a former
Ukrainian bank owned by Mr Zhevago (Bank
Finance & Credit). Following this event,
Mr Zhevago resigned his position as Non-
executive Director on the Board of Directors. The
legal case relates to the potential extradition of
Mr Zhevago, and associated legal claims being
made in Ukraine, and remains outstanding as of
the date of this report. The risks relating to the
Group as a result of this legal action, and
potential further legal action, cannot be
accurately estimated at the present time, nor can
the potential timeline for resolving any matters.
As a consequence of recent events relating to
the Group’s controlling shareholder, as outlined
above, the Group may experience adverse
effects, such as negative media attention for
the Group, a reduced ability to operate within
Ukraine and/or overseas due to negative
perceptions of the Group, and a restricted
operating environment for aspects of the Group’s
business, such as closure (or suspension) of
relationships with stakeholder groups such as
banking services. The Group’s relationships
both upstream and downstream may also be
negatively impacted by events related to the
Group’s controlling shareholder, such that the
Group is limited and/or impaired in its ability to
do business overseas in a specific country and/
or region. In addition, restrictions imposed on the
Group’s controlling shareholder (and/or negative
perceptions of the Group’s controlling
shareholder) may potentially adversely impact
the Group within Ukraine, with a restriction on
60
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 1. Country risk (continued)
1.2. Ukraine country risk (external risk) (continued)
the Group’s ability to successfully operate its
business model. A number of legal claims or
legislative actions within Ukraine are known as
of today – as detailed in this section, and further
actions to restrict the Group’s ability to operate
may arise in the future. It is difficult for the Group
to predict the scale or nature of such restrictions,
and therefore the Group is limited in its ability to
pre-empt and mitigate risks in this area.
The Group is subject to a number of actions
by the government of Ukraine that threaten to
destabilise, or have the effect of destabilising, the
operating environment in which the Group exists.
For example, in previous years, the government
of Ukraine has cancelled exploration licences by
Presidential decree, providing minimal detail in
terms of an explanation or rationale.
As previously referenced in the Group’s 2021
Annual Report and Accounts, in June 2021,
the government of Ukraine cancelled a mining
licence for an early-stage exploration project
known as Galeschynske, which is a licence
held by Ferrexpo Belanovo Mining and located
to the north of the Belanovo mine (without
forming part of this mine). This matter remains
outstanding, and there remains a risk that this
dispute may increase in scale and/or severity
for the Group. The Group has been informed
of other licence disputes by the government,
which are similar in scale to the licence dispute
discussed above. It is difficult for the Group
to predict the outcome of existing licence
disputes, and whether new claims and/or
disputes may arise in relation to the Group’s
operating licences.
In 2022, the government of Ukraine questioned
the documentation relating to the management
of a now-dormant waste dump that was
originally constructed and operated prior to
Ukraine’s independence in 1991. The Group
continues to engage with local authorities and
the national government of Ukraine, aiming to
constructively resolve questions and concerns
raised. Please see section titled “Ecological
Claims” on page 199 for more information.
As previously referenced in the Group’s 2021
Annual Report and Accounts, a number of the
Group’s subsidiaries in Ukraine received letters
from the Office of the Prosecutor General,
notifying them of an ongoing investigation into
a potential underpayment of royalties between
2018 and 2021 (the “Investigation”). On
3 February 2023, one of the Group’s senior
managers in Ukraine received a notice of
suspicion in relation to this Investigation. On
6 February 2023, as part of the Investigation,
a court order was issued in Ukraine freezing
the bank accounts of Ferrexpo Poltava Mining
(“FPM”). These actions by the government of
Ukraine mirror actions taken in similar
investigations into other metals and mining
companies in Ukraine, and therefore represent
a scenario that the Group was aware of and
able to partially mitigate the associated risks.
The Group is engaging with the authorities in
Ukraine and intends to appeal the court order
issued as part of the Investigation. Stakeholders
should note that the Group may not be able to
successfully challenge this court order to freeze
FPM’s bank accounts and/or may not be able
to successfully challenge the claims being
made as part of the Investigation. As of late
February 2023, the Group has managed to
get certain aspects of this court order to be
repealed, enabling the Group to pay certain
amounts such as salaries (but other restrictions
remain in place).4
The Group’s exposure to operating in Ukraine
can result in high velocity risks. Risk velocity
relates to how fast a risk may escalate in scale
and affect an organisation, with high velocity
risks considered to be those that move rapidly
from a starting point of having a low likelihood
and/or scale of impact, to having a high
likelihood and/or scale of impact. Examples
of high velocity risks would be natural disasters
and armed conflict, both of which could be
difficult to predict in advance and could have
a significant impact on a business.
The risk factors discussed here in this section,
either individually or in combination, have the
ability to materially adversely impact the
Group’s ability to operate its pellet production
and other facilities, ability to export its iron ore
products, access to new debt facilities and
ability to repay debt, ability to reinvest in the
Group’s asset base, either in the form of
sustaining capital investmentA (to maintain
production or expansion), capital investmentA
for future growth, or the Group’s ability to pay
dividends, could result in a material financial
loss for the Group and/or could result in a loss
of control of the Group’s assets.
Risk mitigation
Ferrexpo operates in accordance with
relevant laws and utilises internal and external
legal advisors as required to monitor and
adapt to legislative changes or challenges.
The Group maintains a premium listing on
the London Stock Exchange and as a result
is subject to high standards of corporate
governance, including the UK Corporate
Governance Code and UK 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 and adhered to.
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 regular
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 Ukrainian hryvnia against
the US dollar and local inflation levels.
Ferrexpo has a high profile given its
international client base and London listing,
and it is important that Ferrexpo’s Board of
Directors and relevant senior management
continue to engage with the Group’s
stakeholders to effectively communicate the
economic contribution that Ferrexpo makes
to Ukraine and to show that it operates to
high international standards.
1. Source: World Bank, link. (Accessed 3 March 2023.)
2. Source: UNDP, link. (Accessed 3 March 2023.)
3. Source: Transparency International, link. (Accessed 3 March 2023.)
4. As of 28 February 2023.
Ferrexpo plc Annual Report & Accounts 2022
61
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
1. Country risk (continued)
1.3. Counterparty risk (external risk)
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
4
increased the risk of collapse of
counterparties. Whilst the direct effects of
Covid-19 are less evident in Ukraine and
Europe in 2022, this remains a risk,
particularly given the global footprint of
Ferrexpo’s business model. As referenced
on page 74, risks relating to Covid-19 are
heightened in Ukraine at the present time
given the national government’s focus on
defending its sovereignty in light of Russia’s
ongoing invasion. Consequently, testing for
Covid-19 has been significantly reduced, and
the associated risks related to counterparty
failure are heightened as a result.
As a business operating in an emerging
market, and also as a business operating in a
country that is currently engaged in an armed
conflict, there are significant risks in respect
of the Group’s business interactions with third
party suppliers of goods and services. Risks
may relate to a number of subject areas,
including (but not limited to) governance and
corruption risks, risk of collapse, risks relating
to monopolies and/or situations whereby
alternative suppliers may not be available,
and counterparty risks relating to the conflict
in Ukraine whereby counterparties may be
exposed to Russia (with such relationships
potentially not being known to the Group).
The Russian invasion of Ukraine in 2022 has
imposed a significant strain on the economy
of Ukraine and has therefore heightened the
counterparty risks facing the Group.
A secondary effect of the ongoing war in
Ukraine is that the Group may be impacted in
its ability to conduct effective due diligence
on counterparties given the imposition of
martial law in Ukraine, and other war-related
restrictions. The Group has had to change a
number of key suppliers in 2022, and in doing
so, has had to conduct due diligence checks
as part of each new relationship, which
carries inherent risk to the Group.
Counterparty risks may result in direct
consequences for the Group such as
financial harm and operational issues in
sourcing material, and also include indirect
consequences such as damage to the
Group’s reputation either within Ukraine or
with international stakeholders, such as
investors, lenders and customers.
Additionally, as outlined on page 60 (Ukraine
Country Risk), recent events relating to the
Ultimate Beneficial Owner (“UBO”) of the
Group have resulted in secondary effects
on a number of business relationships of the
Group. The Group is currently managing these
risks either through existing relationships
or through new relationships, and it should
be noted that any new (or change of
existing) business relationship carries an
inherent counterparty risk to the Group.
In recent times, the global Covid-19 pandemic
has placed a significant strain on the financial
stability of third parties and has also
Risk mitigation
In terms of supplier governance, the Group’s
Compliance Department conducts regular
checks on all suppliers, screening entities
for a number of risks and elevating those
deemed to be higher risk for further checks
and consideration as to their eligibility. For
entities that the Group conducts business
with, the Group has developed a Code of
Conduct for Suppliers, which as of 2022 is
referenced in 90% of all contracts and over
1,300 due diligence checks completed on
potential third party suppliers (2021: 95%).
Note that the decrease in proportion of
contracts referencing compliance clauses
is attributable to the ongoing conflict in
Ukraine, and associated restrictions.
The Group’s exposure to the failure of a
counterparty, or the failure of a party to
provide its contracted goods and services,
is managed through the Group engaging
with a range of suppliers, where possible,
in addition to sufficient cash reserves to
maintain the Group’s overall liquidity. Where
it is not possible and/or practical to source
goods and services from multiple providers,
the Group considers alternative goods and
services to meet its needs and to reduce
single party risk.
With regard to the structures in place to
monitor and manage counterparty risk, the
Finance, Risk Management and Compliance
(“FRMC”) Committee, is an executive
sub-committee of the Board charged with
ensuring that systems and procedures are
in place for the Group to comply with laws,
regulations and ethical standards. The
FRMC Committee met ten times in 2022
(2021: ten) and 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 FRMC Committee is given
prior warning of regulatory changes and
their implications for the Group. The FRMC
Committee 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 aims to ensure adherence to the
highest standards of diligence, oversight,
governance and reporting with all charitable
donations, with the Health, Safety,
Environment and Community (“HSEC”)
Committee required to provide approval
for community support expenditures.
62
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 2. Market related risks
2. Risks relating to the global demand for steel
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Medium
Link to strategy
3 and 5
The Group is a constituent of the global steel
value chain, which is a sector that is heavily
reliant on global connectivity, and global
factors that affect the supply and demand
balance of both steel and the raw materials
required for making steel.
individual steel producing facilities and
regions may be impacted by national, regional
and local factors such as political instability,
political intervention, weather events,
cybersecurity events, and climate change,
amongst other factors.
near term as a result of emissions reduction
measures, end users of steel may not agree
to higher steel prices, and therefore profit
margins are likely to decrease until such
costs are successfully passed through to
end user markets.
Steel is typically made using processes
that involve iron ore, a degree of scrap steel
(depending on the process method) and a
source of energy (which can include coal,
natural gas and electricity). Prices for these
key inputs can be volatile, and are factors
that will move independently of any single
steel producer’s control, and will therefore
have the ability to significantly impact the
profitability of individual steel producers.
Additional factors governing the input costs,
and therefore profitability, of steelmakers
include: the availability and cost of labour,
requirements for capital investments to
sustain and/or grow output, the availability
of raw materials and energy sources (in
addition to unit costs), the cost and availability
of logistics routes and the presence of
lower cost competitors in key markets.
Global steel demand varies considerably
and can be significantly influenced by factors
outside of the control of a steel producer,
such as political instability (e.g. the war in
Ukraine), global energy prices, and outlook
for the global economy. In addition to these
macro-economic environment factors,
Given that the factors listed here have the
potential to materially impact the profitability
of steel mills, individual companies and/or
facilities may respond to higher costs and/or
weaker market conditions by reducing or
halting steel production, until more favourable
market environment returns. This in turn could
have a material effect on suppliers to such
businesses, such as Ferrexpo.
A more recent trend has seen a surge in
awareness of climate change related issues,
which is driving increased changes within
various levels of the operating environment
for steel companies – from local and regional
government enacting legislation related to
climate change, to customers and local
communities demanding that steel production
involve lower emissions. Efforts to counter the
effects of climate change in the steel industry,
which typically focus on the reduction of
carbon emissions in the production of steel,
are likely to generate higher operating costs
in the near term, and higher requirements for
capital investmentA in the medium to long
term. Furthermore, whilst steelmakers’
operating costs are likely to increase in the
The structure of the global steel industry
relies on a consistent supply of materials
to steel mills and a consistent offtake of
finished steel by customers. As a consumer
of bulk commodities, such as iron ore and
coal, the timely and reliable delivery of
these materials is required for stable steel
prices, since any disruption in the delivery
process can create short and medium-term
spikes in steel prices. Equally, a scenario
whereby global markets encounter an
excessive supply of steel, either through an
unforeseen downturn in end-user demand,
or disruptive increases in steel supply, could
have a negative effect on steel prices.
Global steel markets also rely on the
consistent availability of logistics pathways,
and events such as the Russian invasion
of Ukraine in 2022 or the global Covid-19
pandemic, served to demonstrate the
possibility of short-term pricing fluctuations
(both positive and negative) when global
logistics chains fail to function properly.
Risk mitigation
Under normal circumstances, the Group has
the ability to mitigate risks around demand
for steel through its global customer base,
with the Group having the ability to shift
sales to regions exhibiting higher demand
for steel. This was demonstrated in 2020
during the global Covid-19 pandemic, when
Ferrexpo’s sales to China were increased
significantly in response to a shift in demand
away from Europe and North East Asia. At
the present time, however, the Group has
largely been unable to access the seaborne
market for the majority of 2022 due to
Russia closing Ukraine’s access to the Black
Sea. When the Group has been able to
access the seaborne market, it has not
been in material quantities, or on financially
favourable terms, and therefore the Group’s
ability to shift significant sales volumes to
regions other than Europe has been
impaired in 2022. The ability of the Group to
pivot its sales is a measure that the Group
intends to utilise once consistent and
sizeable access to the seaborne market is
re-established, either through a Ukrainian
port, or otherwise.
Other risk mitigation activities include the
Group’s ability to produce high quality forms
of iron ore, which typically command higher
premiums with customers and also tend to
be more in demand throughout the
economic cycle.
Ferrexpo operates in a country whereby the
local currency, the Ukrainian hryvnia, is a
currency that is linked to the performance of
commodity prices, and historically the Group
has experienced depreciation in the hryvnia
at times of lower commodity prices, which in
turn reduces the Group’s dollar-denominated
cost base. Movements in the hryvnia-dollar
exchange rate can, however, be influenced
by other factors and may not necessarily
reduce costs at times of low iron ore prices.
Ferrexpo plc Annual Report & Accounts 2022
63
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
3. Risks related to realised pricing
3.1. Changes in pricing methodology (external risk)
Responsibility
Chief Executive Officer and
Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
Given the benefits of pellets to steelmakers
(namely improved furnace productivity and/
or reduced greenhouse gas emissions), it is
accepted practice that steelmakers pay an
additional premium for iron ore pellets (the
“pellet premium”). Pellet premiums have varied
significantly in recent years, which reflects both
supply and demand-related factors. Given
the scale of the pellet premium relative to the
iron ore fines index and pelletising costs, any
move away from the market paying pellet
premiums would have a significant impact on
our profitability and our differentiation within
the global landscape of iron ore producers.
Furthermore, a number of pellet premiums
are quoted by third parties, which are
computed in a variety of ways. Any switch
from using one specified pellet premium to
another quoted pellet premium, may also
result in lower realised pricing for the Group.
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.
Should the standard method pricing
methodology change in the future, it could
have a negative impact on the Group in the
form of lower realised prices for iron ore
pellets and/or iron ore concentrate, and
therefore resulting in a negative impact on
the Group’s financial performance. Additional
potential impacts of changing perceptions
around pricing methodology could include
a restriction in the Group’s ability to sell its
products to specific customers and/or
customer regions, should such stakeholders
elect to pursue a different pricing
methodology with an alternative supplier
of iron ore products.
As a producer of high grade forms of iron
ore (grading 65% Fe and above), over time,
the Group has developed customer pricing
agreements with customers on the basis
of high grade benchmark fines indices
(grading 65% Fe). Such agreements enable
the Group to realise the value of the iron
content in its products, with high grade
(65% Fe) fines index trading an average of
US$19 per tonne above the medium grade
(62% Fe) in 2022 (2021: US$26 per tonne)1.
The premiums paid for material priced using
the high grade benchmark index reflects the
restricted supply of high grade iron ores into
the global market, with the majority of supply
being either low or medium grade iron ores.
Premiums paid for higher grade iron ores
(referred to as the “ferrum premium”) also
reflect the operational benefits to steel mills
through higher blast furnace productivity
and lower emissions profiles associated
with higher grade input materials.
Should customer agreements return to
pricing of its products using the medium
grade benchmark, the Group could
potentially experience lower net realised
pricing for its products.
The Group also relies on pricing structures
for its pellets to include a pellet premium,
which reflects the high quality, pelletised
nature of the iron ore delivered to customers.
Ferrexpo endeavours to achieve the
prevailing market price at all times, and the
Group aims to be a low cost producer and
therefore cash flow positive throughout the
commodities cycle.
Risk mitigation
The Group aims to price its products
through clear and consistent engagement
with customers, with the Group seeking
to develop mutually beneficial long-term
relationships. Through consistent supply
and consistent high quality of the Group’s
products, Ferrexpo aims to maintain strong
relationships with its customers.
Through strong customer relationships, the
Group aims to ensure that the net realised
prices received for its iron ore products are
in line with the international benchmarks for
pricing of similar products, in addition to
premiums paid for the quality and/or form
(i.e. pellet) of the iron ore being traded.
1. Source: S&P Global Commodity Insights.
64
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 3. Risks related to realised pricing (continued)
3.2. Lower iron ore prices (external risk)
Responsibility
n/a (Ferrexpo is not large enough to influence
global demand)
Risk appetite
Medium
Link to strategy
1, 3 and 5
This factor is one that is connected to risks
related to the global demand for steel (see
page 59), since demand for steel directly
impacts the pricing of raw materials used to
produce steel, such as iron ore.
As a company that derives the majority of its
revenues from iron ore products, Ferrexpo is
inherently exposed to iron ore prices, either in
the form of benchmark iron ore fines prices,
or pellet premiums. Variations in iron ore
prices come in a number of forms, from the
underlying iron ore price, to the premium
paid for the grade of iron ore (the “ferrum
premium”), or discounts applied for the
naturally occurring waste elements in each
ore such as silica and alumina.
The iron ore fines price is the largest
component of pricing for the Group’s products,
which averaged US$139 per tonne in 2022
(high grade iron ore fines index1, 2021: US$186
per tonne). As discussed in the Market Review
section (see page 8, iron ore fines prices are
predominantly affected by Chinese demand
for iron ore, which represented 75% of global
imports of iron ore fines in 2022 (2021: 76%),
and the economic outlook for China2.
The quoted price for iron ore fines is called
the benchmark index, and is applicable for
forms of iron ore that have a specified
chemistry that is amenable for steelmaking,
such as the percentage of each waste
Risk mitigation
The Group aims to mitigate price risk
through producing high grade, low
impurity iron ore products, which receive
premiums when sold to customers,
rather than penalties and/or discounts.
Through such products, the Group has
been able to build a high-margin business,
which in turn enables further investment
in the Group’s production facilities.
In addition, the Group aims to be a low
cost producer of iron ore products.
Through operating with a lower cost base
than the Group’s peers, particularly when
the premiums paid for grade and form
1. Source: S&P Global Commodity Insights.
2. Source: CRU.
material contained (e.g. silica, alumina,
phosphorus). The Group’s products
typically conform to the requirements of the
benchmark index, and therefore tend not to
have penalties applied as a result. Iron ores
that do not comply with the benchmark
index, however, will be subject to a range
of penalties, which may vary significantly
depending on a range of market factors and
technical requirements of each steel mill. Any
variation in the quality and/or chemistry of
the Group’s iron ore that is mined in a given
period could therefore result in penalties
being incurred.
A secondary component of the pricing
structure of the Group’s products is the pellet
premium, which is applied to the sale of iron
ore pellets. This premium is significant to the
Group, and can represent a premium in
excess of 50% of the benchmark iron ore
fines index. This component of the pricing
structure of the Group’s products is
discussed in detail on page 9.
Should reputational concerns over the
Group and its UBO affect existing or potential
relationships, the Group may no longer be
able to realise the same level of product
pricing as previously experienced.
(pellets) are considered, Ferrexpo aims to
remain competitive on a global basis.
dollar can also be influenced by short-term
political factors, in addition to other factors.
Furthermore, Ferrexpo’s operating costs
are partly correlated with commodity
prices. When the commodities cycle is
in a downward phase, 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
Ferrexpo regularly reviews its options in
respect of hedging the price of its output.
The Group’s current strategy is to not
enter into such hedging agreements
due to the relatively low liquidity of this
market and high cost of entering into such
arrangements. The Group will continue
to review this strategy as the market for
hedging iron ore pellets develops over
time, which may eventually reduce the
effective cost of such arrangements.
Ferrexpo plc Annual Report & Accounts 2022
65
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
3. Risks related to realised pricing (continued)
3.3. Pellet premiums
Responsibility
Chief Executive Officer and
Chief Marketing Officer
Risk appetite
Medium
Link to strategy
1, 3 and 5
has resumed a degree of supply-side balance
not previously seen in recent years.
Should reputational concerns over the
Group and its UBO affect existing or
potential relationships, the Group may no
longer be able to realise the same level of
pellet premiums as previously experienced.
in Ukraine, with the Ukrainian hryvnia
having a close correlation to commodity
pricing, which therefore tends to devalue
at times of low commodity pricing,
reducing the Group’s cost base.
Pricing of the Group’s products includes a
component referred to as the pellet premium,
which references the pelletised nature of
Ferrexpo’s products, which reduces the
degree of processing required prior to
steelmaking. As a consequence of this
reduction in processing at the steelmaking
stage, buyers of iron ore pellets will pay a
premium over and above the prevailing iron
ore fines price. The pellet premium is one of
the principal factors that enables the Group to
generate a significant margin on its products,
and therefore allows for a higher degree of
investment in the Ferrexpo business.
An example of a quoted pellet premium
is the monthly Atlantic Pellet Premium, as
quoted by S&P Global Commodity Insights,
which averaged US$72 per tonne in 2022
(2021: US$60 per tonne1) and therefore
represented a significant premium to the
benchmark iron ore fines price. Note,
however, that numerous pellet premiums
exist, and the Group may agree pellet
premiums individually with customers that
do not mirror quoted pellet premiums.
Factors governing the pellet premium in any
given year include the overall supply of iron
ore pellets, which tends to be a relatively
stable industry, and the overall demand for
iron ore pellets. Demand factors can be
related to the health of the global economy
and steelmakers’ desire to maximise output,
which tends to result in higher pellet buying
activity to increase a steel mill’s productivity.
Pellet demand can also be impacted by
increasing regulation around emissions
reduction, since iron ore pellets do not need
to be sintered like other forms of iron ore.
Since sintering is a process that typically
involves the use of coal, steelmakers that
utilise a greater proportion of pellets in a blast
furnace’s input materials (partially replacing
sinter fines) can reduce the overall emissions
footprint of steel production.
The overall supply of iron ore pellets is
relatively constrained, with existing producers
typically producing at their nameplate
capacity and the construction of new
pelletiser capacity usually requiring significant
capital investmentA to build production
facilities, in addition to the associated
infrastructure required for delivering a bulk
commodity to end users. As a consequence,
limited new pelletising capacity has been built
in the past five years. Supply-side disruption
has been a more prominent factor in recent
years, with the failure of two tailings dams in
Brazil resulting in significant volatility in supply
from two of the largest pellets exporters to
the global steel industry. Both of the
companies involved in these incidents have
now resumed production from the affected
production facilities, and therefore the market
Risk mitigation
Despite being one of the largest iron ore
pellet exporters, the Group is not sufficiently
sized to be a price setting company when
it comes to iron ore pellet premiums and
therefore the Group’s realised pellet
premium tends to follow the level set by
the main market participants.
It is the Group’s strategy to target the low
cost production of its iron ore products,
thereby enabling the Group to remain
profitable for a range of realised pellet
premiums. More specifically, Ferrexpo has
historically operated with one of the lower
costs of pelletising across the spectrum of
global iron ore pellet production, and
therefore swing producers have tended to
moderate the pellet premium at times of low
pricing, through removing pellet supply from
the market. The Group uses natural gas in
its pelletising operations and has had to
operate below its nameplate capacity for a
period of 2022 due to the ongoing war in
Ukraine. As such, pelletising costs increased
to US$29 per tonne in 2022 (2021:
approximately US$19 per tonne). Despite
this increase, the Group has managed to
keep pelletising costs below the prevailing
pellet premium for the year.
The strategy of targeting low cost production
is enhanced through Ferrexpo’s location
1. Figure restated versus 2021 Annual Report and Accounts.
66
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 3. Risks related to realised pricing (continued)
3.4. Freight rates (external risk)
Responsibility
Chief Executive Officer and
Chief Marketing Officer
Risk appetite
Low
Link to strategy
2, 3 and 5
The pricing of a bulk commodity, such as
Ferrexpo’s iron ore products, typically
includes a component of the net realised
pricing that considers the cost of transporting
material to the customer. For Ferrexpo, this
pricing typically refers to either the C3 or C2
freight indices (published by the Baltic
Exchange), as these are reflective of the
shipping cost for accessing either the Asian
or European market (respectively). Freight
rates are a deduction from the pricing
received from the pellet, and therefore higher
freight rates will result in lower net realised
pricing for the Group, and vice versa.
The factors driving freight rates include the
prevailing fuel cost for ships, the availability of
vessels at a given point in time, and insurance
policies required for ships to service the
required route (the latter being a significant
factor for chartering parties looking to ship
via the Black Sea during the present time).
As a guide, the C3 freight index increased
from below US$20 per tonne in early 2022, to
over US$38 per tonne in May 2022, with this
rise associated with the war in Ukraine and
rising energy costs. Freight rates declined to
US$20 per tonne towards the end of the year,
and averaged US$24 per tonne for the full
year (2021: US$27 per tonne)1.
Additionally, the war in Ukraine has had an
effect on the Group’s ability to charter vessels
with shipowners, as the closure of Ukraine’s
access to the Black Sea has resulted in
limited deliveries of the Group’s iron ore
pellets to the seaborne market, with external
factors impacting freight rates. Whilst the
increased costs associated with trading within
the Black Sea have been reflected in freight
rates since the outset of the war in Ukraine,
the Group is still managing to charter vessels
at market level due to the Group’s strong
relationships with shipowners.
Further freight-related realised effects, or
potential risks, of the war in Ukraine include:
an increase in the insurance premiums
required for vessels travelling to Black Sea
ports (Ukrainian ports or otherwise), the
potential closure of the Bosphorus strait and
the Black Sea potentially becoming non-
committal for shipowners.
The Group is also aware of potential risks that
relate to recent events with the Group’s UBO
(see page 60), which may affect Ferrexpo’s
ability to conduct business relationships with
freight providers. Should third party concerns
relating to these matters prevent Ferrexpo
from engaging in business relationships with
specific freight providers, then the Group may
incur higher costs relating to booking of
freight from a smaller group of providers.
Risk mitigation
The Group has its own in-house freight
manager, which helps the Group to receive
a competitive rate for freight cargoes. The
Group’s management team includes freight
specialists based in Singapore, where many
shipping brokers and owners are located,
and it is therefore possible to maintain a
detailed understanding of both the global
freight market and shipowners.
As a result of the Group’s operations
being located in Ukraine, seaborne freight
chartering has been reduced in 2022
(following Russia’s closure of the Black Sea
to Ukrainian ports – see page 4 for more),
and as such the Group has increasingly
relied on its European customer network for
sales. Despite this, the international freight
rate is still relevant for the business, as many
contracts reference a quoted freight rate.
The Group currently does not enter into
hedging arrangements for freight rates,
which is an approach consistent with the
Group’s strategy on other forms of hedging.
This approach is continually reviewed by
the Group’s management team, and such
arrangements may be entered into if it is
deemed to be beneficial to the Group.
The Group’s freight department regularly
monitors freight-related risks associated with
the war in Ukraine, or otherwise, with an aim
of ensuring effective decision making in light
of changes to the operating landscape.
1. Source: Baltic Index.
Ferrexpo plc Annual Report & Accounts 2022
67
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
4. Operating risks
4.1. Risks relating to producing our products
Responsibility
Chief Executive Officer, Chief Operating
Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
The Group’s operations involve the mining of
iron ore, which requires detailed planning of
blasting, excavation and transport operations,
to deliver sufficient quantities of iron ore to
the Group’s processing plant, which crushes,
grinds and beneficiates the material that it
processes from native iron ore grades
(ranging approximately 25-30% Fe) to high
grade concentrate (either 65% or 67% Fe)
for Ferrexpo’s current product portfolio.
Pelletising operations then subsequently
convert high grade iron ore concentrate to
pellets via a series of kilns that operate at
approximately 1,300oC. The above processes
are complex and carry inherent risks as a
result. The Group is able to mitigate such
risks through a range of activities and the
collective experience of the Group’s executive
management team, but it may not be possible
to eliminate all risk factors.
As a business with its main operating assets
located in Ukraine, the Group has faced
significant risks relating to the ongoing war
in Ukraine, which are summarised in the
Principal Risks shown on page 60 of this
report. The Group has also faced a number
of indirect consequences of the war in its
operations, such as a number of skilled
personnel departing Ferrexpo’s operations
to either serve in the Armed Forces of Ukraine
or relocating away from the conflict, the
Ukrainian authorities requiring the delivery of
specific equipment for military use (typically
light vehicles), the reduced availability of
specific materials relevant for the conflict such
as detonators and fuel and restrictions on
operating practices, such as scheduled
blasting of in-situ rock in mining operations.
Outside of risks that directly relate to the war
in Ukraine, the Group faces material risks
relating to its mining operations that include
(but are not limited to) health and safety-
related risks, the risk of a pit wall failure or
fall of ground incident in the Group’s mines,
equipment failure (either due to operator
oversight, failures in maintenance practices
or failure despite acceptable levels of
maintenance), weather events preventing
access to the Group’s mines, poor planning
processes resulting in a lack of high grade
iron ore for processing, or the failure of drilling
to identify the correct location of ore and
waste material. Risks in the processing plant,
covering the beneficiation and pelletisation of
material, also include (but are not limited to)
equipment failure and/or unscheduled
equipment downtime, a lack of spare parts,
a lack of key input materials, unsuitable
equipment for processing of certain ore
types, operating restrictions and extreme
weather events (or other events potentially
related to climate change) that may impact
the ability to produce or store the Group’s
products. As operations continue to be
modernised, the Group also faces
cybersecurity-related risks from cyber threats
and other factors that may impair the Group’s
ability to operate its electronic equipment –
see page 72 for more details.
The risks described above are typically
short-term events and the Group also faces
longer-term risks, such as climate change
(see page 73) and country risks related to
Ukraine (see page 60). Potential risks related
to climate change are also detailed on pages
34 to 41 of this report, and have been
identified through the Group’s recent
collaboration with environmental consultants
Ricardo Plc.
The Group is also aware of potential risks that
relate to recent events with the Group’s UBO
(see page 60), which may affect Ferrexpo’s
ability to source key input materials and
labour either within Ukraine or overseas.
Should third party concerns relating to these
matters prevent Ferrexpo from engaging in
business relationships with specific providers
of materials and/or labour, then the Group
may have challenges in its ability to produce,
or incur higher costs relating to the sourcing
of the same inputs from a smaller group of
providers and/or smaller group of people.
Risk mitigation
The Group employs an experienced
management team and has a management
structure in place to monitor, and where
necessary, manage risks as and when these
risks escalate. The Group’s business model
is in a sector that has inherent risk in the
mining and processing of materials, with
these risks being manageable and, where
possible, mitigation measures are utilised
to ensure the safe operation of the Group’s
facilities to ensure the efficient production
of the Group’s iron ore products. The Group
maintains a risk register of more than 40
risk areas (as of January 2023), which is
monitored on a frequent basis by the
Group’s operational teams and reported
to the relevant management committees.
Where an operational risk is deemed to be
sufficiently significant in terms of potential
impact and/or likelihood, appropriate risk
mitigation measures are sought, often with
the assistance of third party specialists,
where relevant.
68
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 4. Operating risks (continued)
4.2. Risks relating to delivering our products to customers
Responsibility
Chief Executive Officer, Chief Operating
Officer and Chief Marketing Officer
Risk appetite
Medium
Link to strategy
2, 3 and 5
Should third party concerns relating to these
matters prevent Ferrexpo from engaging in
business relationships with specific logistics
providers, then the Group may incur
difficulties in its ability to ship products, or
may incur higher costs relating to the sourcing
of logistics options along alternative routes.
as well as government bodies in Ukraine
that are relevant for the Group’s logistics
operations.
The Group is a producer of a bulk commodity,
meaning that its business model relies on
timely and consistent access to a logistics
network with sufficient capacity to transfer
a large volume of material to the Group’s
customer base around the world. Any
interruption to the scale, availability or
reliability of this logistics network has the
potential to significantly impact the Group’s
ability to operate its business model and
generate cash flow. The nature of being a
producer of a bulk commodity means that
should an interruption of logistics occur, there
may be little time or excess funding available
to efficiently remedy the situation and/or
stockpile excess material, potentially resulting
in a temporary suspension of the Group’s
production facilities and an associated impact
on the Group’s ability to generate revenues.
The Group’s logistics network is diverse
in nature, covering the Group’s use of the
railway network in Ukraine and further afield
across Europe, a stake in a berth at a port
facility in south west Ukraine (used for loading
vessels for the seaborne market), and an
inland waterway logistics business along the
River Danube.
Examples of risks relating to the Group’s
logistics network, aside from those
specifically relating to the ongoing Russian
invasion of Ukraine (covered on page 59),
range from those potentially impacting railway
logistics, which include (but are not limited to)
the unexpected closure and/or suspension of
sections of the railway network in Ukraine or
Europe required for deliveries, a reduction in
rail capacity related to the phasing out of
outdated equipment and insufficient
investment in replacement equipment,
potential political interference in the Group’s
ability to book railway capacity and/or railway
wagons, extreme weather events (either
related to climate change or otherwise) and
a lack of personnel to operate the railways
effectively. The Group faces similar risks
relating to its use of inland waterway logistics
on the River Danube, and in addition includes
risks relating to abnormally high and low
water levels, which may impede passage
of vessels. Such risks are expected to be
exacerbated in the future by the potential
impact of climate change. Similar risks are
posed to the Group and its ability to access
seaborne markets should extreme weather
events (either climate change related or
otherwise) impact operations at the port of
Pivdennyi or other ports used by the Group,
or shipping routes such as the Suez Canal.
The Group is also aware of potential risks that
relate to recent events with the Group’s UBO
(see page 60), which may affect Ferrexpo’s
ability to secure bookings on key logistics
routes either within Ukraine or overseas.
Risk mitigation
Since listing in 2007, the Group has sought
to invest in its logistics capabilities and
overall capacity, to ensure cost effective and
sufficient access to a logistics network. This
has involved the purchase of railcars, with
the Group now operating a fleet of 3,033
railcars (with this figure increasing by 183 in
2022), which reduces operating costs and
helps to ensure product quality whilst pellets
are in transit to customers. Similarly, the
Group owns a 49.9% stake in a berth at the
port of Pivdennyi in south west Ukraine,
along with a trans-shipment vessel (“Iron
Destiny”), which previously enabled the
Group to load trans-shipment vessels for
the seaborne market. Iron Destiny was
outside of Ukrainian waters undergoing
routine maintenance at the time of Russia’s
invasion of Ukraine on 24 February 2022,
therefore ensuring that the Group still
controls this asset. The Group also owns its
inland waterway logistics provider (First-
DDSG), which is based in Vienna, Austria,
and has locations along the River Danube.
In order to maintain timely access to its
logistics network, the Group also maintains
close working relationships with logistics
providers such as the Ukrainian railway
operator, the port operator at Pivdennyi,
Ferrexpo plc Annual Report & Accounts 2022
69
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
4. Operating risks (continued)
4.3. Risks relating to health and safety
Responsibility
Chief Executive Officer, Chief Operating
Officer and Chief Human Resources Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Without effective management of health and
safety related risks, the nature of mining and
processing of iron ore into iron ore pellets can
involve inherent risks. The processes involved
in the mining and processing of metalliferous
rock has progressed significantly in recent
years, but risks remain if policies and
procedures are not followed correctly,
or if equipment is not used correctly.
Mining activities involve the use of large
equipment, such as haul trucks, excavators
and bulldozers, with each item of equipment
weighing a considerable number of tonnes
and which are expected to regularly move
around to a number of locations throughout
a shift. The operation of mining equipment is
inherently dangerous if operators are not
correctly trained, or if due care and attention
are not applied when operating each item of
equipment. Activities within a mine include the
drilling and blasting of native rock, excavation
and transport of blasted rock to either the
processing plant or waste dumps, watering
of surfaces to reduce dust emissions and the
construction of waste dumps to a specified
design. Activities are typically conducted 24
hours a day, and whilst the Group has
extensive lighting on equipment and around
mining areas, low light conditions are a risk
for operators.
Risk mitigation
The Group has a well trained workforce,
comprising 7,978 individuals and 1,796
contractors, with an extensive training
programme. In 2022, the Group provided
6,143 training courses to employees, 64%
of which were safety-related courses (2021:
6,442 courses). The Group also trains
contractors, as safety risks do not vary
according to an individual’s contract status,
with 170 safety-related courses provided to
contractors in 2022 (2021: 931 courses).
The Group’s approach to mitigating safety
risks is to understand the causal factors
of safety incidents, through creating risk
registers for each activity being undertaken
or area within the Group’s main operations.
The Group also records leading indicators of
safety, with an aim to monitor and improve
these factors, to reduce the risk of a safety-
related incident occurring. Examples of
leading indicators include the number of:
training courses undertaken, high visibility
safety tours by senior managers, safety
inspections and hazard reports completed.
In the instance of a safety-related event
occurring, the Group aims to learn for
each event, to reduce the risk of a repeat
occurrence. Lagging indicators of safety help
the Group’s management team to record
the effectiveness of safety measures being
implemented, and the main indicators used
to track performance are the Group’s lost
time injury frequency rate (“LTIFR”), total
recordable injury frequency rate and fatalities.
Throughout its operations, the Group is
seeking to implement modern forms of
technology, including autonomous
equipment, which help to remove operators
from hazardous working environments.
Examples of such would be the Group’s
autonomous trucks in the Yeristovo mine.
70
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 4. Operating risks (continued)
4.4. Risks relating to operating costs
Responsibility
Chief Executive Officer and
Chief Financial Officer
Risk appetite
Low
Link to strategy
2 and 5
of materials and/or labour, then the Group
may incur difficulties in its ability to produce,
or incur higher costs relating to the sourcing
of the same inputs from a smaller group of
providers and/or smaller group of people.
equipment, with different suppliers of spare
parts, which reduces operational risks and
can reduce operational costs.
The Group’s business comprises a number
of open-pit mining operations, an iron ore
processing complex and a range of ancillary
activities related to the production of iron ore
pellets and concentrate, which requires a
range of input goods and services. The
Group’s costs are subject to a range of
factors, some of which are controlled by
the Group, whilst others are outside of the
Group’s control, meaning that resulting
profitability may fluctuate.
The Group operates in an energy intensive
industry, and therefore requires a range of
commodity-based inputs such as diesel and
natural gas, as well as electricity, which are
all subject to market factors outside of
Ferrexpo’s control that will influence the
Group’s overall profitability. Examples of such
would be the movement of natural gas prices
in 2022, which rose as a consequence of
Russia’s invasion of Ukraine from less than
US$600 per thousand cubic metres in 3Q
2021, to a peak of more than US$1,200 per
thousand cubic metres in 1Q 2022, before
declining to below US$900 per thousand
cubic metres in 4Q 2022.
Further to energy costs, inflationary pressures
were seen on a global scale in 2022, with
Ukraine no exception. Cost inflation has the
potential to affect a wide range of the Group’s
input costs at its operations, with the Group
potentially not able to effectively counter such
pressures due to the benchmark pricing of
the Group’s products.
A primary cause of cost inflation has been the
Group’s inability to operate at its nameplate
capacity due to the war in Ukraine, resulting
in higher unit costs. Additionally, inflationary
pressures have been seen on a global basis
in2022, which are reflected in energy prices,
capital costs for equipment and maintenance
costs. Inflation in Ukraine in 2022 was
estimated by the government of Ukraine
to be 26.6%1 (2021: 9.4%2), reflecting the
exceptional circumstances experienced in
2022. Given that the Russian invasion of
Ukraine remains ongoing, it is expected that
the negative impacts of the war will continue
to be experienced by the Group, such as
lower production and higher unit costs.
The use of natural gas is a key component of
the Group’s pelletising operations and its use
is therefore essential for the production of iron
ore pellets.
The Group is also aware of potential risks that
relate to recent events with the Group’s UBO
(see page 60), which may affect Ferrexpo’s
ability to source key input materials and
labour either within Ukraine or overseas.
Should third party concerns relating to these
matters prevent Ferrexpo from engaging in
business relationships with specific providers
Risk mitigation
The Group has operated through a number
of commodity cycles and the Group’s
operations have been in production for more
than 50 years, and through this experience
of operating, the Group’s management team
has developed an understanding of cost
effective production and the required level of
goods and services to maximise the Group’s
profitability at any given level of production.
The Group has a number of measures in
place to reduce and minimise operating
costs, where possible, to ensure that the
Group maintains its profitability throughout
the commodity cycle. For input goods that
are a requirement of the production of
pellets, the Group aims to minimise use and
develop alternative materials (substitutes) for
use in the Group’s operations, which would
help reduce reliance on a single input (or
limited number of inputs), and therefore
reduce risks relating to the cost and supply
of individual inputs. As an example, a partial
substitute would be the use of sunflower
husks in the Group’s pelletiser, which is used
to fuel the pelletiser. In 2022, the Group
successfully sourced 21% of the pelletiser’s
heating energy from sunflower husks (2021:
18%). Other examples of substitution of
goods within the Group’s operations include
the use of different manufacturers of mining
1. Source: Reuters, link. (Accessed 3 March 2023.)
2. Source: World Bank, link. (Accessed 3 March 2023.)
Ferrexpo plc Annual Report & Accounts 2022
71
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
4. Operating risks (continued)
4.5. Risks relating to information technology (“IT”)
systems and cybersecurity
Responsibility
Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2 and 3
as a result of the conflict, and therefore,
organisations such as Ferrexpo may be the
target of an attack due to its location, rather
than its business activities. Consequently,
it is difficult for the Group to predict the
source, scale or nature of any cyberattack,
which may appear random in nature.
The Group is increasingly reliant on modern
technology for the safe, efficient and cost
effective production of its products. With
IT systems becoming increasingly more
important to the Group’s business model,
the risks associated with IT security and the
continued availability of IT systems have
increased in recent years, particularly in light
of the increased complexity of cyberattacks
on IT systems. Cybersecurity threats may
take the form of, but are not limited to:
malware, ransomware, phishing, denial-of-
service attacks, and password attacks.
Cyberattacks, such as malware and
ransomware, are often unreported in the
mainstream media by companies and
governments to avoid negative publicity. It is
therefore difficult to ascertain the full extent to
which the Group is facing cybersecurity risks.
In the past, published cyberattacks affecting
companies and governments have closed or
limited a company’s ability to produce, or
have withheld or disclosed confidential
information, and have withheld access to
key operational infrastructure.
The Group is exposed to heightened risks
related to cybersecurity at the present
time given Russia’s ongoing invasion of
Ukraine, which is a conflict taking place in a
number of environments, including attacks
on IT systems in Ukraine. Attacks can
be expected on any IT system in Ukraine
Risk mitigation
The Group’s IT department conducts regular
reviews of the general IT landscape and
provides regular cyber awareness training
for employees as well as ad hoc notification
when new threats are identified. The Group
also regularly reviews requirements on data
protection, with email security bulletins
circulated to ensure internal IT users are
provided with up-to-date information on
cybersecurity. The Group has also
implemented a dynamic approach to
anti-malware policies, to ensure an adaptive
approach for new threats as they emerge.
Efforts in 2022 have had a focus on finalising
an extensive third party audit (ISO 2700x,
“Information Security Standards”) of
cybersecurity and internal IT/automation
processes. This audit had previously
commenced in 2021, with a number of
findings identified early on during the war
in Ukraine in 2022 that helped to mitigate
threats, which was achieved in part through
members of the audit team acting as a “red
team”. As a result of this audit, immediate
mitigation actions were taken across the
Group’s IT equipment and infrastructure,
including upgrades to the latest standards.
Purchases of specific software and
hardware were made in 2022, with
deployment to enhance cybersecurity.
In parallel, the Group has had to respond
to the possibility of cyberwarfare and
conventional warfare tactics, with the
commissioning of additional IT infrastructure
in bomb shelters a good example of that
response. Other examples include the
deployment of extensive power control
systems, and urgent upgrades and
migrations due to vulnerabilities.
Further to existing practices and protocols,
the Group regularly updates the software
and hardware in use throughout its
business, to reduce the Group’s exposure
to known weaknesses in cybersecurity.
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Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT 5. Risks relating to climate change
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
Climate change represents a significant
challenge for the modern world, with
governments, business organisations,
communities and individuals around the world
seeking to adapt to a low-emissions future.
Climate change poses a number of physical
and transition risks as the world seeks to
reduce emissions and its reliance on
technologies and activities that are relatively
intensive for the emission of greenhouse
gases. Physical risks are those that affect
the physical environment – such as (but not
limited to) increased heat events, prolonged
droughts and low water levels, dust
emissions, and the increased severity of
precipitation events. Transition risks are those
that relate to society’s shift to a low emissions
future, such as reputational risks and the risk
of technologies becoming redundant in a
low-emissions future, amongst other potential
effects. A review of potential climate change
related risks was conducted as part of the
work carried out with environmental
consultants Ricardo Plc in 2022, with this
work detailed in the Group’s Climate Change
Report. A materiality assessment as part of
this work identified the following as the main
risk areas facing Ferrexpo: (a) demand for low
carbon emissions steelmaking, (b) shipping:
targets and regulations on carbon emissions
and (c) carbon pricing/tax: targets and
regulations on carbon emissions. Further
details of the work completed in collaboration
with Ricardo Plc are available in Ferrexpo’s
Climate Change Report on the Group’s
website (www.ferrexpo.com).
At this stage in the global development
curve on climate change science and
decarbonisation efforts, there is a
heightened degree of stakeholder focus
on decarbonisation efforts. Given this focus,
there is an associated expectation of
progress being made that may not match
the availability of relevant technology and
equipment, or the financial viability of any
technology, and therefore there is a risk of
rising stakeholder concern if a company’s
decarbonisation plans and/or targets are not
effectively communicated, or are deemed
insufficient. Should stakeholders require
further action or increased efforts for
decarbonisation of a business, this may
create additional financial, operational and
reputational risks for the business.
Risk mitigation
The Group understands the importance of
climate change, both in its impact on the
business, as well as the Group’s potential
impact on climate change. The Group aims
to reduce its emissions over time and has
set a series of reduction targets for its
greenhouse gases (principally carbon
dioxide) for the medium and long term (2030
and 2050 respectively). In December 2022,
the Group published its inaugural standalone
Climate Change Report, which represents
the first phase of work completed with
environmental specialists Ricardo Plc. This
report details a number of measures that
the Group is either utilising today to reduce
emissions, or plans to use in the future, in
order to achieve these emissions targets.
The full report is available on the Group’s
website (www.ferrexpo.com).
on activities that generate the greatest
emissions, as well as identifying low cost
solutions that may reduce the Group’s
activities. The main source of the Group’s
overall emissions (being Scopes 1, 2 and 3
collectively) is the downstream use of iron
ore pellets in steelmaking, which accounted
for 85% of total emissions in the Group’s
baseline year of 2019. In order to reduce this
aspect of emissions, the Group is increasing
its focus on production of direct reduction
(“DR”) pellets, which are used in an
alternative method of steelmaking (the direct
reduced iron – electric arc furnace process),
which results in DR pellets generating 49%
lower emissions when converted to steel,
compared to the Group’s blast furnace
pellets, as assessed by independent
consultants CRU.
The Group has a streamlined approach to
reducing emissions, focusing where possible
With regard to Scope 1 and 2 emissions, the
Group has initiated a number of projects to
reduce these categories of emissions. The
project yielding the greatest impact is the
Group’s clean power purchasing strategy,
which has resulted in Scope 2 emissions
falling by 52% since 2019, helping to deliver
a 31% saving in Scope 1 and 2 emissions
combined. In addition, the Group is studying
the electrification of its mining fleet and use
of green hydrogen in the Group’s pelletiser,
with diesel and natural gas representing
80% of the Group’s Scope 1 emissions in
2022 (2021: 85%).
Through these projects, the Group aims to
produce iron ore pellets on a net zero basis
by 2050. For further details of the net zero
pathway identified through working with
Ricardo Plc, as well as the Group’s carbon
emissions reduction targets, please see the
Group’s Climate Change Report for 2022 on
the Group’s website (www.ferrexpo.com).
Ferrexpo plc Annual Report & Accounts 2022
73
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks continued
6. Risks relating to the global Covid-19 pandemic
Responsibility
Board of Directors and Chief Executive Officer
Risk appetite
Low
Link to strategy
1, 2, 3, 4 and 5
The global Covid-19 pandemic continues
to affect communities around the world,
with varying levels of infection in different
countries resulting in a range of Covid-19
related measures in place with local and
regional governments, which may impact the
Group’s ability to do business in individual
countries, or conduct cross-border trade.
Whilst governments around the world are
gradually reducing Covid-19 related measures
and restrictions, there are reports of elevated
infection rates in a number of countries,
particularly those that have recently reopened
and/or have relatively low vaccination rates
in sections of society, such as the elderly or
specific regions within a country. The Covid-19
virus has demonstrated an ability to mutate
into different strains and therefore it should
be considered a risk that an as-yet unknown
variant of Covid-19 may emerge that has the
potential to significantly impact communities
to a greater extent than previous variants.
As a business operating in Ukraine, Russia’s
continued invasion of Ukraine in 2022 has
resulted in significantly lower testing for
Covid-19 and as a result infection rates
are largely unknown at the present time. As
such, without widespread testing or active
measures to prevent transmission, the spread
of the Covid-19 virus in Ukraine represents a
potential risk, particularly if more transmissible
and/or severe strains of this virus were to
emerge in the near term. Given the focus of
Risk mitigation
The Group has maintained a number of
Covid-19 measures that were introduced in
2020 and were successful in the Group
maintaining low rates of infection at its
operations in 2020 and 2021. Such
measures include social distancing, mask
wearing (where relevant) and electronic
cameras capable of measuring an
individual’s body temperature. The Group
maintains the ability to reintroduce other
measures, such as changes to the timing of
shift patterns, the dissemination of food
outside of canteens and widespread testing
of employees and contractors, should the
risks associated with Covid-19, or the impact
the government on the defence of its territorial
integrity, it is unlikely that testing and/or
preventative measures will resume until the
war in Ukraine de-escalates or a ceasefire is
called. The Group may therefore be required
to increase its efforts to monitor and test for
infections amongst its workforce, and
increase efforts to assist local authorities with
a community testing programme, should rates
of infection increase and/or the impact of
individual infections become more severe.
Whilst the response to Covid-19 by both the
Group and local authorities was proactive
prior to the war in Ukraine commencing in
February 2022, it should be expected that
the response to Covid-19 may be now more
reactive in nature, and therefore any impact
of infections in the Group’s workforce and/or
local communities may be felt to a greater
extent before counter-measures are
successfully initiated to aid affected
individuals and reduce infection rates.
of infections, increase to a material level of
impact on the business.
The Group has also continued to support
the local authorities’ efforts to vaccinate the
local population, including the Group’s
workforce. As of February 2022, over 6,000
of the Group’s employees in Ukraine (out of
a total employee workforce of 7,850) had
received a single dose of a Covid-19
vaccination and over 5,400 had received
a second dose. Following the outbreak of
war in Ukraine, reporting of Covid-19
vaccinations has been reduced however.
The Group continues to support medical
institutions in local communities through the
Ferrexpo Charity Fund, which has been in
operation for more than 11 years and
represents one of the main avenues for the
Group to provide direct community support
(other avenues include direct support
provided by the Group’s own operating
subsidiaries, FPM, FYM and FBM). Further
details of community support funding are
provided on page 44 of this report.
74
Ferrexpo plc Annual Report & Accounts 2022
STRATEGIC REPORT Viability Statement
Review of planning
process and outlook
Assessing the Principal Risks to our business
model and potential financial impact of an event
occurring, protecting the equity value of our
business for the benefit of all our stakeholders.
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 58 to 74.
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, the Board has elected to
look at the Ferrexpo business on a five year
time horizon, with a particular focus on the
short-term time horizon of 12 to 18 months,
in light of the current war in Ukraine, and
the material uncertainties that this poses to
the Group in terms of its going concern and
long-term viability. The Group has historically
reviewed the viability of its business model
over 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, with a heightened focus on
additional risks in the coming 12 to 18 months.
Factors associated with the war
in Ukraine
Due to the significance, scale and
unpredictable nature of the war in Ukraine,
specific attention has been applied in the
Group’s approach to assessing its viability.
The war in Ukraine has represented, and will
continue to represent, a significant risk to
the Group’s ability to continue its operations
in future periods. Following the Russian
invasion of Ukraine on 24 February 2022, the
Group’s executive management team has
held regular meetings to assess the various
risks that the business faces, including daily
meetings during the initial weeks of the war.
Emerging and existing risks are reported on
during these calls, with available risk mitigation
procedures discussed, and the results of
each meeting being reported to the Group’s
Board of Directors. Risks to Ferrexpo that have
been identified as a consequence of the war
in Ukraine include risks to the health, safety
and wellbeing of the Group’s workforce, the
Group’s ability to operate its assets, including
the supply of key input materials required for
the production process and the provision
and availability of logistics capacity required
for the delivery of the Group’s products
to customers in its key markets. For more
information, please see the Principal Risks
disclosed on pages 58 to 74 of this report.
Factors associated with
climate change
The Group has considered a range of physical
and transition risks, as outlined on page 40 of
this report and depicted in detail in the Group’s
Climate Change Report. This process has
identified that the transition to a low carbon
economy and demand for low emissions
steelmaking as being the main climate-related
risk facing Ferrexpo and its business model.
A range of additional transition and physical
risks were considered as part of this review.
The Group has announced a range of
climate-related emissions reduction targets
for the years 2030 and 2050. The Group
is yet to set a net zero target for 2050 that
fully covers all categories of emissions,
specifically the Group’s Scope 3 emissions,
and intends to continue working towards
full coverage of Scope 3 emissions in
order to align to the Paris Agreement.
In assessing the Group’s ability to meet its
2030 goals within its existing business model
and strategy, reference is made to the 31%
reduction achieved since 2019 for Scope 1
and 2 emissions (combined basis, per tonne of
production). The Group’s management team
understands that further reductions in these
emissions are possible in the coming seven
years in the form of additional clean electricity
purchases and mining electrification, the latter
of which will come in the form of incremental
Ferrexpo plc Annual Report & Accounts 2022
capital investmentA to replace existing fleet
as it is retired. On Scope 3 emissions, the
Group intends to increase production of direct
reduction pellets to more than 20% of total
output by 2030, meeting the Group’s target.
Business planning process
In response to the Russian invasion of
Ukraine, the Group has temporarily revised its
approach to its business activities and
investments from its business model shown
on pages 12 to 13. This approach has been
implemented to concentrate on the Group’s
ability to generate cash in the revised
operating environment, which will enable the
Group to sustain its business. As a result,
investments are currently focused on
sustaining capital expenditure, with limited
expenditure on growth capital projects,
modernisation of existing equipment and
other development projects. Prior to the
beginning of the war, in order to maintain a
clear strategic direction, the Group’s
management team regularly assessed the
risks faced by the Group against the ability of
the Group to conduct business in accordance
with its business model.
This review is conducted regularly in order to
maintain a clear understanding of the risks
faced by the business and how these factors
are influencing the business. Following the
start of the war in Ukraine, the Group’s
management team has also focused on
constantly assessing the risks that may
directly, or indirectly, impair the Group’s ability
to manage the Ferrexpo business in light of
the impact of the war on the business and
operating environment in Ukraine.
Modelling process
In the normal course of business, the Group
operates a detailed financial model of its
business. Recently, this work stream has
focused on the potential impacts arising from
the ongoing war in Ukraine, in addition to
the more traditional input factors such as the
market factors that influence the price of the
Group’s products, and operational factors that
influence the Group’s ability to produce the
75
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Viability Statement continued
required volume and quality of iron ore pellets
demanded by the market, as determined
in the Group’s forward-looking sales plan.
In assessing the inputs into this model, the
Group’s management team has assessed the
risks associated with the potential disruption
of the supply of key consumables, which
includes natural gas, electricity and diesel
fuel, in addition to the supply of key pieces
of equipment. The Group’s modelling has
also considered the risks surrounding a
further interruption to the Group’s logistics
network, in addition to the existing disruption
faced due to the closure of Ukraine’s Black
Sea ports. In addition to the assessed risk
associated with continued production and
shipment of the Group’s products, the
Group has also assessed market factors that
represent the principal factors governing the
pricing of the Group’s iron ore products.
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
Ferrexpo business. At the present time, the
risk that the Group is primarily exposed to
is Russia’s invasion of Ukraine in 2022 (see
the Principal Risks section, pages 58 to 74).
In addition, Ferrexpo’s business model has
historically also faced risks relating to changes
in the iron ore fines price, pellet premiums
and cost inflation, which are factors that
continue to govern the Group’s profitability.
The Group’s ability to produce at full capacity
in 2023 will be contingent on the war in
Ukraine, and its impacts on the Group’s ability
to operate its assets in Ukraine, and deliver its
products to the Group’s customers. For a
summary of the war’s various impacts on the
Group, please see pages 4 to 5.
The Group has adjusted its long-term financial
model to reflect the lower production volume
expected as a result of the uncertain level of
available electricity and the sales volume
forecasted as a result. The Group’s sales
volumes in future periods will depend on the
possibility of seaborne sales to the Group’s
customers outside of Europe, with changes
to forecasted production volumes varying
accordingly. The Group’s financial model
anticipates that production and sales
volumes will return pre-war levels by 2025,
based on a range of operating assumptions
relating to the war in Ukraine.
The Group’s financial modelling indicates that
a 10% reduction in the Group’s received price
in 2023 would, if not mitigated, reduce the
Group’s Underlying EBITDA A by US$15.3 per
tonne. Modelling also indicates that a general
production cost increase of 10% would
decrease Group Underlying EBITDA A by
US$7.2 per tonne, whilst a 10% decrease in
production volumes, and an associated 5%
increase in production costs, would decrease
Underlying EBITDA A by US$7.5 per tonne.
It should be noted that the impact of the
factors discussed above apply for 2023.
Any impact on additional years beyond 2023
will depend on the underlying sales and
production volumes and the level of realised
prices and production costs in each period.
As a result of the remaining material
uncertainty outside of the Group’s control,
the Group has also prepared stress tests with
more severe adverse changes, such as a
combination of various sensitivities, which is
however less likely to incur due to a natural
hedge between iron prices and prices for
key input material, and a prolonged period
of lower production and sales volumes as
seen during the months December 2022 to
February 2023. In addition to stress testing
associated with the ongoing conflict in
Ukraine, the additional stress test scenarios
performed include the following:
– operational incidents that could have
a significant impact on production
volumes;
– a deterioration in the Group’s long-term
cost position on the industry cost curve;
and
– operating constraints due to Ukrainian
country risk.
In respect of mitigating actions in response to
the conflict in Ukraine, please see page 59 for
more detail. In more general areas, mitigating
actions implemented by the Group may
include, but are not limited to, 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 both 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, and the Group’s ability to repay
its debt facilities, with the early repayment of
the Group’s principal debt facility in June
2021. This ability to repay debt facilities is
derived from the operational flexibility of the
Group and level of cash generation, as
demonstrated through the Group’s ability to
continued shipment of products in 2022,
despite the war in Ukraine. As a result of the
Group’s flexibility and resilience, the Group’s
net cash position decreased by a relatively
small amount during 2022 (c.9% decrease).
Since the end of 2020, the Group has moved
into a net cash position, and had a net cash
position of approximately US$106.4 million as
of 31 December 2022 (as of 31 December
2021: US$116.9 million). As at the date of
the approval of the Group’s Consolidated
Financial Statements, the Group is in a net
cash position of approximately US$114.6
76
Ferrexpo plc Annual Report & Accounts 2022
million and has an available cash balance
of approximately US$120.4 million.
Based on the assessment performed, 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 period of their assessment.
This is, however, dependent on significant
factors that are outside of the Group’s
control, and the Directors have assumed
the following when assessing the Group’s
resilience to the potential threat from
the war in Ukraine and its viability:
–
–
–
–
–
the continued ability to operate in Ukraine;
the ability to redesign the Group’s mining
and processing plans in order to align
them to changing circumstances;
the continued availability of stable
electricity supply at the required level;
the ability to secure supplies of key
consumables and equipment; and
the ability to use the Group’s currently
available logistics network or make use
of alternative options, if needed.
In performing this assessment, the Directors
have also considered the Group’s resilience
to climate change risks (covering a range of
physical risks and transition risks).
As disclosed in Note 2 Basis of preparation
in the Group’s Consolidated Financial
Statements on page 156, although the
Group has managed to continue its
operations since the beginning of the war,
this continues to pose a significant threat
to the Group’s mining, processing and
logistics operations within Ukraine. Having
assessed the current situation of the war
in Ukraine, all identified available mitigating
actions and the results of management’s
assessment of the Group’s going concern
and long-term viability, a material uncertainty
still remains as some of the uncertainties
are outside of the Group management’s
control, such as the duration and the impact
of the war, which cannot be predicted.
The Strategic Report was approved by the
Board on 14 March 2023 and signed on
behalf of the Board by:
Lucio Genovese
Chair
STRATEGIC REPORT Corporate Governance
A strong core
helps guide us
Strategic Report
Corporate Governance
Chair’s Introduction
Governance at a Glance
Board of Directors
Executive Committee
Corporate Governance Compliance
Diversity
Corporate Governance Report
Audit Committee Report
Nominations Committee Report
Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Financial Statements
Additional Disclosures
Alternative Performance Measures
Glossary
01
77
78
80
82
84
85
87
88
98
105
110
132
137
138
211
212
215
Ferrexpo plc Annual Report & Accounts 2022
77
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chair’s Introduction
Dear
Shareholder,
Continuing to deliver on our promises
through resilience and commitment.
Lucio Genovese,
Chair
Before reflecting on the progress made during
2022, it is important to acknowledge the
devastating impacts which the Russian
invasion of Ukraine is having on Ukraine and
the people, local communities, businesses
operating within the country and the
day-to-day lives of Ukrainians. Now more than
ever strong governance is essential to help
see Ferrexpo through this very challenging
time. As you would expect, the Board has
been meeting regularly to discuss the ongoing
situation in Ukraine, receiving regular updates
from the management team as to the Group’s
response and scenario planning for different
eventualities. Protecting the Group’s
workforce remains a key priority, as well as
taking steps to protect the business and
thereby the stakeholders of the business.
This will remain a key priority during 2023
and the Board will continue to focus on
exercising strong governance during these
unprecedented and difficult times.
I am pleased to present the Corporate
Governance Report, which sets out an
overview of the means by which the Company
is directed and controlled, our governance
structure and highlights the governance
activities 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 which
underpins all of its actions. The structure,
policies and procedures we have adopted,
which are described in this report, the
Directors’ Report and reports from each
of the Board Committees, reflect our
commitment. We recognise the need to keep
them under review and make changes where
necessary to ensure that standards are
maintained and reflect ever-evolving best
practice. This report also explains how we
have complied with the principles of the UK
Corporate Governance Code during the year.
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. The Board’s role is
also to support and challenge management
and to ensure that the way we operate
promotes the long-term sustainable success
of Ferrexpo plc.
Operation of the Board during
the war in Ukraine and
governance framework
Against the backdrop of the continuing
Russian invasion of Ukraine, we remained
focused on the health, safety and wellbeing
of our people globally, who have continued to
deliver for the Group and our stakeholders
through the testing times over the last couple
78
Ferrexpo plc Annual Report & Accounts 2022
of years. Our people have helped ensure
business continuity and have safeguarded our
operations, whilst maintaining good corporate
governance practices and our system of
internal control.
During the year, the Board has continued to
operate effectively and without disruption
notwithstanding the ongoing challenges
facing the Group. Some Board members
attended Board meetings virtually due to
travel restrictions. All scheduled Board
meetings were held and the Board continued
to uphold and maintain good corporate
governance, the corporate agenda and the
flow of information across the Group.
We have also ensured Director’s on-boarding
programmes continued as planned, albeit in
a virtual environment. The format of hybrid
(combination of physical and virtual) Board
meetings provided the Board with greater
opportunities to engage with each other,
management and employees. During 2022,
the Board site visit to our operations in
Horishni Plavni was cancelled due to the
Russian invasion of Ukraine and as was the
case in the previous two years due to the
global Covid-19 pandemic. The Board site
visit was replaced with a Board Strategy Day
followed by an ESG upskilling and Climate
Change Day, which focused on the pathway
for decarbonisation of the Group.
Despite the challenges of remote working we
continued to enhance our shareholder and
CORPORATE GOVERNANCE – On 14 February 2022, Jim North was
appointed as permanent CEO having
successfully transitioned the Group into
a new phase of its corporate culture and
overall growth ambitions. Jim brings a
wealth of mining experience coupled with
excellent leadership and an adept ability
to refocus the Group’s strategy, further
promote an inclusive leadership model,
deliver a clear message on key topics
relevant to stakeholders, whilst also
continuing to deliver strong operational
performance across the Group.
– On 10 February 2022, the Board elected
to appoint Fiona MacAulay as Senior
Independent Director in place of Vitalii
Lisovenko after completing two and half
years in the role.
Key highlights in 2022 and
early 2023:
– supporting our workforce and the
operations throughout the Russian
invasion of Ukraine;
– Health and safety and employee wellbeing;
– zero fatalities;
– publication of Climate Change Report;
–
– commenced search for a Director from
improved Board diversity;
an ethnic minority group;
– appointment of permanent CEO;
– appointment of female Senior Independent
Director;
– appointment of HSEC Chair;
– appointment of female Independent
Non-executive director to Audit and
HSEC Committees;
– appointment of female Acting Chief
– Additionally, on 10 February 2022,
Marketing Officer;
Ann-Christin Andersen was appointed
as Chair of the Group’s HSEC Committee
and Natalie Polischuk was appointed as a
member of both the Audit Committee and
HSEC Committee.
– succession planning at Board and
management level;
– strengthened cyber security; and
–
focus on shareholder and key stakeholder
engagement.
– On 29 December 2022, Kostyantin
Zhevago stepped down as a Non-
executive Director of the Company.
Throughout the year, the Board committed
to search for an Independent Non-executive
Director from an ethnic minority group, led by
the Nominations Committee and supported
by external consultants.
Throughout 2022, there were three female
Directors further strengthening Board
independence and diversity. By the end of
the year female representation on the Board
increased to 43%, which is welcomed by the
entire Board.
Board performance review
In line with the UK Corporate Governance
Code, Board performance was assessed
externally in 2021. Therefore, during the
year, an internally assessed review of the
performance and effectiveness of the
Board, its Committees and each of the
Directors was undertaken. A report on the
process, activities, findings and actions of the
evaluation can be found on pages 94 to 96.
Key priorities for 2023:
– supporting our workforce and the
operations through the Russian invasion
of Ukraine;
– Health and safety and employee wellbeing;
– climate change;
– recruit a Director from an ethnic minority
group;
– succession planning at Board and diversity
at management level;
– continue focus on shareholder and key
stakeholder engagement; and
– continue to strengthen cyber security.
I hope you find this report useful and
informative. I look forward to engaging
with as many of you as possible at our
2023 AGM in person and would like to
encourage you to vote your shares even
if you cannot attend in person, so that we
gain a better understanding of the views
of our shareholders as a whole.
Lucio Genovese
Chair
14 March 2023
stakeholder engagement and we place their
interests at the centre of our considerations
for key decisions. Our Section 172 Statement
set out on pages 48 to 55 provides further
details on how the Board complied
throughout the year.
The Russian invasion of Ukraine has not
adversely impacted the operation of the
Board or its Committees.
Supporting local communities
during the war in Ukraine
During the year, in addition to our continued
support for communities locally, the Ferrexpo
Humanitarian Fund was set up as a dedicated
fund, initially in the amount of US$1.5 million
and during the year the fund increased to
US$15 million, to support the communities in
Ukraine as the humanitarian crisis quickly
unfolded. This funding enabled the purchase
of personal protective equipment and
equipment for local hospitals amongst other
things (see Responsible Business section of
the Strategic Report on pages 30 to 47).
In addition to the Ferrexpo Humanitarian
Fund, regular community support activities
took place largely in Ukraine and donations
were made within a Board-approved
framework agreed annually at the time of
setting the budget. All such community
support and donations are subject to 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 Ferrexpo
Humanitarian Fund and local charitable
spending via its Health, Safety, Environment
and Community (“HSEC”) Committee, which
oversees and directs these activities and
receives reports detailing the spend.
Board changes
The issue of diversity, both in the Boardroom
and throughout the entire Group, is taken
very seriously by the Board as we believe
this improves effectiveness, encourages
constructive debate, delivers strong
performance and enhances the success of
the business. Ensuring that we have a culture
which promotes and values diversity, and one
which is maintained throughout the business,
is a continual prime focus and is underpinned
by our Diversity, Equity and Inclusion Policy,
which sets our objectives.
Further to significant Board changes and
commitments made last year, we announced
further changes to Board and Board
Committee roles during the year. In
accordance with best practice requirements
of the UK Corporate Governance Code, the
Board keeps its balance of skills, knowledge,
experience, independence and diversity
under review which is beneficial in itself in
bringing new perspectives to the Board.
Ferrexpo plc Annual Report & Accounts 2022
79
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Governance at a Glance
Group structure
SHAREHOLDERS
BOARD
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATIONS
COMMITTEE
Responsibilities include:
Responsibilities include:
Responsibilities include:
– Reviewing and approving all aspects of
– Considering and approving the
– Monitoring integrity of financial statements.
– Reviewing internal control and risk
management systems.
remuneration for Executive Directors and
members of the Executive Committee.
– Relationship with external auditor.
– Aligning remuneration policy and practices
to support strategy.
– Engaging with shareholders to receive
feedback on remuneration policy and
outcomes.
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.
Read the Audit Committee Report
on page 98
Read the Directors’ Remuneration Report
on page 110
Read the Nominations Committee Report
on page 105
COMMITTEE OF INDEPENDENT
DIRECTORS (“CID”)
HEALTH, SAFETY, ENVIRONMENT
AND COMMUNITY (“HSEC”) COMMITTEE
CHIEF EXECUTIVE OFFICER
AND EXECUTIVE COMMITTEE1
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 Companies Act 2006.
Responsibilities include:
– Formulating and monitoring the
implementation of the Group’s policy
on issues relating to health and safety,
environment and community as they
affect operations.
Responsibilities include:
– Execution of Board-approved strategies.
– Delegated authority levels for senior
management.
– Development and implementation
of Group policies.
– Specific focus on safety and climate
– All material matters not reserved for
change impacts.
the entire Board.
Find out more on page 90
Find out more in the Responsible
Business section on page 30
Find out more on page 84
1. The Finance, Risk Management and Compliance Committee, Investment Committee and the Executive Related Party Matters Committee all report to the Executive Committee.
80
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE
Board diversity, tenure and balance
Board balance
Board diversity – Gender
Board diversity – Age
2022
2022
2022
Independent:
Non-independent:
Chair:
Executive:
5
0
1
1
Female:
Male:
3
4
40-49:
50-59:
60+:
1
4
2
Board diversity – Ethnic group
Board tenure
2022
2022
White:
Mixed/Multiple
Ethnic Group:
7
0
0-5 years:
9+ years:
6
1
Skills matrix
Expertise
Mining, Global Resource Industry
Business leadership and strategy
Corporate governance
ESG/Sustainability
Financial, Audit & Risk
CIS geographical experience
Government and international relations
HSEC
Human capital management/Remuneration
Investor relations management
Risk management
Ferrexpo plc Annual Report & Accounts 2022
100%
% of Board
members
58%
58%
71%
54%
67%
71%
54%
67%
71%
67%
79%
81
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Board of Directors
An experienced and balanced Board
Raffaele (Lucio) Genovese
Non-executive Chair
Fiona MacAulay
Senior Independent
Non-executive Director
Jim North
Chief Executive Officer
and Executive Director
Ann-Christin Andersen
Independent
Non-executive Director
Date of appointment
24 August 2020 as Chair
Date of appointment
12 August 2019
13 February 2019 as Non-
independent Non-executive Director
10 February 2022 as Senior
Independent Director
Current external appointments
Currently, he serves as chair of CoTec
Holdings, listed on NEX Board of the
TSVX, since 2021; non-executive
director of Nevada Copper Inc since
2016; and chief executive officer of
Nage Capital Management AG, a
Swiss based investment and advisory
firm, since 2004.
Previous appointments
Previously, he was non-executive
director of Mantos Copper SA, 2015-
2022; independent non-executive
director of Ferrous Resources
Limited, 2014–2019; chair of Firestone
Diamonds Plc, 2012-2020; an
Independent Non-executive Director
of Ferrexpo plc, 2007–2014; 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
35 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
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.
Current external appointments
Non-executive director of Costain
Plc since April 2022; non-executive
director of Chemring Group plc since
2020; non-executive chair of IOG Plc
until 2 May 2023 when she will step
down at the AGM.
Previous appointments
Previously, she was non-executive
director of AIM listed Coro Energy,
2017–2022; chief executive officer of
Echo Energy plc, 2017–2018; 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. In 2022, she completed
a Diligent Climate Leadership
Certification programme. She has
extensive operational experience in
emerging energy which enables her to
bring positive insight on a broad range
of issues to Board and Committee
discussions.
Date of appointment
14 February 2022 as
Chief Executive Officer
5 July 2020 as
Executive 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 BHP Billiton, Rio Tinto 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 eight 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 brings multiple commodity
experience across the resources
value chain and extensive experience
to bear in managing the Company.
Date of appointment
1 March 2021
Current external appointments
Since 2021, Ann-Christin has served
as non-executive chair of Quantafuel
AS, and since 2020 served as chair
of the board of Å Energi AS (formerly
Glitre Energi AS) (unlisted), having
been appointed as a director in 2015.
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 Maersk Drilling, Argeo AS,
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 a 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
Committee membership
Committee membership
Committee membership
C
82
C
C
C
Fiona was the Chair of the HSEC
Committee until February 2022.
Ann-Christin was appointed the Chair
of HSEC Committee and as a member
of the Nominations Committee in
February 2022.
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE
Gender breakdown
Key to committee membership
Male
Female
57.1%
42.9%
Audit Committee
Remuneration Committee
Nominations Committee
Committee of Independent Directors
(“CID”)
Health, Safety, Environment and
Community (“HSEC”) Committee
Chief Executive Officer and Executive
Committee
C Committee Chair
Graeme Dacomb
Independent
Non-executive Director
Vitalii Lisovenko
Independent
Non-executive Director
Natalie Polischuk
Independent
Non-executive Director
Date of appointment
10 June 2019
Date of appointment
28 November 2016
Date of appointment
29 December 2021
Current external appointments
Currently, she serves as non-
executive director of Dobrobut
(Ukraine), since 2018.
Previous appointments
Previously, she was non-executive
director and treasurer of Lycée
Français Anne de Kyiv, 2014–2020.
Skills, expertise and contribution
Natalie brings over 25 years of private
equity experience in Eastern Europe,
having held a number of senior roles
at private equity funds in the region
and having acted as an independent
advisor on a number of M&A and due
diligence projects in Ukraine.
Current external appointments
Currently, he serves as non-executive
director of Ecora Resources Plc
(formerly Anglo Pacific Group Plc)
since 2019.
Previous appointments
Previously, he was an audit partner of
Ernst & Young LLP for 26 years and
a Member of the Financial Reporting
Review Panel from 2011–2018.
Skills, expertise and contribution
Graeme contributes to Ferrexpo plc
over 43 years’ experience, of which
he was a partner at Ernst & Young
(“E&Y”) for 26 years. At E&Y he was
a senior 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 and financial systems
and controls.
Graeme brings extensive knowledge
of the extractive industry and his
financial expertise gained as senior
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.
Current external appointments
Currently, he serves as a non-
executive advisor 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 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 a non-
executive alternate director, Black
Sea Trade and Development Bank
(Greece), 2014-2019; 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
25 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
Committee membership
Committee membership
C
C
Graeme is the Chair of the Audit
Committee, where he acts as its
Financial Expert.
Non-executive Director designate for
workforce engagement.
Natalie was appointed as a member
of the Audit Committee and HSEC
Committee in February 2022 and the
Committee of Independent Directors
in February 2023.
Ferrexpo plc Annual Report & Accounts 2022
83
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Executive Committee
An experienced and focused
Management Team
Jim North
Chief Executive Officer and Chief
Operating Officer – combined role
Nikolay Kladiev
Chief Financial Officer
For more information see page 82 for details.
Nikolay was appointed Group Chief Financial Officer
on 4 August 2021.
Nikolay joined the Group in 2005, and contributed
significantly to the Group’s IPO. Since 2007, Nikolay
has served on the Board of FPM as CFO. During his
17 years with Ferrexpo, Nikolay has overseen FPM’s
finance function, and has been directly responsible
for maintaining the Group’s position as a low cost
pellet producer during this time. Prior to Ferrexpo,
Nikolay held a number of audit positions with Arthur
Andersen and Ernst & Young in Ukraine and Eastern
Europe.
Skills and experience
He is a Chartered Accountant (UK) and has a
Masters in International Economic Relations from
Kyiv National Economic University.
Viktor Lotous
Chief Operating Officer
and Head of Managing
Board, FPM
Viktor became Chief Engineer in 1997 and Head of
the Managing Board and Chief Operating Officer in
April 2007.
Skills and experience
He is a graduate of Kryvyi Rih Mining and Ore
Institute, and of the Kyiv National Economic
University, specialising in Finance.
Greg Nortje
Chief Human Resources Officer
Yaroslavna Blonska
Acting Chief Marketing Officer
Greg joined Ferrexpo in January 2014.
He previously held a variety of international
Human Resources leadership positions with Anglo
American and BHP Billiton before establishing his
own human resources consultancy firm to a range
of clients across the UK. Particular specialisms
include project management and business change
execution, organisational effectiveness, talent
management, governance and compliance, and
leadership development.
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.
Yaroslavna was appointed the Acting Chief
Marketing Officer on 22 August 2022.
Yaroslavna joined Ferrexpo in 2002.
Since joining Ferrexpo Yaroslavna has held a
number of key roles within the Group’s Marketing
team, including Head of Sales for customers in
Europe and Turkey, management of the Group’s
Asian and European customers, membership of the
representative board for the Group’s port loading
subsidiary, TIS-Ruda. Yaroslavna has been acting
as a focal point for the Group’s government and
public relations within Ukraine. She has also been
managing Ferrexpo’s office in Kyiv since 2006.
Yaroslavna has been helping to facilitate the Group’s
“Fe_Munity” women in leadership programme as a
speaker and a mentor.
Skills and experience
She holds a Master of Business Administration
degree from Kyiv State Economic University
and a post graduate Diploma in Law from Taras
Shevchenko National University, Kyiv.
84
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE 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 Corporate Governance
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 2022 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 15: The Chair’s appointment as a director of Audley Capital GmbH on 9 June 2022 was ratified by the Board on 29 July 2022.
– 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 term are provided below. The non-compliance with provision 15 of the Corporate
Governance Code has arisen due to an inadvertent mistake and following discovery of this the Board took steps promptly to formally ratify
Mr Genovese’s appointment as a director of Audley Capital GmbH. Each of the directors have also since been reminded of the need to seek
prior Board approval before accepting any additional external appointments.
The Corporate Governance Code sets out the governance principles and provisions that applied to the Company during 2022. The Corporate
Governance Code is not a rigid set of rules, and consists of principles and provisions. The Company complied with all the principles and
detailed provisions of the Corporate Governance Code in 2022 except for Provisions 9, 15 and 19. Provision 9 recommends that the Chair be
independent on appointment and Provision 19 recommends that the Chair should not remain in post beyond nine years from the date of first
appointment to the Board. Provision 15 provides, amongst other things, that additional external appointments should not be undertaken by a
Director without prior approval of the Board.
Mr Genovese was first appointed to the Board as a Director in June 2007 and retired in August 2014. After a near five-year break, he rejoined the
Board in February 2019 as a non-Independent Non-executive Director and most recently was appointed as Chair of the Board in August 2020.
Independent mindset
The Board is satisfied that Mr Genovese is fully independent from all the Company’s shareholders and has been during his entire tenure as a
Non-executive Director. Additionally, upon his appointment as Chair the members of the Nominations 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 given his experience, leadership
qualities and detailed knowledge of the Group. He has more than 30 years’ experience of Ukraine together with in-depth knowledge of the
socio-political and economic environment. He has specific iron ore mining knowledge coupled with solid experience of UK plc corporate
governance matters. These qualities enable him to provide sound leadership to the Board based on his personal experience and knowledge
which facilitates constructive discussions and Board decisions.
Mr Genovese is committed to having a diverse and inclusive Board and workforce. He has overseen the design and implementation of
succession plans to facilitate increased independence and diversity. The Board considers that Mr Genovese continues to demonstrate
objective judgement and provides constructive challenge, and believes that his continued appointment is appropriate without fixing a time
limit to his service.
Examples of the changes Mr Genovese has overseen during the last year include:
– appointment of permanent CEO;
– appointment of female Senior Independent Director;
– appointment of female Independent Non-executive Director to Audit and HSEC Committees;
– appointment of female Acting Chief Marketing Officer;
– succession planning at Board and senior management level;
– climate change – publication of Climate Change report;
– commenced search for a director from an ethnic minority group; and
– refocused the 2022 Board agenda to include Cyber Security, Climate Change and Environmental, Social and Governance matters.
Ferrexpo plc Annual Report & Accounts 2022
85
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Compliance continued
Mr Genovese led the Board through the Russian invasion of Ukraine, ensuring continuity of the Board agenda and meetings together with
ongoing corporate initiatives and the establishment of the Ferrexpo Humanitarian Fund to support communities in Ukraine.
The Board believes Mr Genovese is the right person to Chair the Board. To provide continuity of his sound leadership, the Board request your
support to re-elect Mr Genovese at the 2023 AGM.
Further details on the composition of the Board and its Committees are set out on page 88 and further details of the role of the Senior
Independent Director are set out on page 90.
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: Chair’s Statement page 2, Stakeholder Engagement – Section 172 Statement pages 48 to 54, Skills
Matrix page 81
Principle B: Chair’s Statement page 2, CEO’s Review page 6, Our Business Model pages 12 to 13, Understanding our
Strategic Direction pages 16 to 17, Stakeholder Engagement – Section 172 Statement pages 48 to 54
Principle C: Key Performance Indicators pages 18 to 21, Risk Management pages 56 to 57, Principal risks pages 58
to 74, Internal Controls pages 103 to 104
Principle D: CEO’s Review page 6, Our Stakeholders page 14 to 15, Responsible Business: Safety and our People
Principle E:
pages 32 to 33, Responsible Business: Communities pages 44 to 45, Responsible Business: Governance
pages 46 to 47, Stakeholder Engagement – Section 172 pages 48 to 54
Non-Financial Information Statement page 47, Our engagement activities in 2022 page 49, Stakeholder
and workforce engagement page 92, Whistleblowing Policy page 104
Division of
responsibilities
Principle F: Chair’s Introduction page 78, Statement of Compliance page 85, Independent Mindset page 85, Role
Descriptions page 90, Board Leadership page 91 to 93, Board Evaluation page 94 to 96
Principle G: Group Structure page 80, Board of Directors pages 82 to 83, Role Descriptions page 90
Principle H: Corporate Governance At a Glance page 80, Board of Directors pages 82 to 83, Time Commitment page
89, Role Descriptions page 90
Principle I: Skills Matrix page 81, Time commitment and Non-executive Director external appointments during 2022
page 89, Board Leadership pages 91 to 93
Composition,
succession, evaluation
Principle J:
Principle K: Board Diversity, tenure and balance page 81, Board Composition page 88, Skills Matrix page 81,
Independent Mindset page 85, Diversity page 87, Nominations Committee Report page 105
Succession Planning and Recruitment page 107
Principle L: Board Evaluation pages 94 to 96
Audit, risk,
internal control
Principle M: External Audit page 104, Internal Audit page 104
Principle N: Audit Committee Report pages 98 to 104, Responsibility statement of the Directors in respect of the
Annual Reports and Accounts page 137
Principle O: Risk Management pages 56 to 57, Principal Risks pages 58 to 74, Internal Control and Risk Management
page 103
Remuneration
Principle P: Remuneration policy pages 110 to 131
Principle Q: Our approach to remuneration page 111, Performance and Reward pages 111 to 112, Implementation of
the remuneration policy in 2023 page 112
Principle R: Remuneration Report pages 110 to 112
Disclosure Guidance and Transparency Rules
By virtue of the information included in this Corporate Governance Report and the Directors’ Report, the Company complied with the corporate
governance statement requirements of the FCA’s Disclosure Guidance and Transparency Rules.
86
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Diversity
We voluntarily report our Board and executive management diversity data as at 31 December 2022 in accordance with the new UK Listing Rules
disclosure requirements and our progress in meeting the new UK Listing Rules board diversity targets.
As at 31 December 2022, women represented 43% of the Board see page 79. On 10 February 2022, the Board elected to appoint Fiona
MacAulay as Senior Independent Director, see page 79 and therefore one of the senior Board positions was occupied by a woman; however,
there were no Directors from an ethnic minority background. The Board remains committed to enhancing its ethnic diversity and has also
committed to search for a further Independent Non-executive Director from an ethnic minority background, led by the Nominations Committee
and supported by external consultants, see page 108.
The gender diversity of the Board and executive management as at 31 December 2022:
Men
Women
Other categories
Not specified/prefer not to say
* CFO included although not a Board position.
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)*
Number in
executive
management
Percentage of
executive
management
4
3
–
–
57%
43%
–
–
3
1
–
–
5
1
–
–
83%
17%
–
–
The ethnic diversity of the Board executive management is as follows:
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Notes:
Number of Board
members
Percentage of the
Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage of
executive
management
7
–
–
–
–
–
100%
–
–
–
–
–
4
–
–
–
–
–
5
1
–
–
–
–
83%
17%
–
–
–
–
– Executive management for these purposes includes the Company Secretary but excludes administrative and support staff (as defined by
the UK Listing Rules).
– The Company confirms that the approach to collecting data forming the basis of the gender and ethnic diversity of the Board and senior
management of the Company was consistent for the purposes of reporting under both LR 9.8.6R(9) and (10) and was consistent across all
individuals in relation to whom data was reported. Board members, members of executive management and the Company Secretary were
provided with a standard form questionnaire on a strictly confidential and voluntary basis to allow the individual to self-report on their gender
and ethnicity (or to specify that they do not wish to report such data). The questionnaire was fully aligned to the definitions set out in the UK
Listing Rules, with individuals asked to specify:
i. self-reported gender identity – selection from (a) male, (b) female, (c) other category/please specify and (d) not specified/prefer not to say;
and
ii. self-reported ethnic background – selection from (a) White British or other White (including minority-white groups), (b) Mixed/Multiple
Ethnic Groups, (c) Asian/Asian British, (d) Black/African/Caribbean/Black British, (e) Other ethnic group, including Arab and (f) not
specified/prefer not to say.
– The Executive Committee includes the Company Secretary. For the purposes of the UK Corporate Governance Code, the gender balance
of those in senior management (i.e. the Executive Committee and their direct reports was 64.2% male and 35.8% female.
Ferrexpo plc Annual Report & Accounts 2022
87
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Report
Controlling shareholder – Relationship Agreement
The Company’s majority shareholder is Fevamotinico S.a.r.l., which as at date of this report holds 49.5% of the voting rights in 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 2022.
– 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 2022.
– 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 2022.
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 on page 80 to ensure compliance with
the Companies Act 2006, FCA Listing Rules and Disclosure Guidance and Transparency Rules and the UK 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-ferrexpo/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 2022, the Board (excluding the Chair) comprised one Executive Director and five Independent Non-executive Directors
who are considered by the Board to be independent in accordance with the UK 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 2022 is presented in the table below:
Board member
Role
Audit Remuneration
Nominations
CID
HSEC1
R L Genovese
Non-executive Chair
F MacAulay
V Lisovenko
J North
G Dacomb
Senior Independent Non-executive Director
Independent Non-executive Director and
Designate for Employee engagement
Chief Executive Officer and Executive Director
Independent Non-executive Director
AC Andersen
Independent Non-executive Director
N Polischuk
Independent Non-executive Director
1. The HSEC Committee also includes some members of senior management.
• Committee member.
•• Committee Chair.
•
•
••
•
••
•
•
•
••
•
•
•
•
•
••
•
•
•
••
•
88
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE 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 82 and 83.
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 2022.
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 2022 is shown in the table below.
Non-executive Director external appointments during 2022
During 2022, Ms MacAulay was appointed as non-executive director of Costain Group PLC, a company that is listed on the London Stock
Exchange and a constituent of the FTSE Small Cap Index. This appointment was considered a significant appointment for Ms MacAulay for
the purposes of the UK Corporate Governance Code, and, in advance of the appointment, Ms MacAulay sought the prior approval of the Board.
As part of approving this additional appointment, the Board considered a range of factors, including the existing appointments of Ms MacAulay,
the time commitment expected in the role as a Ferrexpo Director, attendance records at Ferrexpo Board and committee meetings, institutional
investor guidance on the number of board roles in respect of over-boarding and the additional time commitment from the new role. The Board
was satisfied having regard to these matters that the additional role would not adversely impact the ability of Ms MacAulay to perform her
existing role on the Ferrexpo Board and its committees.
During 2022, Ann-Christin Andersen was appointed as a director of SDK Freja, a family owned non-listed business in Denmark, and Lucio
Genovese was appointed as a director of Audley Capital GmbH, a private company registered in Switzerland. Whilst these appointments were
not considered significant appointments for the purposes of the UK Corporate Governance Code, in providing its approval or confirmation of
these appointments the Board had regard to the existing commitments of each of Ms Andersen and Mr Genovese, and was satisfied that the
additional role would not adversely impact the ability of Ms Andersen or Mr Genovese to perform their existing role on the Ferrexpo Board and
its committees.
Board and Committee meeting attendance in 2022
Attended/Eligible to attend
Director
AC Andersen1
G Dacomb
R L Genovese
V Lisovenko2
F MacAulay
J North
N Polischuk3
Board
Audit
Remuneration
Nominations
CID
HSEC4
Scheduled
Ad hoc
Scheduled
Scheduled
Ad hoc
Scheduled
Ad hoc
Scheduled
Ad hoc
Scheduled
Ad hoc
4/5
5/5
5/5
4/5
5/5
5/5
5/5
16/17
17/17
17/17
17/17
17/17
17/17
17/17
6/6
5/6
6/6
5/5
5/5
5/5
4/5
5/5
1/1
1/1
1/1
1/1
3/3
3/3
3/3
3/3
3/3
1/1
1/1
1/1
1/1
1/1
3/4
4/4
4/4
4/4
13/13
12/13
13/13
13/13
4/4
1/1
4/4
4/4
1/1
1/1
K Zhevago (until 29 December
2022)
5/5
15/17
1. Ms Andersen was appointed as Chair of the Health, Safety, Environment and Community Committee on 10 February 2022.
2. Mr Lisovenko was unable to attend one scheduled Board meeting and a scheduled Audit Committee and Remuneration Committee meeting due to the Russian invasion of Ukraine.
3. Ms Polischuk was appointed as a member of both the Audit Committee and HSEC Committee on 10 February 2022.
4. During the year, the HSEC Committee approved 87 Written Resolutions as part of the Ferrexpo Humanitarian Fund.
During the year, there were a number of ad hoc Board and Committee meetings which dealt with (amongst other things) the Russian invasion
of Ukraine.
Ferrexpo plc Annual Report & Accounts 2022
89
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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 Committee of Independent Directors. 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 30, and the role of the Remuneration Committee in the Remuneration Report on page 110.
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 82. Due to the complexity of the jurisdictions in which the Group
operates and in light of Russia’s current invasion of Ukraine, the time commitment of the role significantly increased during
the reporting period especially with the need to engage proactively with the broad range of stakeholders.
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 North as CEO has no other
directorships of quoted companies.
Senior
Independent
Director
The Senior Independent Director, in conjunction with the other Independent Non-executive Directors, assists in
communications and meetings with shareholders and other stakeholders concerning corporate governance matters. 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
Company
Secretary
Executive
Committee
Committee of
Independent
Directors
(“CID”)
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 110); and monitor
executive succession planning (for Board succession planning, see the Nominations Committee Report on page 105). 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.
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 all governance matters
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.
The CID is composed of the Senior Independent Director and four other Independent Non-executive Directors. The CID
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, transactions with the Group’s controlling shareholders or their
associates are conducted at an arm’s length basis and on normal commercial terms.
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Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Board Leadership
Before setting out the Board’s activities in
2022, it is important to note that since the
Russian invasion of Ukraine, the Board has
continued to meet regularly to discuss the
ongoing situation in Ukraine, the execution
of the Group’s business continuity plans,
planning for different eventualities and
adjustments to the corporate calendar.
The Board receives regular updates from
the management team as to the Group’s
response and scenario planning for different
eventualities. Protecting the Group’s
workforce is a key priority, as well as taking
steps to protect the business and thereby the
stakeholders of the business. This will remain
a key priority for the Board during 2023.
Board activity in 2022
Five scheduled Board meetings were held
in 2022 (supplemented by other ad hoc
meetings, telephone or video conferences
and written resolutions as required from time
to time). Although physical meetings were
resumed for scheduled Board meetings, some
meetings were held via video conference with
management team members and other Group
personnel joining to discuss matters as
appropriate. The Board intends to continue to
hold its scheduled meetings in person during
2023 provided it is safe to do so.
The Board’s programme of meetings allows
key areas of focus to be established and
reviewed on a regular basis. A review of the
Board forward agenda was undertaken
early in the year to align key focus areas
with strategy. Rolling agendas have been
developed within the Board forward agenda
for the Board, Audit, Nominations and
Remuneration Committees to ensure the
necessary standing items are covered during
the course of the year, and sufficient time is
allocated to strategic discussions, with extra
time factored in for ad hoc and additional
items. Agendas are agreed with the Chair
(or with the Chair of the relevant Committee)
and timeframes set in advance for the various
meetings, thereby ensuring that the full
agenda can be covered in the time allotted.
Board and Committee meeting packs are
prepared by management following input
on the agendas formulated by the Company
Secretary and the respective Chairs, and
made available electronically prior to the
meeting via a secure online Board portal,
thereby allowing the Directors adequate
time to consider the variety of issues to be
presented and discussed. In the minutes of
the meetings, issues identified for follow-up
are set out, ensuring that matters raised by
the Directors are actioned and reported back
in a timely manner.
At each scheduled Board meeting, the
Directors receive a report from each of the
Chair, the Chief Executive Officer and the
Chief Financial Officer and will review and
approve the minutes from previous Board
meetings and note Board Committee minutes.
There is also an oral report from the Chair of
each Board Committee, providing an
overview of the matters discussed at the
Committee meetings which are held before
the scheduled Board meetings. The Board
may also receive a report from the Chief
Marketing Officer relating to updates on the
Group’s marketing strategy, product
development and relationships with the
Group’s customers.
The Chief Executive Officer’s report will
include matters relating to production and
operations, safety measures and performance
against targets, iron ore market conditions,
growth projects, implementation of diversity
and inclusion policies and updates on the
position in Ukraine. The Chief Financial
Officer’s report covers financial performance
as compared to budget, financial forecasts
and cash flow position, with a particular
focus during 2022 on the going concern
assessment given the situation in Ukraine.
The Chair will report on developments relating
to investor and stakeholder engagement
(including shareholder feedback), relevant
corporate governance matters and Board
refreshment and succession planning.
In addition to formal Board and Committee
meetings, the Chair holds meetings with the
Independent Non-executive Directors as
required, enabling open discussions without
the Executive Director present.
The following sets out an overview of the key
areas of focus for the Board during the year.
Russian invasion of Ukraine
The impact of the Russian invasion of Ukraine
was the key area of focus during the year,
with the Board undertaking regular reviews
of the Group’s response to the invasion. The
Board received daily and regular updates
from the Chief Executive Officer on the
Group’s response to the invasion, including
the safety, protection and wellbeing of the
workforce and details of the support provided
to those affected by the invasion and their
families. Updates on safety measures put in
place at the mine sites and other locations
to protect the Group’s workforce and assets
were also provided. The Board also
established the Ferrexpo Humanitarian Fund
to support communities across Ukraine. For
further details see pages 44.
The Board had to respond quickly to make
challenging decisions such as declaring
force majeure on supply contracts due to the
closure of Ukraine’s access to the Black Sea.
Due to the uncertainty the invasion presented,
the Board reviewed and considered various
financial re-modelling and forecasts under
several scenarios together with appropriate
actions to preserve the business. The Board
took the difficult decision to suspend
non-essential capital expenditure whilst
minimising sustaining capital expenditure.
More information can be found throughout
this Annual Report and Accounts.
Climate change and
decarbonisation targets
Climate change has been a standing agenda
item at all scheduled Board meetings and
meetings of the HSEC Committee throughout
the year and will continue to be a standing
agenda item.
During the year, the Board approved the
publication of the Company’s inaugural
standalone Climate Change Report in
December 2022. The report covers the
climate change related legislation being
enacted in the various jurisdictions into
which we sell our products, and the risks
and opportunities that these changes may
present to our business model. The risks and
opportunities relating to climate change that
are specific to Ferrexpo are summarised in
the Task Force for Climate-related Financial
Disclosures (“TCFD”) on pages 37 to 41 of
the Strategic Report.
Financial position and liquidity
The Board continuously reviews the financial
position of the Group, including performance
against targets, balance sheet strength and
liquidity.
During the year, the Group has maintained
a strong balance sheet, including low levels
of gross debt and had a positive net cash
position of US$106 million as at 31 December
2022 (2021: US$117 million). The Group has
no debt facilities as at 31 December 2022
compared to US$50 million as at
31 December 2021.
The Company’s Preliminary and Interim
results and Annual Report were scrutinised
and approved by the Board.
Ferrexpo plc Annual Report & Accounts 2022
91
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Report continued
Board Leadership (continued)
Cyber security strategy
In light of heightened cyber security risks
facing the business following the Russian
invasion, maximum protection against cyber
security attack is a top priority for the Group.
teams to better understand the results of
the survey and to develop joint action points
focusing on areas of strength and areas
for improvement. The third Employee
Engagement Survey will take place in 2023.
The Board received detailed presentations
from the Group’s Head of Information
Technology outlining the Group’s procedures
and controls in relation to cyber security. This
included an overview of protective actions
implemented. The outcomes of the 2021 audit
helped mitigate threats at the onset of the
invasion. Efforts in 2022 focused on finalising
an extensive third party audit (ISO 2700x
standard) of cyber security and internal IT/
automation.
Stakeholders and workforce
engagement
Stakeholder considerations and culture are an
important part of the Board’s discussions and
decision-making. The information on pages
48 to 55 provides a review of stakeholder
engagement activities during the year and
explains how the Board considers
stakeholders in decision-making.
In September 2022, over two days,
Mr Lisovenko, Non-executive Director
Designate for workforce engagement, visited
our operations in Ukraine and hosted a
number of engagement sessions with a range
of stakeholder groups within our workforce,
including operations personnel, a selection of
middle managers from all three mines, senior
female leaders, alumni of our “Fe_munity”
women in leadership programmes and people
with disabilities.
During the engagement sessions, employees
made comments, suggestions and posed
questions on a range of matters for response
by the Board. In December 2022, the Board
considered the comments, suggestions and
questions and provided feedback to the
employees. For example, employees
requested more interactive engagement
sessions made up of smaller groups as
opposed to larger townhall style engagement
sessions. For further details see page 49
Employees and wider workforce, Section 172
Statement.
The Group also engages with its employees
through the biennial employee engagement
survey, which was last conducted in 2021.
These surveys are an integral aspect of
understanding the priorities and concerns of
our employees, and help to set priorities for
the coming period. The Board considers the
results of the survey and discusses feedback
from the survey with the Chief Executive
Officer and the Chief Human Resources
Officer, including plans for further
engagement by functional heads with their
Dividends
The Board considers proposed shareholder
dividends, taking into account the financial
performance and liquidity position of the
Group and the Group’s shareholder returns
policy. As a result of the Group’s financial
performance, the Group paid out dividends
during the year totalling US$155 million. Given
the uncertainties arising from the Russian
invasion of Ukraine, ahead of approving and
paying these dividends, the Board would
meet to consider the Company’s liquidity
position and future financial commitments
(including related to operating and
development capital expenditure).
The Group has a shareholder returns policy
outlining the Group’s intention to distribute
30% of free cash flow as dividends in respect
of a given year. The Group has declared
dividends in respect of the 2022 financial year
representing 55% of the Group’s free cash
flow in 2022.
For further details, see page 25 of the
Strategic Report.
Board balance and independence
Ensuring the appropriate balance of skills,
independence and diversity on the Board
remains a key priority of the Group.
In line with best practice requirements of the
UK Corporate Governance Code, during the
year, the Board reviewed the balance of skills,
knowledge, experience, independence and
diversity and focused on improving and
rebalancing Independent Non-executive
Director Board and Board Committee roles.
To that end:
– Fiona MacAulay was appointed as the
Senior Independent Director on
10 February 2022 in place of Vitalii
Lisovenko, who completed two and half
years in this position.
– Ann-Christin Andersen was appointed as
Chair of the Group’s Health, Safety,
Environment and Community (“HSEC”)
Committee on 10 February 2022.
– Natalie Polischuk was appointed as a
member of both the Audit Committee and
HSEC Committee on 10 February 2022.
For further details see page 105 of the
Nominations Committee Report.
92
Ferrexpo plc Annual Report & Accounts 2022
Governance and risk
Following on from the governance
improvement work carried out in 2020,
during the year the Board carried out an
annual review of the terms of reference of
each Board Committee. Updates to the
terms of reference were incorporated to
reflect current best practice.
During 2022, the Board also reviewed and
approved the revised Related Party Policy,
Group Treasury Policy and the Terms of
Reference for the Committee of Independent
Directors.
At each of its scheduled meetings the Board
also considers any updates to the principal
and emerging risks of the Group, and in
particular during 2022 considered the new
risks facing the Group as a result of the
Russian invasion and also changes to existing
country-related risks. For further details, see
pages 59 to 61 of the Strategic Report.
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.
Modern Slavery Act Statement
During the year, the Board reviewed and
approved the Group’s Modern Slavery
Act Statement for the year ended
31 December 2021 (a copy of which
is available at www.ferrexpo.com).
Executive appointments and
succession planning
Jim North was appointed permanent Chief
Executive Officer on 14 February 2022 after
stepping into the role of Acting CEO from
May 2020.
Yaroslavna Blonska was appointed Acting
Chief Marketing Officer on 22 August 2022.
This appointment underscores the Group’s
robust talent management process which
identifies individuals with high potential for
inclusion in succession plans for business
critical roles.
For further details see page 107 of the
Nominations Committee Report.
CORPORATE GOVERNANCE The Board received a comprehensive logistics
update against the backdrop of no seaborne
access through the port of Pivdennyi. Several
logistics options were considered in the
process to maintain sales volumes while
maintaining economic feasibility.
The Board received an update on organic
growth projects and noted the completion
of three significant projects; Section 9
concentrator capacity, MFC-2 dry ore
processing and Concentrate Stockyard to
process concentrate from flotations as feed
to the pellet plant or to railcars as sellable
concentrate.
Current status updates on other capital
expenditure projects, primarily Wave 1
Expansion were provided together with the
Ferrexpo exploration drilling programme,
noting suspension of capital expenditure
during the Russian invasion.
Future options included an overview of
inorganic growth options.
The actions from the Strategy Day were
collated and disseminated to the relevant
executives for execution during the year.
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.
Post AGM engagement
During the year, we consulted with
shareholders in person and in writing on a
number of important corporate governance
issues, four of which were following significant
votes against Resolutions 6, 9, 10 and 12 at
the 2022 AGM (re-election of Ann-Christin
Andersen, Vitalii Lisovenko, Fiona MacAulay
and Kostyantin Zhevago). Based on the
feedback received, the Board understands
that the votes against arose as a result of
concerns regarding over-boarding and certain
historic corporate governance issues. The
Board is satisfied with each Director’s
attendance and that each of the Directors
has sufficient time to commit to the role and
Ferrexpo’s business.
Other matters discussed were:
– oral reports from the Chair of Board
Committee meetings held before the
Board meeting;
– diversity and inclusion;
–
internal succession planning – talent
review;
– succession planning for Non-executive
Director recruitment and appointments;
– review of agenda and approval of minutes
from previous Board meeting and note
Board Committee minutes;
interactions with auditors;
–
– Chief Executive Officer’s report including
production and operations, iron ore market
conditions, and updates on the Russian
invasion of Ukraine and the position in
Ukraine;
–
logistics update;
– new growth markets;
– 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 matters, including
Health and Safety, carbon reduction and
community spending; and
– Board refreshment, succession planning,
Director independence and Committee
composition.
Matters reviewed as required included:
–
the Group’s continued response to the
Russian invasion of Ukraine 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;
– geopolitical matters;
–
internal evaluation of the performance of
the Board, Chair, Directors and Company
Secretary;
– review of the AGM statement, and proxy
agency comments and recommendations;
– annual review of bank relationships with
the Group within and outside Ukraine;
– annual review of the Treasury Policy;
– approval of the 2021 Modern Slavery
Statement; and
the CSR budget.
–
During 2022, 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,
investor relations and communications.
Board virtual site visit and
Strategy Day
Due to travel restrictions resulting from the
Russian invasion of Ukraine, the Board was
unable to conduct the planned visit of the
Group’s operations in Horishni Plavni,
Ukraine. The alternative arrangement was
a Board virtual site visit and Strategy Day.
The Board received a progress update on
actions taken from 2021 and noted the
achievements and completion of all 2021
actions during the year. This set the
foundations for ‘where we are now’ and
‘where we are going’ against the backdrop
of the Russian invasion of Ukraine.
The Board received presentations from
executive management on:
– health, safety and environment;
– going concern;
–
– organic growth projects; and
–
logistics update;
future options.
All matters discussed aligned with the
Ferrexpo strategic pillars: Health and Safety,
Financial Strength, Technology and
Innovation, Product Quality, Growth and
Licence to Operate.
Although Health and Safety preformed well, it
had reached a plateau so further impetus was
needed to shift performance. A benchmark
review from leading companies was
presented together with a safety cultural
review and a proposal to transition to a new
approach to safety, known as “Just Culture”.
Just Culture is a systems thinking concept
which emphasises that, generally, mistakes
are a product of faulty organisational cultures,
rather than brought about by the person or
persons directly involved. In a Just Culture,
after an incident, the question asked is, “What
went wrong?” rather than “Who caused the
problem?”. A Just Culture is the opposite of
a Blame Culture and helps to create an
environment where individuals feel free to
report errors and help the business to learn
from mistakes through self and shared
responsibility and accountability.
The Board received a detailed and extensive
update on going concern. This involved a
rigorous assessment of the Group’s going
concern, which included assumptions, price
forecasts and scenario planning of the
long-term business model tested against
various sensitivities for a variety of
eventualities (including those related to the
Russian invasion of Ukraine).
Ferrexpo plc Annual Report & Accounts 2022
93
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Report continued
Board Evaluation
Board performance evaluation
Under the UK Corporate Governance Code, the Board is required to undertake annually a formal
and rigorous evaluation of its own performance and that of its Committees and individual Directors.
This evaluation should be externally facilitated every three years.
Review of 2021 external Board performance
The Board and its Committees consider their effectiveness regularly and the outcome and
findings from the 2021 external review were progressed throughout the year with the following
actions taken:
Board evaluation cycle
2020: Internal
2021: External
2022: Internal
Action to be taken
Actions taken
Succession planning within
the business and senior
management including diversity
Appointment of a female Acting Chief Marketing Officer. This appointment demonstrates the
Group’s robust talent management process which identifies individuals with high potential for
inclusion in succession plans for business critical roles.
Appointment of female Senior Independent Director.
Appointment of female Chair of HSEC Committee.
Female representation on the Board up from 38% in 2021 to 43% as at 31 December 2022.
Ensure Non-executive Directors
continue to bring the right skill set
and to balance the workload of
the Board Committees
Following on from a refresh of the Board skills matrix last year, during 2022 a Board training and
development directory was established to facilitate individual director development plans to be
populated, which will be progressed over the next two years to enhance the overall skill set of
the Board.
Director training, upskill the
Board on all ESG matters
The Board received training from external third party providers on: Part I, ESG background
and legal framework, greenwashing and climate change; Part II, Decarbonisation pathway
development, future commitments on project and implementation on carbon pathway and
how to define strategy for implementation.
Explore ways to enhance
workforce engagement and bring
findings to the Boardroom
The Board reviewed and changed the format of employee engagement from large town hall
sessions into smaller more intimate groups where employees felt more comfortable to open up
and raise matters. Employees welcomed the change in format which was reflected in their
feedback of the event.
Continue to improve Board
reporting, particularly
management report writing with
externally facilitated training
among all report writers
Ensure bolstered resourcing for
Secretariat and Internal Audit
functions
Board reporting has improved with some key management reports streamlined.
Externally facilitated training among all report writers could not be carried out due to the Russian
invasion of Ukraine.
Internal Audit is now adequately resourced, with increased resourcing in Secretariat continuing
to be assessed.
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Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE 2022 Internal Board performance
During 2022, the annual performance evaluation of the Board and its Committees was carried out internally using a questionnaire led by the
Company Secretary with external input from Clare Chalmers Ltd. The purpose was to build on the recommendations and areas identified from
the externally facilitated evaluation in 2021.
The evaluation process involved the completion of questionnaires by Board and Committee members, with responses collated anonymously
and analysed by Clare Chalmers Ltd together with the Company Secretary.
The thematic evaluation focus areas included:
– Board composition, succession, development, leadership and dynamics;
– Board oversight: Strategy, performance, risk, people and culture;
– stakeholders and decision making;
– Board efficiency including secretarial support;
leadership and succession decision making;
–
– Board planning; and
–
the effectiveness of Board Committees.
Preparation, questionnaire design and content, formal interviews and reporting:
PREPARATION
– Chair and Company Secretary reviewed the 2021 recommendations and outcomes to set the scene for 2022.
– Chair and Company Secretary held a scoping meeting to understand context and priorities.
– Review of Board and Board Committee papers and other relevant documentation, including Strategy papers
and the Board and Board Committee Forward Agenda Planner to identify key areas of focus.
Individual interviews were scheduled with the Chair and all the Non-executive Directors.
–
A comprehensive questionnaire was designed covering:
QUESTIONNAIRE
DESIGN AND
CONTENT
– Board: Constitution and Commitment, Leadership, Efficiency of Board Process, Board’s role, Development,
Stakeholders, of which there were 35 questions.
– Audit Committee: Constitution and Commitment, Leadership, Efficiency of Committee Process, Committee’s role,
Relationships, Development, of which there were 21 questions.
– Remuneration Committee: Constitution and Commitment, Leadership, Efficiency of Committee Process,
Committee’s role, Development, of which there were 20 questions.
– Progress/Achievement of 21 external evaluation recommendations, of which there were seven questions.
FORMAL
INTERVIEWS
REPORTING
– Led by the Senior Independent Director, the other Directors also met without the Chair present to evaluate the
Chair’s performance and, separately, the Chair evaluated the performance of the Directors.
– The completed questionnaires were collated anonymously and analysed externally by Clare Chalmers Ltd together
with the Company Secretary.
– Key findings and recommendations were shared with the Chair and Company Secretary, and a draft report was
prepared for review.
– The report was circulated to the Board and the feedback and comments from the questionnaires were discussed
at a Board meeting, before deciding which recommendations to take forward.
The review also included feedback on individual performance. This informed the annual process of individual Director evaluation, led by the
Chair, which included one-to-one discussions with each Director on their performance, contribution and any additional training and development
needs. The Senior Independent Director led the annual review of the Chair, holding a one-to-one discussion to provide feedback on his
performance. This was informed by a closed session of the Non-executive Directors, excluding the Chair, led by the Senior Independent Director.
The Senior Independent Director also engaged the CEO and Company Secretary to obtain their views on the Chair’s performance.
Ferrexpo plc Annual Report & Accounts 2022
95
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Report continued
Board Evaluation (continued)
Feedback and report findings
The report was circulated to the Board and the feedback and comments from the questionnaires were discussed at a Board meeting, before
deciding which recommendations to take forward. Led by the Senior Independent Director, the other Directors also met without the Chair
present to evaluate the Chair’s performance and, separately, the Chair evaluated the performance of the Directors.
The questionnaire results demonstrated, despite the challenges associated with the war in Ukraine, progress has been made. Board members
agreed that the Board is working effectively with the correct skills and experience to support and to deal with challenges faced by the business;
and that there is an open culture which responds well to constructive challenge.
The Board has made progress over the past year, and there are some ideas on areas for development to ensure the Board works even more
effectively. The evaluation process identified these development areas for focus in 2023. The Board will continue to consider and reflect on its
composition and what may be required for a future Non-executive Director hire to include future roles, skills and Board diversity. Issues are
discussed and debated with full and frank discussions encouraged, as the Board continues to develop, even further input to Board discussions
would be welcome. One-to-one meetings with the Chair and Board members could be used to discuss tailored individual development plans.
The Board Chair, CEO and Group Company Secretary will ensure appropriate time is allocated to all agenda topics.
The Board has considered the findings of the evaluation and, overall, the review concluded that the Board is well balanced in terms of Board
dynamics. The Board is very well led by a proactive and fully engaged Chair. The environment in the boardroom encourages appropriate
challenge and debate with no one voice dominating discussions. The Board and its Committees are well Chaired and run by committed
Independent Non-executive Directors.
In response to the main recommendations of the evaluation report, the Board has agreed the following key areas for focus in 2023:
Key areas for focus in 2023
Area
Board composition
Succession planning
Balanced skill set
Actions to be taken
– Continue to improve Board diversity with a Director from an ethnic minority background.
– Succession planning within the business and senior management including diversity
requirements.
– Ensure Non-executive Directors continue to bring the right skill set and to balance the workload
of the Board Committees, planning early for future skills and experience for Board succession.
Workforce engagement
– Continue to explore ways to enhance workforce engagement and bring findings into the
Boardroom, including additional Board visits to the operations when possible.
Board efficiency and processes
– Continue to improve Board reporting particularly management report writing. Further explore
processes for reviewing past performance and decisions to enhance future decision making.
Corporate resourcing
– Ensure bolstered resourcing for Secretariat.
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Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Board Training and Development
Induction
Following 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,
experience and knowledge of the Director.
Induction training includes meeting senior
executives of the Executive Committee,
a detailed and structured site visit (or
alternative arrangements, where required
as a result of the ongoing conflict in
Ukraine), meeting the Company Secretary,
necessary training on corporate governance
aspects, and receiving various key
Company documentation and reports.
Ms Polischuk, who was appointed on
29 December 2021, received director induction
training in early 2022 and followed a tailored
induction programme covering a range of
key areas of the business. She met with the
Company Secretary, who provided a Board
Induction pack containing Company and
Board information to assist with building an
understanding of the nature and structure
of the Group, its business and markets. The
Board Induction pack also included information
to help facilitate a thorough understanding
of the role of a Director, the framework
which the Board operates, Group policies
and procedures, constitutional documents
and regulatory codes and guidelines.
Ms Polischuk visited site operations in
September 2022 and met with the three Mining
General Directors, senior and operational
management teams, who provided insight
into the operational side of the business.
In 2021, Ferrexpo introduced a Buddy
programme for newly appointed Directors.
The role of a Buddy is to provide mentoring
for the first three months during orientation
with the Company and its business. During
the year, Ms MacAulay completed her Buddy
duties for Ms Polischuk.
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.
During 2022, the Board had a combined
training session with its legal adviser Herbert
Smith Freehills and broker Liberum Capital.
This training session was held shortly
after the Russian invasion of Ukraine, and
covered key areas relevant to the Directors
in responding to such unprecedented
events including directors’ duties in a time
of armed conflict, workforce engagement
and health and safety issues, ongoing
market announcement obligations, listed
company obligations, and scenario planning
for a range of potential eventualities
including suspension of operations.
Later in the year, the Board also received
dedicated training on ESG issues from
specialist advisers and the Group’s legal
advisers (for further information see page 94).
An update was also given to the Board on
market disclosure obligations and lessons
arising from recent enforcement actions taken
by the Financial Conduct Authority against
other listed companies. Dedicated briefings
are also given to the Board Committees as
appropriate, for example updates given during
the year to the Audit Committee on the UK
government’s proposed audit reforms.
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 also visit the
operations of the Group independently to the
extent they feel this is necessary. Due to the
ongoing conflict in Ukraine, the physical
Board site visit was cancelled and replaced
with a virtual site visit, as set out on page 93.
In addition, training was provided by the
Group’s advisors 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
Company in the furtherance of their duties.
Ferrexpo plc Annual Report & Accounts 2022
97
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Audit Committee Report
Focused on management’s going concern assessment while
continuing to monitor the integrity of the financial results.
Dear Shareholder,
On behalf of the Board, I am pleased to present
the Audit Committee Report for the financial
year ending 31 December 2022. The aim of this
report is to provide shareholders with insight into
key areas that have been considered, how the
Committee has discharged its responsibilities
and lastly provide assurance on the integrity of
the 2022 Annual Report and Accounts.
The situation for the Group during the
financial year 2022 was strongly influenced by
the ongoing war in Ukraine, which also led to
a significantly increased involvement of the
Committee to timely identify and analyse the
additional risks in this unprecedented period
for the Group.
The matters requiring increased involvement
of the Committee were primarily the
assessment of the Group’s going concern
and viability in light of the material
uncertainties, but also the considerations
required when preparing the Group’s
impairment test for its non-current operating
assets as well as the escalation of a number
of matters to be considered as a result of the
change of the political environment in Ukraine.
The Committee agenda focuses on audit,
compliance and risk management within the
Group, working closely with finance, external
audit, internal audit and management. During
the year, the Committee has robustly assessed
the principal and emerging risks facing the
business. The Committee throughout the year
took into account the regular financial and
internal audit reports made available to the
Board, as well as discussing issues with
management and the external auditors at
intervals throughout the year.
A critical area of focus for the Committee
since the year end, has been the going
concern assessment itself and consequently
the consideration of the preparation of the
consolidated accounts on the going concern
basis. On 24 February 2022, Russia began its
invasion into Ukraine using direct military force
and this has led to an intense armed conflict in
Ukraine, which, as at the date of the approval
of these Consolidated Financial Statements, is
still ongoing. Although the Group has managed
to continue its operations, the war continues to
pose a significant threat to the Group’s mining,
processing and logistics operations within
Ukraine and represents a material uncertainty
in terms of the Group’s ability to continue as a
going concern.
As a result of the war, the local audit team
could not be on-site in Ukraine. Our external
auditor MHA MacIntyre Hudson was on-site
at our office in Baar and was able to complete
its annual audit procedures for the preliminary
and year-end audits partly in person. Likewise,
the Committee has been able to physically
meet with both management and the auditors.
The current situation in Ukraine required
additional work from our external auditors,
primarily in terms of the material uncertainty
surrounding the Group’s going concern and
viability assessment in light of the ongoing war.
Graeme Dacomb
Chair of the Audit Committee
Membership and
meeting attendance
Committee member
Graeme Dacomb
Vitalii Lisovenko
Fiona MacAulay
Natalie Polischuk
Scheduled meetings
Eligible
to attend
Attended
6
6
6
5
6
5
6
5
Key activities of the Committee in 2022
Key activities of the Audit Committee during 2022 are set out below.
February
– Considered assumptions used for the going
March
– Reviewed and discussed the status of key areas
concern and long-term viability assessment and
impairment testing.
of focus and audit matters and disclosure
provisions.
– Received an update on the progress of the 2021
– Assessed material uncertainties and discussed
audit and analysed further work required.
– Considered the draft Annual Report and
Accounts for 2021.
potential mitigating actions.
– Considered the draft of the auditor’s opinion.
– Reviewed the draft Annual Report and Accounts
April
– Received the Report of the Auditors.
– Reviewed letters of representation.
– Reviewed the Audit opinion.
– Reviewed the auditor’s Letter of Independence.
– Reviewed the 2021 Report and Financial
Statements.
– Considered the going concern and viability
– Reviewed the questionnaire to be used to
for 2021.
statement.
assess the external auditor’s performance.
– Considered the going concern and viability
– Discussed identified material uncertainties and
– Reviewed Compliance Report including
statement.
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Reviewed an update on the Directors’ Interests
list and transactions with Related Parties.
– Reviewed the Audit Committee 2022 Forward
Planner.
– Received an update on Audit Reform.
– Received an update on Cyber Security.
– Reviewed Principal Risks and uncertainties.
– Reviewed the draft Audit Committee Report.
– Reviewed Compliance Report including
whistleblowing cases.
– Reviewed the Group’s risk matrix and register.
– Reviewed an update on the Directors’ Interests
list and transactions with Related Parties.
assessment of mitigating actions.
– Reviewed the Audit Committee Report.
– Reviewed auditors 2021 performance (Statutory
Audit Service Order) – analysis of scores.
– Reviewed the assessment of the low-grade iron
ore.
– Held private meeting with the auditors.
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Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE During the year, the Committee considered
the status of the proposed regulatory change
of the BEIS Consultation on ‘Restoring trust in
audit and corporate governance: proposals
on reforms’. The Committee reviewed the
future potential impacts this could have on the
Committee in order to understand
developments and plan accordingly.
TCFD disclosure requirements were a focus for
the Committee and environmental consultants
Ricardo Plc were appointed to help enhance the
Group’s existing climate change reporting,
scenario analysis and potential pathways to net
zero iron ore pellet production. Through this
work, Ricardo Plc’s analysis has helped to
enhance the Group’s carbon reduction targets,
as announced in the Group’s Climate Change
Report in December 2022. Further work is
under way to complete a life cycle analysis,
benchmarking the carbon footprint of iron ore
pellets against the most commonly traded form
of iron ore (sinter fines), with this study due to be
published in 2023. The Group also completed
its first independent assurance process with
independent auditor MHA MacIntyre Hudson in
2022 on the Group’s carbon emissions (Scope
1 and Scope 2 emissions) and safety data for
2021. A similar process has been completed for
the same categories of data for 2022. Details of
the independent assurance processes
completed are provided on the Group’s website.
Detailed below is further information on the role,
structure and key activities of the Committee
and significant judgements it has considered in
2022. I hope this additional information about
the Committee and its activities is useful.
Graeme Dacomb
Chair of the Audit Committee
Role of the Committee
The Committee’s objectives and
responsibilities are set out in its terms of
reference which are available to view online.
fair, balanced and understandable and
provide the information necessary for
shareholders to assess the Group’s position,
performance, business model and strategy.
The Committee’s main responsibilities are:
– Monitoring the integrity of the annual and
interim financial statements and the
accompanying reports to shareholders.
– Making recommendations to the Board
concerning the approval of the annual and
interim financial statements.
– Reviewing and monitoring the adequacy
and effectiveness of the Group’s risk
management and internal control
mechanisms. Details of the Principal Risks
are contained on pages 56 to 74.
– Approving the terms of reference of the
internal audit function and assessing its
effectiveness.
– Approving the Internal Audit plan and
receiving regular reports from the Group’s
Head of Internal Audit.
– Overseeing the Group’s relations with the
external auditor, including an assessment
of their independence, effectiveness and
objectivity.
– Overseeing completion of the Group’s
going concern and viability assessment
and statements thereon.
– Reviewing and monitoring the Group’s
whistleblowing procedures and the
Group’s systems and controls for the
prevention of bribery and corruption.
During the year ended 31 December 2022,
the Committee has ensured that it has had
oversight of all these areas listed. The Board
also asked the Committee to advise it as to
whether the Annual Report and Accounts are
Committee membership and
attendance
As at the year end, the Committee comprised
four Independent Non-executive Directors:
– Graeme Dacomb (Chair of the Committee);
– Vitalii Lisovenko;
– Fiona MacAulay; and
– Natalie Polischuk.
Natalie Polischuk joined the Committee
in February 2022. In addition to the six
meetings held in 2022, the Audit Committee
has met twice to date in 2023. 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.
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 Chief Financial Officer,
Group Financial Controller, Company
Secretary and audit partners of our 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
– Reviewed auditors 2021 performance (Statutory
Audit Service Order) – analysis of final detailed
scores.
– Reviewed 2022 audit planning, key dates,
preliminary audit plan.
– Reviewed an update on 2021 recommendations
July
– Presentation and review of half-year accounts.
– Going concern assessment, including Covid-19
related reporting and impairment test.
– Auditor’s Review Report to the Audit Committee.
– Reviewed the Group’s risk matrix and register.
– Reviewed the Directors’ Interests list and
December
– Received a report on the outcome of the 2021
Internal Audit plan and progress update on
2022.
– Reviewed the preliminary Internal Audit plan for
2023.
– Considered the Group’s work plan for the 2022
from Internal Audit.
transactions with Related Parties.
year end.
Key activities of the Committee in 2022
Key activities of the Audit Committee during 2022 are set out below.
– Received an update on Cyber Security and IT
– Received an update on Cyber Security, on Audit
– Received an update on proposed Audit Reform.
– Discussed the need for a risk assurance map.
– Reviewed a Compliance Report including
Security audit.
– Received an update on the ESG Disclosure
whistleblowing cases.
Audit.
– Reviewed the Group’s risk matrix and register.
– Reviewed an update on Directors’ Interests list
– Received an update on proposed Audit Reform.
– Reviewed a Compliance Report, including
and transactions with Related Parties.
whistleblowing cases.
– Reviewed the Audit Committee 2022 Forward
Planner.
results and ISO2700x compliance.
– Considered a report from the external auditors
on progress of the preliminary audit for 2022.
– Reviewed an external audit planning report.
– Received an update on the planned process for
the viability and going concern assessment.
– Received an update on proposed Audit Reform.
– Reviewed a Compliance Report including
whistleblowing cases.
– Reviewed the Directors’ Interests list and
transactions with Related Parties.
– Reviewed the Group’s risk matrix and register.
– Reviewed the Audit Committee 2023 Forward
Planner.
Ferrexpo plc Annual Report & Accounts 2022
99
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Audit Committee Report continued
Significant issues and judgements
The significant issues and judgements considered by the Committee in respect of the 2022 Annual Report and Accounts are set out below:
Judgements/actions taken
Assessment of the Group’s going concern and viability statements (Note 2 to the Consolidated Financial Statements)
The war in Ukraine that commenced with the Russian invasion into Ukraine on 24 February 2022 is still ongoing. Even though the Group managed to
operate throughout the financial year 2022, albeit at a much lower capacity, the situation in the country continues to pose a significant threat to the
Group’s mining, processing and logistics operations.
As announced on 11 October 2022, the Group had to temporarily suspend its production of iron ore pellets as a result of Russian missile strikes on
state-owned electrical infrastructure. Although the Group restarted production later in December 2022, the level of production remains critically
dependent on the availability of power supplies which continue to be impacted by Russian attacks. The Group’s operation also continues to be adversely
affected by the fact that the Group’s seaborne sales through the port of Pivdennyi are suspended with Ukraine’s Black Sea ports closed as a result of the
Russian invasion. Consequently, the Group currently operates between one and two of its four pelletiser lines, reflecting both the available guaranteed
supply of power and the need to align production volumes with the volume of sales currently accessible to the Group.
Despite the unprecedented and challenging situation, the Group’s net cash position has only decreased from US$117 million at the beginning of the
financial year to US$106 million as of 31 December 2022, with the Group adjusting its business operation to the new environment to preserve as much
liquidity as possible. As at the date of the approval of these Consolidated Financial Statements, the Group is in a net cash position of approximately
US$114 million with an available cash balance of approximately US$120 million. In addition to the available cash balance, the Group has an outstanding
trade receivable balance of approximately US$21 million from its pellet and concentrate sales in January and February 2023, which are expected to be
collected in the next few weeks.
The Audit Committee has reviewed management’s going concern assessment, including the Group’s long-term model which has been adjusted to reflect
the latest developments in terms of currently possible production and sales volumes as well as latest market prices and production costs, which are
adversely affected by lower production volumes. The latest base case of the long-term model shows that the Group has sufficient liquidity to continue its
operations at a reduced level for the entire period of the management’s going concern assessment, even allowing for reasonably possible or plausible
adverse changes in respect of realised prices, lower production and sales volumes as well as higher production costs.
However, as mentioned above, the production and sales volumes are heavily dependent on the level of supply of power as well as the logistics network
available to the Group.
The Audit Committee has also reviewed the Group’s reverse stress tests reflecting more severe adverse changes, such as a combination of all reasonably
possible or plausible adverse changes in respect of realised prices, lower production and sales volumes as well as higher production costs, which is
unlikely to happen in combination as a result of the natural hedge of iron ore prices and prices for key input materials. Based on the stress tests
performed, it is expected that the Group would have sufficient liquidity for up to 12 months before making use of any available mitigating actions within
its control, such as further reductions of uncommitted development capital expenditures and operating costs.
However, as at the date of the approval of these Consolidated Financial Statements, the Group has assessed that, taking into account:
–
–
its available cash and cash equivalents;
its cash flow projections, adjusted for the effects caused by the war in Ukraine, for the period of management’s going concern assessment covering
a period of 18 months from the date of the approval of these Consolidated Financial Statements; and
the feasibility and effectiveness of all available mitigating actions within the Group management’s control for identified uncertainties, a material
uncertainty still remains as some of the uncertainties remain outside of the Group management’s control, with the duration and the impact of the war
still unable to be predicted at this point of time.
–
As at the date of the approval of these Consolidated Financial Statements, the Group’s operations, located adjacent to the city of Horishni Plavni, have
not been involved in the conflict, but this remains a risk. Should the area surrounding the Group’s operations become a focal point of the armed conflict,
there would be a significant risk posed to the safety of the Group’s workforce and the local community, as well as a significant risk to key assets and the
infrastructure required for the Group to operate effectively. See the update on the Group’s Principal Risks section on pages 56 to 74 for further
information.
In addition to the war-related uncertainties described above, the Group is also exposed to the risks associated with operating in a developing economy,
which may be exacerbated by the war. As a result, the Group is exposed to a number of risk areas that are heightened compared to those expected in
a developed economy, such as an environment of political, fiscal and legal uncertainties. Although the Group has operated successfully in difficult
circumstances in recent years, the war in Ukraine has led to an escalation of a number of risks, including risks relating to the political environment and the
independence of the legal system, which could have a negative impact on the Group’s business and reputation. For more information, see the update on
the Group’s Principal Risks section on pages 56 to 74 and Note 30 Commitments, contingencies and litigation to the Consolidated Financial Statements.
After consideration of the current situation of the war in Ukraine, all identified available mitigating actions addressing the uncertainties caused by the war,
as outlined on pages 59 to 60, and the results of the management’s going concern assessment, the Group continues to prepare its Consolidated Financial
Statements on a going concern basis. However, the Committee concurs with management’s view that, as a number of the identified uncertainties are
outside of Group management’s control and are of unpredictable duration and severity, these may cast significant doubt upon the Group’s ability to
continue as a going concern. See Note 2 Basis of preparation to the Consolidated Financial Statements on page 156 for further information.
The Committee also considered management’s analysis of the impact of the war in Ukraine on the long-term viability assessment of the Group. Although
the Group has managed to continue its operations since the beginning of the war, the war continues to pose a significant threat to the Group’s mining,
processing and logistics operations within Ukraine. The Committee concurs with management’s conclusion that, notwithstanding all of the available
mitigating actions, a material uncertainty still remains as some of the identified uncertainties are outside of Group Management’s control. See Viability
Statement on pages 75 to 76 for further information.
100
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Judgements/actions taken
Impairment considerations of the Group’s non-current operating assets as a result of the war (Note 13 to the Consolidated Financial
Statements)
The beginning of full scale war on 24 February 2022 was treated as a non-adjusting post balance sheet event in the Consolidated Financial Statements for
the year ended 31 December 2021, but became an adjusting event in the Consolidated Financial Statements for the period ended 30 June 2022. As
disclosed under Assessment of the Group’s going concern and viability statements on page 100, the war in Ukraine had a significant impact on the
Group’s operations during the financial year 2022. The Group’s cash flow generation was heavily affected by the Group’s seaborne sales through the port
of Pivdennyi having been suspended as a result of closed Black Sea ports in Ukraine since the beginning of the war and the level of supply of power
following severe Russian missile strikes on state-owned electrical infrastructure.
As a result, the Group had to adjust its long-term model based on the new facts and circumstances adversely affecting the business of the Group. Using
the base case of the Group’s updated long-term model prepared for the 2022 interim accounts, the value in use of the Group’s single cash generating
unit’s operating non-current assets, including property, plant and equipment, goodwill and other intangibles as well as other non-current assets, was
US$254 million below the total carrying value of these assets, reflecting an impairment loss of this amount. As at the date of the approval of these
Consolidated Financial Statements, the war in Ukraine is still ongoing. Even though the Group managed to operate throughout the financial year 2022,
the ongoing war had an adverse impact on the Group’s cash flow generation and it is expected that this will continue until the war comes to an end.
A number of significant judgements and estimates are used when preparing the financial long-term model of the Group, which are, together with the key
assumptions used, reviewed by the Audit Committee with a specific consideration given to the realistically plausible production volumes in light of the
disrupted supply of power and the logistics network available to the Group, sales price and production cost forecasts as well as the discount rate used.
The Committee is aware that the level of judgement significantly increased, compared to previous years, when preparing the Group’s long-term model
and the impairment test for the Group’s non-current operating assets as of 31 December 2022. Beside the normal judgement in terms of production and
sales volumes, anticipated prices for iron ore products and costs for input material, the outcome of the impairment test is also heavily dependent on when
the war is expected to end. Taking into consideration the ongoing disruption of the supply of power due to the war, management has assumed, for the
cash flow projections, that the production capacity will be 50% and 25% below the pre-war level for the financial years 2023 and 2024, before recovering
in 2025 to the pre-war level.
Based on the updated long-term model and impairment test, the impairment of US$254 million recorded as of 30 June 2022 is not required to be
adjusted as of 31 December 2022, as a result of various offsetting effects. Whilst the weighted average cost of capital has been increased to 23.4%,
compared to 20.4% as of 30 June 2022, mainly due to a higher country risk premium for Ukraine, the carrying value of the assets to be tested for
impairment was impacted by the devaluation of the Ukrainian hryvnia from 29.255 to 36.569 compared to the US dollar in July 2022, which reduced
the carrying value by another US$201 million.
As mentioned above, the preparation of the long-term model and the impairment testing in these unprecedented times involves a high degree of
judgement and any adverse changes in key assumptions would further reduce the value in use of the Group’s operating non-current assets. Based on
the sensitivities prepared, a delay of the recovery of the production and sales volumes to a pre-war level by another year would reduce the value in use of
the Group’s non-current operating assets by approximately another US$149 million, with all other assumptions remaining unchanged. A reduction of the
realised price by US$5 per tonne for the entire period covered by the long-term model would increase the impairment loss by approximately US$224
million and a decrease of the production and sales volume by 10%, combined with an increase of the production costs by 5%, again for the entire period,
would increase the impairment loss by approximately US$308 million. An increase of the pre-tax real discount rate by 3.0% would result in an increase of
US$164 million with all other assumptions remaining unchanged.
The recorded impairment during the financial year 2022 will be reassessed at the end of any future reporting periods. If there are positive developments in
the Group’s future cash flow generation and the relevant macro-economic data, a portion of the impairment loss might reverse in future periods.
Taxation in general and tax legislation in Ukraine (Note 11 to the Consolidated Financial Statements)
On 27 June 2022, the Supreme Court of Ukraine ruled partially in favour of the State Fiscal Service of Ukraine (“SFS”) in respect of a claim made by the
SFS, despite two favourable verdicts received by the Group’s subsidiary from lower court instances. The claim was in respect of a tax audit performed for
the period from 1 September 2013 to 31 December 2015 at the Group’s major subsidiary in Ukraine with a focus on cross-border transactions. As a result
of this court decision, an amount of UAH 234 million (US$8 million) became a legally binding obligation and was paid in July 2022.
The Group operates across a number of jurisdictions through its value chain and prices its sales between its subsidiaries using international benchmark
prices for comparable products covering product quality and applicable freight costs. The Group judges these to be on terms which comply with
applicable legislation in the jurisdictions in which the Group operates. The pricing of cross-border transactions is an inherent risk for any multinational
group and regular audits are to be expected. On 18 February 2020, the State Tax Service of Ukraine (“STS”), formerly known as SFS, commenced two
tax audits for cross-border transactions between the Group’s major subsidiary in Ukraine and two subsidiaries of the Group outside of Ukraine in relation
to the sale of iron ore products during the financial years 2015 to 2017. Further to that, on 14 June 2021, the STS commenced another tax audit for the
financial years 2015 to 2017 for cross-border transactions of another Ukrainian subsidiary with the same two subsidiaries of the Group outside of Ukraine.
Both audits have been affected by the Covid-19 related quarantine imposed in Ukraine during 2020 and the Martial Law declared by Ukraine in February
2022 as a result of the Russian invasion into Ukraine. The audits resumed on 25 January 2023 and the deadlines to provide the reports for the audits by
the STS are now 10 June 2023 and 15 November 2023, respectively.
There is a potential risk that the partially negative verdict of the Supreme Court of Ukraine might have an adverse impact on the tax audits described
above, as the STS might use the court verdict as a precedent for the currently ongoing tax audits. Having considered the background and history of the
court proceedings in respect of the claim partially lost in the Supreme Court of Ukraine, the Committee shares management’s view that the Group has
complied with applicable legislation for all cross-border transactions undertaken and that the court did not appropriately consider relevant technical
grounds and the applicable legislation when ruling on this case. The Group is exposed to the risks associated with operating in a developing economy,
including an environment of political, fiscal and legal uncertainties. As a result, there is a risk that the independence of the judicial system and its immunity
from economic and political influences in Ukraine is not upheld. As of the approval of these Consolidated Financial Statements, no claims have been
made by the STS in respect of the audits commenced in 2020 and 2021. As a consequence, no provision has been recorded as at 31 December 2022 for
transactions and years subject to the audits commenced by the STS as it is impossible to reasonably quantify the potential exposure. Any potential claims
will be again defended in the courts in Ukraine.
Ferrexpo plc Annual Report & Accounts 2022
101
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Audit Committee Report continued
Judgements/actions taken
Inventories: low-grade and weathered ore (Note 17 to the Consolidated Financial Statements)
Historically, inventories classified as non-current comprised low-grade and weathered ore that were, based on the Group’s processing plans,
not planned to be processed within the next 12 months. Following the approval of the Wave 1 Expansion project by the Board in October 2021,
management has had to revisit its mining and processing plans and strategies as the growth project means that significant higher volumes of high
grade ore are required to meet both future production needs and market expectations. Whilst the stockpiled ore was still seen as an asset for the
Group, the changed circumstances have resulted in the calculation of the net realisable value of the existing stockpiled low-grade ore reducing
to nil. As a consequence, a full impairment totalling US$231 million of the stockpiled low-grade ore was recorded as of 31 December 2021.
As disclosed in the Group’s 2021 Annual Report and Accounts, it is expected that some or all of the impairment loss might reverse in the
future, once changed facts and circumstances can be considered in the net realisable value test of this asset. Whilst the stockpiled low-grade
ore is still considered as an asset for the Group, the ongoing war in Ukraine has made it difficult to accelerate the commenced engineering
studies for the exploration of possible options for new processing capabilities for the specific purpose of processing low-grade ore. As a result,
the Committee concurs with management’s view that there are no changes in facts and circumstances to be considered as of 31 December
2022 and the stockpiled low-grade ore remains fully impaired. Consequently, the volume of low-grade ore extracted during the year ended
31 December 2022 with a cost of US$10 million was fully recognised in the Consolidated Income Statement and included in the cost of sales.
Completeness of contingencies and legal disputes (Note 30 to the Consolidated Financial Statements)
The Committee is aware that the Group is, in addition to the war-related uncertainties described under Assessment of the Group’s going
concern and viability statements on page 100, also exposed to the risks associated with operating in a developing economy, which may or may
not be exacerbated by the war and/or the current circumstances facing the Group’s controlling shareholder. As a result, the Group is exposed to
a number of risk areas that are heightened compared to those expected in a developed economy, including an environment of political, fiscal and
legal uncertainties.
Although the Group has operated successfully in difficult circumstances in recent years, the war in Ukraine and other circumstances facing
the Group has led to an escalation of a number of risks, including risks relating to the political environment and the independence of the legal
system, which could have a material negative impact on the Group’s business and reputation. The Group is currently facing the following
ongoing legal proceedings, disputes and potential contingencies, which are disclosed in full detail in Note 30 Commitments, contingencies
and legal disputes to the Consolidated Financial Statements:
– share dispute related to the Group’s major subsidiary in Ukraine;
– royalty-related investigation and claim;
– currency control measures imposed in Ukraine;
– contested sureties claim;
– ecological claims; and
– cancellation of licence for Galeschynske deposit.
As mentioned above, the Group is operating in a developing economy and most of the matters to be considered by the Committee are seen to
be a result of operating in such an environment. The Committee is aware that there is a risk that the independence of the judicial system and its
immunity from economic and political influences in Ukraine is not upheld, consequently Ukrainian legislation might be inconsistently applied to
resolve the same or similar disputes.
As a result, the Committee thoroughly reviewed management’s position and legal advice received for the matters listed above and concluded
that the disclosures made in Note 30 Commitments, contingencies and legal disputes to the Consolidated Financial Statements provide an
adequate level of detail to allow the reader of the accounts to understand the potential consequences and the related exposure. The Committee
also concurs with management’s view that no associated liabilities are required to be recognised in relation to these matters in the consolidated
statement of financial position as at 31 December 2022.
Events after the reporting period (Note 35 to the Consolidated Financial Statements)
The following two events after the reporting period are summarised below.
On 9 March 2023, the Group received confirmation that the Kyiv Commercial Court had ordered the arrest (freeze) of 50.3% of Ferrexpo AG’s
(“FAG”) shareholding in each of Ferrexpo Poltava Mining (“FPM”), Ferrexpo Yeristovo Mining (“FYM”) and Ferrexpo Belanovo Mining (“FBM”). The
court order also prohibits each of FPM, FYM and FBM making changes to the amount of its authorised capital and does not affect ownership of
the shares in these three subsidiaries of the Group in Ukraine, but prohibits the disposal by FAG of 50.3% of its shareholding in each named
subsidiary.
This court order was issued by the Kyiv Commercial Court during a hearing in the commercial litigation between the Deposit Guarantee Fund
and Mr. Zhevago, the Group’s controlling shareholder, in relation to the liquidation of Bank F&C in 2015.
The Group has no intention, and never has had any intention, of transferring the shares in FPM, FYM, FBM or FAG. In addition, no impact on the
operations of the Group is expected as a result of this court order.
As announced on 10 March 2023, the Group transferred 9,513,000 shares from the treasury share reserves to the Group’s employee benefit
trust reserve. Following the transfer of the shares, the issued share capital of Ferrexpo plc consists of 613,967,956 ordinary shares of 10 pence
each, of which 15,830,814 ordinary shares are held in treasury. As a result of this transfer, the interest of the Group’s largest shareholder,
Fevamotinico S.a.r.l, in the voting rights of Ferrexpo plc is now 49.5%.
For further details, see Note 35 Events after the reporting period of the Group’s Consolidated Financial Statements.
102
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Internal control and risk
management
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 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.
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 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.
– 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 FRMCC meetings, and, as
necessary, local compliance officers from
the Group’s 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. The FRMCC
met ten times in 2022.
– 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 with related
parties under common control, such as
background checks and tender processes.
The ERPMC met eight times in 2022.
– 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.
–
– The Investment Committee (an executive
sub-committee) meets as required in order
to consider and approve capital
expenditures within limits delegated by the
Executive Committee and the Board. The
Investment Committee only met twice in
2022 as no investment decisions were
required since the onset of the war.
– 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 Financial
instruments to the Consolidated Financial
Statements on pages 188 to 194), 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 Group,
which ensures that information is gathered
and presented in a consistent way that
facilitates the production of the
Consolidated Financial Statements.
– A framework of transaction and entity-level
controls to prevent and detect material
error and loss.
– Anti-fraud measures through an 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 Audit Committee and the Board
continued to review ongoing litigation
affecting the Company throughout the year
(see Note 30 Commitments, contingencies
and legal disputes to the Consolidated
Financial Statements on pages 196 to 199),
and received regular update reports and
presentations from legal counsel.
Full details of the Group’s policy on credit,
liquidity and market risks and associated
uncertainties are set out in Note 27 Financial
instruments to the Consolidated Financial
Statements on pages 188 to 194. See also
the Principal Risks section of the Strategic
Report on page 56.
Ferrexpo plc Annual Report & Accounts 2022
103
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Audit Committee Report continued
Internal audit
The internal audit function has a Group-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.
The Committee reviews at least annually the
effectiveness of the internal audit function by
assessing outcomes against plan targets, and
is satisfied, following its 2022 assessment,
with the rigour of the internal audits and with
management’s response to the audit findings
and recommendations. The resources of
internal audit are also monitored to ensure
appropriate expertise and experience. An
Internal Audit plan for 2023 was approved by
the Audit Committee in December 2022.
The Internal Audit plan for 2022 was approved
by the Audit Committee. The full scope audits
focused on the operational risks relating to
Group sales for FAG and FME, Outbound
logistics for FPM, FYM and FBM, Group
Compliance audit, Fixed Assets Cycle (Capex)
for FPM, FYM and FBM, Inventory
Management – RM and MRO, FYM Repair
and Maintenance, FYM and FBM Energy
Management and First-DDSG Logistics
Holding GmbH. 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 is undertaken through a
structured questionnaire, assessing 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. Certain areas for
improvement were noted but none impacted
on the effectiveness of the audit. The
outcome of the 2022 review in respect of the
2021 Annual Report and Accounts was
discussed with the relevant partners of MHA
MacIntyre Hudson.
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, and
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
Hudson as external auditor and authorising
the Directors to set the Auditor’s remuneration
will be proposed at the 2023 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 2022.
The Committee meets at least once a year
with the external Auditors without any
representation from management being
present.
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 (who are routinely notified
of all non-audit services).
Fees for audit-related and non-audit related
services performed by the external auditors
during 2021 are shown in Note 7 Operating
expenses to the Consolidated Financial
Statements on page 158. For 2022, no
material non-audit services were performed
by MHA MacIntyre Hudson.
Audit-related assurance services as at
31 December 2022 include US$51 thousand
regarding ESG-related disclosures in the
Annual Report and Accounts under
International Standard on Assurance
104
Ferrexpo plc Annual Report & Accounts 2022
Engagements ISAE (UK) 3000 (Revised) in
respect of the process for reporting of
selected safety and emissions data.
Financial reporting
The Board has asked the Audit Committee
to advise whether it considers the 2022
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,
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 2022 Annual Report
and Accounts is fair, balanced and
understandable and that it provides the
information necessary for shareholders
to assess the Company’s position,
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 UK Corporate
Governance Code. The Viability Statement is
set out in the Strategic Report on page 75
and a statement setting out the Board’s
assessment of the Company as a going
concern is contained in the Directors’ Report
on page 135 and Note 2 Basis of preparation
to the Consolidated Financial Statements on
page 156.
Whistleblowing policy
In accordance with the UK 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
14 March 2023
CORPORATE GOVERNANCE Nominations Committee Report
The Committee is chaired by Lucio Genovese. The
Committee consists of four Independent Non-executive
Directors and, by invitation, is also attended by the Chief
Executive Officer and the Chief Human Resources Officer.
Dear Shareholder,
I am pleased to present the Nominations
Committee Report for 2022 and provide a
summary of the work that the Committee
completed in 2022. The role of the
Nominations Committee is to assist the Board
in regularly reviewing its composition and
those of its Committees, to lead the process
for Board appointments, and ensure effective
succession planning for the Board and senior
management. The key activities undertaken in
the year are described in more detail in this
report. The Committee’s terms of reference
are available to view online on the Company’s
website (www.ferrexpo.com).
In 2022, the Committee was formally
convened three times (2021: five) where
the following was considered:
–
the composition and refreshment of
the Board;
– developing a training portfolio aligned to
–
a skills and experience matrix for directors
to ensure Board effectiveness;
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;
– reviewing and making recommendations
as to the composition and diversity of the
Board, Executive Committee and direct
reports to Executive Committee members;
the engagement of executive search
agencies to assist with Board
appointments;
–
– reviewing candidates and making
recommendations to the Board for the
permanent appointment of Jim North as
Chief Executive Officer, and the
appointment of Yaroslavna Blonska as
Acting Chief Marketing Officer;
– approving actions to be taken in 2022 in
support of the achievement of the Group’s
diversity and inclusion goals; and
– reviewing the results of the Group’s annual
talent review and succession plans for
business critical roles.
The Committee also agreed to undertake an
internal performance evaluation for the year
to 31 December 2022 (for further information
see the Board’s Performance Evaluation on
pages 94 to 96). The Company will conduct
an external performance evaluation in 2024.
Lucio Genovese
Chair of the Nominations Committee
Membership and
meeting attendance
Committee member
to attend
Attended
Scheduled meetings
Eligible
Lucio Genovese
Ann-Christin Andersen
Graeme Dacomb
Vitalii Lisovenko
Fiona MacAulay
3
3
3
3
3
3
3
3
3
3
Read the Committee’s full objectives
and responsibilities online: www.
ferrexpo.com/about-ferrexpo/corporate-
governance/board-committees/
Ferrexpo plc Annual Report & Accounts 2022
105
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Nominations Committee Report continued
In 2022, the Committee continued its ongoing
work to strengthen the overall governance
agenda of the Board and ensure that the
Board maintains an appropriate mix of skills
and experience. In support of this objective,
a training and development directory
was agreed by the Committee to inform
training and development for the Board.
All Directors conducted a self-evaluation
against the Board skills matrix to inform
individual development plans which will
be progressed over the next two years to
enhance the overall skill set of the Board.
The Board places great importance on
creating a workplace culture in which all
contributions are valued, different perspectives
are embraced, and biases are acknowledged
and mitigated. This commitment is set out in
the Company’s Diversity, Equity and Inclusion
policy which was approved by the Board in
2019. While the composition of the Board
now exceeds the gender diversity target
set by the Hampton-Alexander Review, the
Board is mindful of the need to enhance
diversity and foster inclusion below the
Board. The Committee therefore continued
to make recommendations to the Board on
appointments to the Executive Committee as
well as monitor senior appointments below the
Executive Committee. The execution of these
plans will remain a focus for the Committee to
eliminate gender imbalances below the Board.
The Committee recommended the
permanent appointment of Jim North as
Group Chief Executive Officer effective
from 14 February 2022, having acted in the
role since May 2020. The Committee also
participated in the process to find a Chief
Marketing Officer following the resignation
of Brett Salt. The Committee reviewed
internal candidates and recommended the
promotion and appointment of Yaroslavna
Blonska as Acting Chief Marketing Officer.
This promotion enhanced the gender
diversity of the Executive Committee and
is a great reflection of the Company’s
commitment to internal progression which
is explained further in this report.
The Group has formal policies in place to
promote equality of opportunity across
the whole organisation, regardless of
gender, ethnicity, religion, disability, age
or sexual orientation. In working towards
greater diversity, Natalie Polischuk
represented the Board at the launch of
the third “Fe_munity” women in leadership
programme at the Group’s operations in
Ukraine. This programme has been highly
successful and seeks to accelerate the
development of our senior female managers
and to support them as they navigate the
challenges and gender biases that might
hinder their career progression in the
workplace and within broader society. The
Company also hosts regular talks by senior
female leaders from inside and outside
our business, along with a mentoring
scheme as part of this same programme.
Since the inception of the “Fe_munity”
programme three years ago, more than 200
women have been through the programme
and the Committee was pleased to note
that, in the same timeframe, the proportion
of managerial roles held by women has risen
from 17.5% in 2019 (62 female managers) to
20.9% in 2022 (81 female managers), with
this upward trend expected to continue into
2023, despite the war in Ukraine. This trend
means that the Group is tracking well to
achieve its stated target of at least 25% of
managerial roles to be held by women by
2030. However, the Committee noted that
further work is needed below managerial level
where the overall number of women in the
workforce for 2022 has declined to 28.7%
(2,290 female employees) due to a number
of female employees leaving the country as
a result of the invasion of Ukraine by Russia
(2021: 29.2% (2,414 female employees)).
Following the success of the internal
“Fe_munity” programme, 2022 also saw
the inaugural launch of an external Ukraine-
wide programme, involving 50 senior
female business leaders from across
Ukraine, working for other organisations
and sectors of the economy with a further
programme for teenagers planned for
launch in 2023. These programmes are
part of the Company’s broader corporate
social responsibility initiatives to support the
overall development of Ukrainian society.
During the year, to demonstrate our
commitment to Diversity, Equity and Inclusion,
the Company signed the Women’s
Empowering Principles (“WEPs”), an initiative
by UN Women and the UN Global Compact
Office. WEPs are a set of principles providing
guidance on the promotion of gender equality
and women’s empowerment in the workplace,
marketplace and community. The WEPs are
informed by international labour and human
rights standards and grounded in the
recognition that businesses have a stake in,
and a responsibility for, gender equality and
women’s empowerment.
Aligned with the goals of the Parker Review,
the Committee is committed to ensuring
that the Board’s composition reflects the
Group’s employee base and the communities
where the Group operates. The Committee
therefore commissioned an external search
consultancy to conduct research into how
comparable organisations are responding
to the Parker Review. The outcome of this
study was considered in the year which
enabled the Board to chart a course to
ensure a sustainable, diverse and ethnically
representative Board. The Committee has
therefore launched recruitment and expects
to appoint a Non-executive Director from an
ethnic minority group to the Board ahead of
the Parker Review deadline of December 2024.
As at 31 December 2022, the Committee was
composed of four Independent Non-executive
Directors, Ann-Christin Andersen, Graeme
Dacomb, Vitalii Lisovenko and Fiona MacAulay.
I would like to thank the members of the
Committee for all their work during the year.
Lucio Genovese
Chair of the Nominations Committee
14 March 2023
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Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Membership and meetings
The Nominations Committee is chaired by
Lucio Genovese and its other members are
Vitalii Lisovenko, Fiona MacAulay, Graeme
Dacomb and Ann-Christin Andersen.
The Committee is required by its terms of
reference to meet at least once a year and
met on three scheduled occasions in 2022.
All meetings were held face-to-face. All
Non-executive Directors have a standing
invitation to attend all Committee meetings,
with the consent of the Committee Chair.
In practice, most Directors generally attend
all meetings. Discussions at the meetings
covered the responsibilities outlined
earlier, with particular focus on Board skills
development and Non-executive and Executive
succession planning and recruitment.
Succession planning and
recruitment
The Nominations Committee is responsible
for the composition, structure and size of the
Board and its Committees, the appointment
of Directors and executive management, and
for ensuring effective succession planning for
the Board and other business critical roles to
fulfil the leadership needs of the organisation.
The Committee also plays a vital role in
ensuring that we continue to adhere to the
high standards of corporate governance that
our stakeholders rightly expect. It, therefore,
works to ensure that the Board has the right
members both now and in the future to deliver
the Company’s strategy and ensure its
long-term success. The Committee plans
ahead for future recruitment to make sure
that the Board continues to have the diversity,
skills and experience it needs. The roles of all
Directors are summarised on page 90.
During 2022, the Committee agreed a
directory of training and development
interventions and activities to inform Board
development planning and recruitment
processes. This work followed on from the
previous year where the Committee refreshed
the Board skills matrix with all Directors
completing a self-evaluation against the
Board skills matrix (for further information see
the Board’s skills matrix on page 81) to inform
their individual development plans. This year,
the Board training and development directory
allowed for individual development plans to
be populated, which will be progressed over
the next two years to enhance the overall skill
set of the Board. It is anticipated that each
Non-executive Director will receive training
appropriate to their level of experience and
knowledge which would consist of a
combination of tailored training together with
individual briefings with Executive Committee
members and their teams to provide
information about the Group’s business,
culture and values, and other relevant
information to assist Non-executive Directors
in effectively performing their duties. In
addition, Non-executive Directors are
expected to spend time at the Group’s
operations to engage with management and
members of the workforce.
The Committee also participated in the
process to find a replacement following the
resignation of the Chief Marketing Officer
(“CMO”) for the Group. The Committee
considered that attracting suitable external
candidates could be impacted by the ongoing
war in Ukraine, and therefore took a decision
to postpone conducting a formal search of
the market until the war ends. As an interim
measure, the Committee conducted
interviews with internal candidates in the
company’s marketing function and
recommended the internal promotion of
Ms Yaroslavna Blonska and appointment as
Acting CMO. This appointment underscores
the Company’s robust talent management
process which identifies individuals with high
potential for inclusion in succession plans for
business critical roles.
Re-election
Except for Ann-Christin Andersen, who
will not stand for re-election, in accordance
with the UK Corporate Governance Code,
all Directors will stand for re-election by
shareholders at the Company’s AGM
scheduled for May 2023. The range of skills
and experience offered by the current Board
is mentioned in this report and is set out on
pages 82 to 83. The Committee and the
Board consider the performance of each
of the Directors standing for re-election to
be fully satisfactory and that they have
demonstrated ongoing commitment to
their respective roles. The Board, therefore,
strongly supports the re-election of all
Directors standing for re-election and
recommends that shareholders vote in
favour of the relevant resolutions at the
Annual General Meeting.
Board diversity policy
The Board places great importance on having
an inclusive and diverse Board and workforce
and recognises the important leadership role
that 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.
In support of this goal, the Board agreed a
Diversity, Equity and Inclusion policy (“DEI
Policy”) in 2019 which is kept under review by
the Nominations Committee. The DEI Policy
aims to promote equality of opportunity
across the whole organisation, regardless of
gender, ethnicity, religion, disability, age or
sexual orientation as well as 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 DEI 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.
A summary of the Board’s diversity
information can be found on page 87.
Ferrexpo plc Annual Report & Accounts 2022
107
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS When progressing recruitment, the Board
seeks to ensure that a broad range of diverse
candidates are taken into account when
drawing up shortlists of candidates for
appointment to the Board, and the Board will
only engage executive search consultants
who have signed up to the Voluntary Code of
Conduct for executive search firms. The final
decision to make appointments to the Board
is, however, made on merit against objective
criteria, so as to ensure that the strongest
possible candidate for the role is recruited.
However, the Committee will continue to
ensure that the DEI 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.
Nominations Committee Report continued
In support of the Group’s DEI goals, Natalie
Polischuk represented the Board at the
launch of the third “Fe_munity” women in
leadership programme held at the Group’s
operations in Ukraine (for further details on
the “Fe_munity” programme see page 43).
This internal programme, which is run with
the support of external consultants, seeks
to accelerate the development of our senior
female managers and to support them as
they navigate the challenges and gender
biases that might hinder their career
progression in the workplace and within
broader society. Since the inception of the
“Fe_munity” programme three years ago,
more than 200 women have been through
the programme and the Committee was
pleased to note that in the same timeframe,
the proportion of managerial roles held by
women has risen from 17.5% in 2019 (62
female managers) to 20.9% in 2022 (81
female managers), with this upward trend
expected to continue into 2023, despite the
war in Ukraine. This trend means that the
Group is tracking well to achieve its stated
target of at least 25% of managerial roles to
be held by women by 2030. However, the
Committee noted that further work is needed
below managerial level where the overall
number of women in the workforce for 2022
has declined to 27.8% (2,290 female
employees)(2021: 29.2% (2,414 female
employees)) as a result of a number of female
employees resigning and leaving the country
due to the invasion of Ukraine by Russia.
Following the success of the internal
“Fe_munity” programme, 2022 also saw the
inaugural launch of an external Ukraine-wide
programme, involving 50 senior female
business leaders from across Ukraine,
working for other organisations and sectors
of the economy with a further programme for
teenagers planned for launch in 2023. These
programmes are part of the Company’s
broader corporate social responsibility
initiatives to support the overall development
of Ukrainian society.
During the year, to demonstrate our
commitment to Diversity, Equity and
Inclusion, the company signed the Women’s
Empowering Principles (“WEPs”), an initiative
by UN Women and the UN Global Compact
Office. WEPs are a set of Principles providing
guidance on the promotion of gender
equality and women’s empowerment in the
workplace, marketplace and community. The
WEPs are informed by international labour
and human rights standards and grounded
in the recognition that businesses have a
stake in, and a responsibility for, gender
equality and women’s empowerment.
The Nominations Committee places high
importance on having a diverse and inclusive
Board and workforce and, to this end, the
Committee reviews and approves succession
plans each year for business critical roles,
including reviewing succession plans for the
Board. Following the appointment of two
Independent Non-executive Directors in the
year, the Committee is satisfied that the
present composition of the Board takes
account of the targets of the Hampton-
Alexander Review and provides an
appropriate mix of skills, experience, diversity
and perspectives on the Board. However, the
Committee is cognisant of the need to ensure
that the Company’s composition is congruent
with the goals of the Parker Review and is
reflective of the Group’s employee base and
the communities where the Group operates.
To this end, the Committee commissioned
Wilbury Stratton, an external search and
research consultancy, to conduct research
into how comparable organisations have
responded to the Parker Review. The
outcome of this study was considered by the
Committee in 2022, resulting in plans being
put in place that will ensure a sustainable,
diverse and ethnically representative Board.
These plans include launching a formal
search for an Independent Non-executive
Director from a minority ethnic group to
advance the Company’s ethnic and cultural
diversity to reflect the demographic
composition of communities surrounding
the Group’s operations. An appointment
is expected ahead of the Parker Review
deadline for FTSE 250 companies of
December 2024.
108
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Board diversity policy update
Board objective
Progress in 2022
Foster a diverse and
inclusive workplace
culture aligned with the
Company’s Values,
Purpose and Strategy
Increase Board gender
diversity and women in
management below the
Board
Monitor diversity
programme outcomes and
make adjustments to
ensure overall objectives
are met
– Upgrading of facilities and access points continued at operations to enable accommodation of people
with disabilities.
– Board-sponsored third “Fe_munity” women in leadership programme to foster the advancement of women
into senior leadership roles hosted by Natalie Polischuk.
– Assessment of workforce technical skills in the plant continued and training conducted to ensure workforce
capability supports business requirements.
– Unconscious bias training implemented for junior and middle managers at operations to enhance diversity
awareness at leadership levels.
– Board training and development directory implemented to enhance the current skills of the Board linked to
the Board’s skills matrix.
– Formal search launched for an additional Non-executive Director from a minority ethnic group to meet the
–
requirements of the Parker Review.
Initiatives progressed in 2022 advanced women in leadership to 20.9% (81 female managers) (2021: 20.1%
(62 female managers)); target for 2023 (towards target of 25% by 2030) set at 21.5% by end of 2023.
– Total female representation as percentage of the workforce currently at 27.8% (2,290 female employees)
(2021: 29.2% (2,414 female employees)).
– 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 continued in 2022.
New and repeat activities planned for 2023, subject to the cessation of the war in Ukraine, will include:
– Workforce Diversity and Inclusion education.
– Unconscious bias training for senior management.
– Science, technology, engineering and mathematics (“STEM”) ambassador visits to local schools and colleges.
– STEM streamers competition run online with students from local schools.
– “Fe_munity” programme for teenagers.
– Selection of bursary award school leavers.
Workforce 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. In
2019, the Board set a diversity target of 25%
women in leadership to be achieved by 2030.
Achieving this target remains a challenge in
view of there being a very limited number of
female applicants for technical jobs in the
Resources sector historically while the
Group’s workforce is set to grow due to
the Group’s organic growth plans.
During the year, the Committee reviewed the
progress made towards the Group’s target
and although the overall number of women
in the workforce declined to 28.7% (2,290
female employees) (2021: 29.2% (2,414
female employees)), the number of women
in leadership positions advanced to 20.9%
(81 female managers (2021: 20.1% (62 female
managers)). The Committee was gratified with
this result and in order to sustain this upward
trend in 2023 and beyond, the Committee
approved diversity and inclusion actions for
execution in 2023.
Gender diversity targets were included in the
Executive Business Scorecard for the first
time in 2021 to provide additional focus and
attention on the achievement of this strategic
imperative. A diversity target has again been
included in the scorecard for 2023 of 21.5%.
This target represents the appointment of an
additional three women in senior leadership
positions by the end of 2023.
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 14 March 2023.
Lucio Genovese
Chair of the Nominations Committee
14 March 2023
Ferrexpo plc Annual Report & Accounts 2022
109
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Remuneration Report
Fiona MacAulay
Chair of the Remuneration Committee
Membership and
meeting attendance
Committee member
Fiona MacAulay
Graeme Dacomb
Vitalii Lisovenko
Ann-Christin
Andersen
Scheduled meetings
Eligible
to attend
Attended
5
5
5
5
5
5
4
5
The Committee is chaired by Fiona MacAulay. The
Committee consists of three independent Non-executive
Directors as required by the UK Corporate Governance
Code and is also attended by the Chair of the Board and,
by invitation, the Chief Executive Officer, the Chief Human
Resources Officer, and a representative from Korn Ferry,
the Committee’s independent advisor.
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 UK
Corporate Governance Code.
A statement to shareholders
from the Chair of the
Remuneration Committee
As Chair of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report1 for the year ended
31 December 2022.
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) Regulations 2008 (as amended in 2013, 2018
and 2019) and the UK Corporate Governance Code. The
elements subject to audit are highlighted throughout.
This report is split into the following sections:
1. this 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
as approved by shareholders at the 2021
AGM with over 98% support from our
shareholders;
4. the Annual Report on Remuneration,
setting out how we have paid Directors in
2022 and how we intend to operate the
policy in 2023.
Our approach to remuneration
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 short
and long-term incentive schemes. It is the
policy of the Board to align executive and
shareholder interests by linking a substantial
proportion of executive remuneration to
performance, basing short-term rewards on
a balanced portfolio of financial, operational,
ESG and strategic performance targets with
Read the Committee’s full objectives
and responsibilities online: https://www.
ferrexpo.com/about-ferrexpo/corporate-
governance/board-committees/
Key activities of the Committee in 2022
The Committee’s key activities during the 2022 financial year were:
February
– Planning stakeholder engagement for 2022.
– Determining the 2021 bonus outturn.
– Determining vesting of the 2019 Long-term
Incentive Plan awards.
– Setting 2022 annual bonus targets.
– Reviewing 2022 LTIP TSR peer group
constituents.
March
– Considering the impact of the war in Ukraine
on 2022 remuneration.
– Approving the application of the Remuneration
Policy for 2022.
– Determining the size of 2022 Long-term
Incentive Plan awards and the performance
conditions.
– Approving awards under the Company’s share
plans.
– Signing off the 2021 Remuneration Report.
110
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE long-term rewards earned subject to creating
above average long-term total shareholder
returns and, since 2021, achieving the
Company’s decarbonisation targets.
Our policy is purposefully weighted towards
short-term performance targets given the
Company’s focus on operational excellence
and the fact that Ferrexpo does not control
the price of iron ore which is dictated by
market conditions. As a result, setting
performance targets that align to the factors
directly within the control of the executive
team is considered appropriate.
We ensure that remuneration packages are
competitive through assessing remuneration
packages against the relevant market
comparables to ensure that Ferrexpo can
attract, motivate and retain talented
executives. We further enhance the alignment
with shareholders through the performance
conditions we set, share-based pay including
through a combination of partial deferral of
annual bonus into shares, annual awards
under a performance share plan and market
consistent share ownership guidelines. This
approach applies across the executive
leadership team and has resulted in a robust
link between pay and performance to date.
Board changes during 2022
Mr North was permanently appointed to the
position of Chief Executive Officer (“CEO”) on
14 February 2022 and his base salary was
increased by US$100,000, equivalent to the
“acting up” allowance that he received while
serving as Acting CEO since May 2020. He
continued to participate in the annual bonus
scheme and remained eligible for annual
awards under the LTIP. Details of his pay are
set out pages 122 to 131.
Mr Zhevago resigned from his role as Non-
executive Director and stepped down from the
Board with effect from 29 December 2022.
He received no further remuneration for his
role on the Board from this date. Mr Zhevago
maintains a consultancy arrangement with
the Company and received a consultancy fee
for providing strategic advice to the CEO and
the acting Chief Marketing Officer (“CMO”)
and management of relationships with key
stakeholders (in line with the agreement
operated since and first disclosed in the
2020 Annual Report and Accounts). This
consultancy arrangement reflects the time
commitment associated with the role and
is kept under review. Mr Zhevago does
not receive any wider Company benefits
in connection with this consultancy role.
Performance and reward in 2022
The war in Ukraine created significant
uncertainty and necessitated that the Group
be agile in its approach to remuneration in
2022. Given the effect on the Company’s
remuneration schemes, the Committee spent
time overseeing Group-wide pay decisions as
well as assessing the need to use discretion
in exceptional circumstances to recognise
changes and ensure that the Group’s
remuneration policy fulfils its original intent.
At the start of the invasion, the Company took
steps to ensure that employees in Ukraine
could access their salaries despite disruption
to banking systems and increased overtime
payments to compensate for changes in shift
rosters resulting from employees being called
up for military service and provided financial
assistance to employees needing to relocate
themselves and their families away from areas
of intense fighting.
Restrictions on our access to Black Sea ports
and increased logistics costs made sales
outside of Europe less cost effective. Sales
volumes in 1Q 2022 were buoyant, but
declined over the year, most notably in the 2H
2022, following attacks by Russia on civilian
energy infrastructure.
The economic consequences were also
felt by employees in other Group office
locations as soaring energy prices and higher
inflation impacted households worldwide.
Given these inflationary pressures, the
Committee agreed adjustments in base
salary for all employees aligned with
CPI in Company’s various locations.
The Group CEO and the senior leadership
team faced continued and multiple challenges
to which they have responded with resilience
and rigour, but for their efforts, Group
performance could have been far worse. Prior
to the invasion by Russia, a Crisis Management
Team was formed that initially met on a daily
basis and continues to meet weekly to review
the situation on the ground and take critical
decisions and implement actions to safeguard
business continuity and ensures that the safety
and wellbeing of people remains paramount.
In the context of the operational, financial and
strategic performance detailed above, the
CEO achieved a bonus at 50% of the
maximum (75.1% of salary) (2021: 67.1% of
maximum; 100.7% of salary) for the year
under review. This payment was consistent
with the wider bonus awards in the Company
and the Committee was comfortable that this
bonus award reflected the challenging year
for the Group and the wider stakeholder
experience, and therefore did not apply
discretion. Full details of the performance
assessment are set out on page 125.
July
– Consideration of AGM feedback.
– Considering additional payments made to
employees in Ukraine and across the Company
in response to the war in Ukraine and the wider
inflationary environment.
– Reviewing market pay benchmarking data and
approving any proposed salary increases for
members of the Executive Committee.
– Reviewing market developments and institutional
investor issues raised during the 2022 AGM
season.
– Considering the treatment of share awards for
departing executives.
December
– Considering performance to date against 2022
annual bonus targets.
– Reviewing shareholder advisory body guideline
updates for 2023 AGM Season.
– Approving amendment of the rules governing
Long-term Incentive Plan awards.
– Approving the 2023 Remuneration Committee
Planner.
Anticipated key activities of the
Committee in 2023
– Consider AGM feedback.
– Confirm the 2021 Remuneration Policy continues
to support the Company’s strategy.
– Consider the evolution of performance targets in
line with the implementation of the business
strategy through the current challenging
operating environment.
– Monitor senior management remuneration.
– Ensure remuneration decisions are taken in the
context of the wider stakeholder experience
through the period.
Ferrexpo plc Annual Report & Accounts 2022
111
Key activities of the Committee in 2022
The Committee’s key activities during the 2022 financial year were:
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Remuneration Report continued
With regard to the 2020 LTIP, vesting was
based on three-year total shareholder return
performance over the period to 31 December
2022 with Ferrexpo’s performance assessed
relative to the performance of a bespoke Index
of comparable Iron Ore and Composite Miners.
With remuneration outcomes aligned across
the executive leadership of the Group and
after considering wider stakeholder
experience through the year, the Committee
was comfortable with remuneration outcomes
with the policy operating as intended.
The Committee assessed the performance
of the Company over the full three-year
performance period and also to the period
of the Russian invasion of Ukraine.
The Company had delivered exceptional
relative performance against the comparator
group until the start of 2022 and while the
potential for a Russian invasion had started to
weigh on the share price in the early months of
the 2022, we remained well ahead of maximum
vesting target at the time of the invasion on
24 February 2022. As a result, the Committee
considered whether it was appropriate for the
impact of the Russian invasion, over which
participants had no control, to take vesting
from full vesting to zero vesting with no
change to the underlying performance of the
Company through the period to the invasion.
Having considered the above, the Committee
determined that it would make an adjustment
to the basis of testing the performance
condition and also make a corresponding
reduction to the potential number of shares
that were eligible to vest. The approach the
Committee took to ensure that there was
alignment between performance and reward
was to test the Company’s performance
relative to the comparator group up until
the day before the Russian invasion on
23 February (so consider actual performance
from 1 January 2020 to 23 February 2022)
and then to track the performance of the
TSR peer group forward from 24 February
to 31 December 2022. This achieved a fair
proxy for the expected performance that
the Company would have delivered for the
balance of the performance period had the
Russian invasion of Ukraine not taken place.
In light of this adjustment to the basis of
testing the three year performance condition,
which is possible as a result of the Russian
invasion of Ukraine being considered a relevant
event under the plan rules to enable the
Committee to adjust the approach to testing
the condition so that it fulfilled its original intent
and remained no less challenging but for the
event in the opinion of the Committee, the
Committee decided that it would reduce the
maximum number of shares eligible to vest.
This reduction was proportionate to period
of the performance period elapsed to the
Russian invasion of Ukraine (i.e. the original
award was reduced to 71.6% of the shares
originally granted to reflect the number of
months from 1 January 2020 to 24 February
2022 relative to the full three-year period).
Full details are provided on page 126.
Implementation of the remuneration
policy in 2023
Whilst there are no changes proposed to
the Directors’ Remuneration Policy for 2023,
the recommended application of the
remuneration policy has been influenced by
the ongoing impact of the war in Ukraine, in
particular, with respect to the range of
performance targets set for the 2023 STIP
which have been set to reflect the current
operating environment. The key points are:
–
In 2023, the general approach to CEO and
senior executive salary reviews will be to
undertake a review against the relevant
market data where the executive is located
with any increases effective from
1 January. The factors considered as
part of the review process include the role
itself and any changes to that role, the
performance in the post and the typical
rate of increase awarded across the
workforce. Salary budgets were set taking
into account the rates of inflation in the
locations in which Ferrexpo operates and
ranged from 2% to 15%. Given the location
of the CEO and his overall remuneration
package, his salary was increased by 2%
with effect from 1 January 2023.
– The annual bonus opportunity will be
unchanged at 150% of salary for the CEO.
Performance will continue to be measured
against a balanced scorecard of structured
financial, operational and ESG targets
(60% of the total bonus) and tailored
strategic targets (40% of the bonus).
25% of any bonus earned is deferred
into shares for two years.
– The Committee’s approach to long-term
incentive awards is that these are less than
50% of salary and for 2023 the CEO is
expected to equate to circa 45% of salary.
Performance will continue to be measured
based on Ferrexpo’s relative total
shareholder return compared against the
performance of an index derived from a
group of iron ore and composite miners and
based on sustainability targets which are
higher grade iron ore pellet production
targets with higher grade iron ore pellets
improving the productivity of blast furnaces
such that their carbon footprint is reduced
by 40% for every tonne of sinter fines
replaced (Source: CRU). For the 2023
awards, we are replacing the carbon
reduction target with an underpin that will
enable the Committee to reduce vesting if
progress in reducing carbon is not in line
with the Board’s carbon strategy having
had regard to the dynamic situation created
by the Russian invasion of Ukraine which
has resulted in the need to be flexible in
terms of our sources of, and investment in,
power and associated technologies. The
revised weightings for 2023 are, therefore,
85% of the award based on TSR
performance and 15% based on higher
grade iron ore pellet production. It is the
Committee’s intention to reintroduce
carbon reduction as a primary performance
measure in the future.
Further details of the performance conditions
and targets for 2023 are set out on page 128.
Consideration of shareholders
and employees
We consulted with shareholders in 2021 in
relation to the Directors’ Remuneration Policy
and were pleased to receive over 98%
support for that resolution at the 2021 AGM
and have received equally strong support for
the remuneration report resolutions in recent
years. The Committee receives any feedback
provided by shareholders and considers it in
the context of decisions made.
The Committee also noted feedback on
remuneration provided by the Employee
Engagement Non-executive Director, Vitalii
Lisovenko, which was elicited directly from
employees during a series of employee
engagement sessions held with all levels of
employees. These sessions tested a range of
employee engagement elements including the
effectiveness of remuneration and benefits
policies and the understanding of the
alignment between executive remuneration
and wider company pay policy
As in prior years, while policies are
understood and are generally considered
to be working effectively, work remains
ongoing to improve the alignment between
remuneration with individual performance
outcomes. The progress made to date will
be progressed further in 2023 by the Chief
Human Resources Officer (“CHRO”). The
CHRO will also work with the designated
Employee Engagement Non-executive
Director, Vitalii Lisovenko, to further develop
two-way feedback in relation to remuneration
policies and practices.
I hope you are able to support the rationale
for the decisions we have taken during the
year and support the resolution for the
approval of the report at the 2023 AGM.
If you have any question or comments,
please feel free to reach out through the
Group Chief Human Resources Officer
(email: g.nortje@ferrexpo.ch).
Fiona MacAulay
Chair of the Remuneration Committee
14 March 2023
112
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE At a glance (not subject to audit)
Element
Operation
Time-horizon
2022
2023
2024
2025 2026
Salary:
To attract and retain talent by ensuring base
salaries are competitive in the market in which
the individual is employed
– Annual review by the Committee
–
Increases typically in line with wider
workforce
Pension amd benefits:
To provide market competitive benefits
– 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
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
Share ownership guideline:
To provide alignment of interests between
Executive Directors and shareholders
– Maximum opportunity of 150% of salary
– Target opportunity of 75% of salary
– Performance conditions based on a
scorecard of financial, operational and
common strategic objectives
– Safety underpin
– 25% of bonus deferred into shares for two
years
– 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
– Executive Directors required to build
and maintain a shareholding of 200%
of salary
– Applies for two years post-cessation
of employment
Business scorecard (60% of bonus)
Total Shareholder Return
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
)
y
r
a
a
s
l
f
o
%
(
t
n
e
m
y
a
p
s
u
n
o
B
300
200
100
)
£
(
l
e
u
a
V
200% of salary
Group
EBITDA
Safety –
LTIFR
Diversity
Ratio
Carbon
reduction
Production
from
own ore
Full cash
costs
reported
FPM Total
movement
Pellet
stockpile
Total
0
31 Dec
2019
31 Dec
2020
31 Dec
2021
31 Dec
2022
— Ferrexpo — 2022 LTIP Index — FTSE 250 Index — FTSE All-Share Index
Ferrexpo plc Annual Report & Accounts 2022
113
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Remuneration Report continued
Part A: policy section (not subject to audit)
This part of the Directors’ Remuneration Report sets out the Remuneration Policy for the Directors of the Company. This
Directors’ Remuneration Policy was approved by shareholders at the Company’s AGM on 27 May 2021 and is intended to apply
for three years from that date, unless shareholder approval is sought for earlier changes. The Report has been reproduced
here for ease of reference, with factual data updated where appropriate (e.g. scenario charts, contractual terms, and page
references). The Policy as approved by shareholders can be found in the Ferrexpo plc Annual Report & Accounts 2020 available
on the company’s website.
Committee
The terms of reference for the Committee were updated during 2020 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 UK Corporate Governance Code and are
available for inspection on the Group’s website at www.ferrexpo.com.
Key principles of the remuneration policy
Ferrexpo’s remuneration policy is designed to help attract, motivate and retain talented executives to help drive the future growth and
performance of the business. The policy aims to:
– align executive and shareholder interests;
–
– reward based on a balanced portfolio of performance conditions (e.g. Total Shareholder Return (“TSR”) relative to sector peers, annual
link an appropriate proportion of remuneration to performance;
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.
– 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 which the Executive
Directors are required to accept to receive payments under the STIP and awards under the LTIP and which would normally be enforced by
reducing the number of shares and/or cash subject to outstanding and unvested awards in the first instance.
– 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 119 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. Similarly, both the annual bonus and the LTIP incorporate climate-related performance targets linked to the
Company’s strategic climate goals as set out on pages 34 and 36.
114
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Executive Director policy table
This section of our report summarises the policy for each component of Executive Director remuneration. The principles below also apply where
appropriate to the members of the Executive Committee.
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Fixed pay
Base salary
To attract and retain talent
by ensuring base salaries
are competitive in the
market in which the
individual is employed.
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.
Business and, where
relevant for current
Executive Directors,
individual performance
are considerations in
setting base salary.
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.
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.
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.
Not performance
related.
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.
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.
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.
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’ 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.
Ferrexpo plc Annual Report & Accounts 2022
115
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Remuneration Report continued
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Maximum opportunity of 150% of
salary.
Performance related.
The target opportunity is 50% of
maximum and the threshold
opportunity is one-third of
maximum.
Performance targets
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.
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.
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.
116
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Purpose and link to strategy
Operation
Opportunity
Performance metrics
The Committee reviews
the LTIP performance
conditions, in advance
of granting each LTIP
cycle.
Relative TSR will be the
primary performance
condition. Other
performance conditions
may, however, be used
in combination with
relative TSR.
From 2021, the
performance conditions
were broadened to
include both a
sustainability (carbon
reduction) and a
production target (DR
pellets as a proportion
of annual volume) to
operate alongside
relative TSR.
Not performance related.
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.
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.
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.
Share ownership
guideline
To provide alignment of
interests between
Executive Directors and
shareholders.
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.
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).
Ferrexpo plc Annual Report & Accounts 2022
117
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Remuneration Report continued
Rationale for performance targets
The STIP is based on performance categories that are key to delivering on our long-term strategy. Performance targets 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 targets applied as for the 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.
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
Annual fee for the Chair.
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 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 million.
118
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE Pay-for-performance: scenario analysis
For the 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”. In illustrating potential reward opportunities, the following assumptions have
been made:
Scenario
Fixed pay
STIP
LTIP
Below threshold
On-target
Maximum
Base salary, pension
and benefits as
applicable for 2023
financial year1
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)
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
Maximum, assuming 50%
share price growth
Maximum STIP (150% of salary)
1. Benefits have been included at US$221,183 based on the annualised benefit provision to Executive Director.
CEO US$ (‘000)
Minimum
100%
Target
52%
Maximum
26%
Maximum
with 50%
share price
growth
0
21%
1,199
31%
32%
26%
17%
2,324
42%
35%
4,623
18%
5,602
1,000
2,000
3,000
4,000
5,000
6,000
Fixed Pay
STIP
LTIP
LTIP value with 50% share price growth
Ferrexpo plc Annual Report & Accounts 2022
119
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 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 targets and conditions 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
conditions 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 Director’s service contract
The Executive Director is employed under a contract of employment with Ferrexpo Middle East FZE, a Group company (the “employer”). Due
to changes in UAE employment law, the Executive Director’s service contract will be converted in 2023 to a five-year fixed term contract
(renewable).
The principal terms of Mr North’s existing service contract will be mirrored in his new service contract. The principal terms not otherwise set out
in this report are as follows: save in circumstances justifying summary termination, Mr North’s service contract with the employer is terminable
on not less than three months’ notice to be given by the employer or not less than three months’ notice to be given by Mr North, which is the
maximum permissible period of notice in the UAE, and has no special provisions in the event of a change of control.
Executive Director
J North
Position
CEO
Date of contract
Length of current contract
From employer
From employee
30 September 2015
5 years
3 months
3 months
Notice period
Under his service contract, Mr North 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 business class ticket to his country of origin and the
service gratuity payment referred to on page 123.
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;
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).
120
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE 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 Director’s 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 the Executive Directors.
Details of Non-executive Directors’ letters of appointment
The Chair 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:
Date of first appointment
Date of election/re-election
Non-executive Director
L Genovese
AC Andersen
G Dacomb
V Lisovenko
F MacAulay
N Polischuk
K Zhevago1
Position
Chair
Non-executive Director
Non-executive Director
12 February 2019
1 March 2021
10 June 2019
Non-executive Director
28 November 2016
Non-executive Director
Non-executive Director
Non-executive Director
12 August 2019
29 December 2021
1 December 2020
2023 AGM
Not standing
2023 AGM
2023 AGM
2023 AGM
2023 AGM
Not standing
1. Mr Zhevago resigned as a Non-executive Director with effect from 29 December 2022.
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.
Ferrexpo plc Annual Report & Accounts 2022
121
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 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 2022
The Committee comprises four Independent Non-executive Directors. Fiona MacAulay is Chair of the Remuneration Committee, with the other
members of the Committee during the year being Graeme Dacomb, Vitalii Lisovenko and Ann-Christin Andersen. The Committee met on five
scheduled occasions in 2022. Attendance at meetings by individual members is detailed in the Corporate Governance Report on page 89.
A summary of the topics discussed at meetings in 2022 is set out in the Chair’s Introductory Statement on pages 110 to 112.
The 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.
Advisors
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 adheres to its code of conduct.
Korn Ferry’s fees for services provided to the Committee in 2022 totalled £65,856 which were charged based on the time spent advising the
Committee. 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 advisors periodically and is satisfied that the advice received is independent and objective
and that the advisors 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 Mr North for the year ending
31 December 2022 and the prior year.
Salary1
Benefits2
STIP3
LTIP4
Pension5
Total
(single figure)6
Total fixed
remuneration
(single figure)6
Total variable
remuneration
(single figure)6
Executive Directors
J North (2022)
US$959,050 US$221,183 US$720,000 US$246,618
– US$2,146,851 US$1,180,233
US$966,618
J North (2021)
US$959,050 US$196,948 US$965,544 US$351,922
– US$2,473,464 US$1,155,998 US$1,317,466
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: the total bonus earned based on performance during the year. Further details are provided on pages 123 to 125.
4. LTIP: the market value of shares that vested based on performance to 31 December of the relevant year (2022: 71.6% vested and 2021: 100% vested). LTIP value includes dividends of
US$89,845 over the performance period from 1 January 2020 to 31 December 2022.
5. Pension: 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$80,088 (2021: US$111,234) was accrued
towards the statutory gratuity.
6. Average exchange rates: 2022 – £1=US$1.2105; 2021 – £1=US$1.3757.
7. Mr North assumed the role of Acting CEO from the 2020 AGM on 28 May 2020 and was appointed CEO on 14 February 2022. Mr North was appointed to the Board on 5 July 2020.
Remuneration for 2022 is in respect of the period as Acting CEO from 1 January to 13 February 2022 and as CEO from 14 February to 31 December 2022.
122
Ferrexpo plc Annual Report & Accounts 2022
CORPORATE GOVERNANCE 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 2022 and the prior year.
Non-executive Directors
L Genovese (Chair)1
V Lisovenko (Senior Independent Director)2
F MacAulay (Senior Independent Director)2,3
AC Andersen3
G Dacomb4
N Polischuk
K Zhevago5
All figures shown in currency of payment, US$000
2022
2021
Fees
Benefits
Pension
Total
Fees
Benefits
Pension
Total
500
190
188
153
161
136
135
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
190
188
153
161
136
1356
500
190
175
113
155
–
135
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500
190
175
113
155
–
1356
1. Mr Genovese retired from the Ferrexpo plc Board on 1 August 2014 and was subsequently reappointed on 12 February 2019. He was appointed Chair of Ferrexpo plc on 25 August 2020.
Mr Genovese also serves as a Non-executive Director of Ferrexpo AG and, in 2022, received a fee of US$80,000 p.a (2021: US$80,000).
2. Mr Lisovenko served as the SID until 10 February 2022, the post was then assumed by Ms MacAulay with effect from 10 February 2022.
3. Ms MacAulay served as Chair of the HSEC Committee until 9 February 2022, the post was then assumed by Ms Andersen with effect from 9 February 2022.
4.
In addition to his base fee, Mr Dacomb received a one off payment of US$30,000 for additional time spent overseeing the preparation of the Group’s financial accounts and dealing with
the Group’s external auditors.
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 31 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).
Mr Zhevago resigned from his role of Non-executive Director with effect from 29 December 2022.
In addition, and to reflect Mr Zhevago’s wider role at the Company in providing strategic advice and managing key relationships with stakeholders, he receives a consultancy fee set at
US$90,000 per year. This fee reflects the time commitment of the role and is kept under review. Mr Zhevago does not receive any wider Company benefits in connection with his
consultancy role.
6.
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.
On being appointed to the position of CEO on 14 February 2022, Mr North’s annual base salary was increased by US$100,000. This increase
was equivalent to the “acting up” allowance that Mr North received while serving as Acting CEO since May 2020. Following the Company’s
annual pay review, with salary budgets varying between 2% and 15% of payroll, the CEO salary was increased by 2% with effect from 1 January
2023 after having regard to his location and remuneration package.
Executive Director
J North
Base salary at:
Position
1 January 2023
1 January 20221
CEO
US$978,240
US$959,050
1. This included an “acting up” allowance of US$100,000 referred to above.
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 reporting period, an
amount of US$80,089 was accrued towards the statutory gratuity (2021: US$111,234).
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 allowance toward the cost of accommodation, schooling for his dependent children and use of a car in Dubai up to
a maximum of US$225,000 p.a. In 2022, Mr North utilised US$204,687 of the allowance (2021: US$185,589).
2022 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
theDirectors 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 and the Company’s key strategic priorities for 2022 were set for the Directors and senior
executives. Targets during the year related to financial performance, ESG and operational performance, as well as strategic targets relating to
enhancing female diversity in leadership positions. Safety (behavioural safety initiatives and improvements in risk management) was included as
a modifier, decreasing the total result in the event of a fatality.
Ferrexpo plc Annual Report & Accounts 2022
123
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Remuneration Report continued
The targets and performance against these for 2022 are 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.
In 2022, the threshold performance equated to a bonus potential of 50% of salary, on-target performance to a bonus potential of 75% of salary
and stretch performance to a bonus potential of 150% of salary. The level of achievement against each of the targets for 2022, as determined by
the Committee for Mr North as CEO, is summarised below.
Business scorecard (60% of STIP)
KPI
Measure/target
Weighting
%
Threshold
50%
Financial
Group EBITDA (US$, million)
15.0%
581
Target
75%
623
Stretch
150%
Scorecard
outcome
Assessment
Max
as a %
of salary
Bonus
awarded
as a %
of salary
665
345
Below threshold
22.5%
0.0%
ESG
LTIFR