### Ferrexpo plc
### Annual Report &
### Accounts 2021
### Ferrexpo plc Annual Report & Accounts 2021

| STRATEGIC REPORT | CORPORATE GOVERNANCE | FINANCIAL STATEMENTS |
| --- | --- | --- |
| Chair’s Statement 02 | Chair’s Introduction 76 | Independent Auditor’s Report to the |
| A Significant Heritage 04 | Board of Directors 78 | Members of Ferrexpo plc 135 |
| Ferrexpo: Strategic Priorities 06 | Executive Committee 80 | Consolidated Income Statement 147 |
| CEO’s Review 08 | Corporate Governance Compliance 81 | Consolidated Statement of |
| Response to Covid-19 11 | Corporate Governance Report 83 | Comprehensive Income 148 |
| Market Review 12 | Audit Committee Report 94 | Consolidated Statement |
| Business Model 16 | Nominations Committee Report 100 | of Financial Position 149 |
| Strategic Framework 18 | Remuneration Report 106 | Consolidated Statement of Cash Flows 150 |
| Key Performance Indicators 20 | Directors’ Report 128 | Consolidated Statement of Changes |
| Financial Review 22 | Statement of Directors’ | in Equity 151 |
| Operational Review 26 | Responsibilities 133 | Notes to the Consolidated |
| HSEC Committee Chair’s Review 30 |  | Financial Statements 152 |
| Health and Safety 32 |  | Parent Company Statement of |
| Environment 35 |  | Financial Position 200 |
| TCFD Reporting 38 |  | Parent Company Statement of |
| Workforce Development and Inclusion 40 |  | Changes in Equity 201 |
| Community Engagement 42 |  | Notes to the Parent Company |
| Corporate Governance 44 |  | Financial Statements 202 |
| Non-Financial Information Statement 45 |  | Additional Disclosures 206 |
| Stakeholder Engagement Activities 46 |  | Alternative Performance Measures 207 |
| Section 172 Statement 50 |  | Glossary 210 |

Risk Management 54
Principal Risks 56
Viability Statement 73
Footnote: words with the symbol A are defined in the Alternative Performance Measures section of the Annual Report on pages 207 to 209. In this report, theterms “Ferrexpo”, the “Company”,
the “Group”, our “business”, “organisation”, “we”, “us”, “our” and “ourselves” refer to Ferrexpo plc and, except where the context otherwise requires, itssubsidiaries as defined in on page 206.
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## STANDING WITH UKRAINE
## Looking to the future
## The Russian invasion of Ukraine, which began in the
## early hours of 24 February 2022, has changed everything
## for Ukraine. Having endured eight years of armed conflict
## along Ukraine’s eastern border, and the annexation
## ofCrimea in 2014, in 2022 Russia brought its war to
## Ukrainian homes, schools, nurseries, hospitals and
## places of work, with millions forced to flee their homes.
## Russian military troops have killed thousands of civilians,
## and have destroyed cities, towns and villages across the
## country, with communities scattered.
## Despite all this, however, Ukraine remains united.
## Ferrexpo is a major employer in central Ukraine and has
## a workforce of more than 10,000 people. To date, the
## Group has managed to continue to operate through the
## remarkable resilience of our people. Through the hard
## work, determination and collective spirit of the Group’s
## employees and contractors, Ferrexpo has been able
## tocontinue to contribute to the Ukrainian economy
## throughout the conflict to date. Inaddition, a dedicated
## Humanitarian Fund was established in the early stages
## ofthe invasion, with US$12.5 million of approved funding
1
## to date . Details of this fund’s activities are provided
## onthe Group’s website at the following location:
## www.ferrexpo.com/responsibility/humanitarian-projects/
## Ferrexpo is grateful for the sacrifices that have been
## made during Russia’s invasion of Ukraine, and the Group
## is proud of the resilience and collective spirit shown
## bycountless communities. Ferrexpo is a key part of
## Ukraine’s economy, and through further investment,
## theGroup looks forward to a new future for the people
## ofUkraine.
## Slava Ukraini.
1. As of 21 April 2022.
### Ferrexpo plc Annual Report & Accounts 2021 01
STRATEGIC REPORT
GOVERNANCE
## Chair’s Statement
## REFLECTING ON FIVE
Number of Independent Non-executive
Directors increased to five out of eight
## RECENT EVENTS
Directors (31 December 2020: three of six).
CLIMATE CHANGE TARGETS
## Events of 2022 will have a significant
## impact on the Ukrainian people, their
## % REDUCTION
## communities and their future 30
## generations. Carbon targets set to reduce carbon
emissions by 30% by 2030, with this level
achieved in 2021, and a net zero goal
for2050.

| At Ferrexpo, we had expected the year 2022 | FionaMacAulay, and I would like to thank |  |
| --- | --- | --- |
| to be the year where we celebrated 15 years | Vitalii Lisovenko for his efforts with | See Environment section on p35-39 for |
| since the Group listed in 2007. Instead, we | stakeholder engagement, who continues to | details of progress made. |
| are focused on the safety and wellbeing of | provide a strong presence in Ukraine as a |  |
| our Ukrainian workforce and communities | Non-executive Director of the Group. During |  |

DELIVERING VALUE TO UKRAINE

| across Ukraine, following Russia’s invasion, | 2021, we also appointed two additional |
| --- | --- |
| and look to a future of helping to rebuild | Independent Non-executive Directors, |
| acountry. Our assets have more than | taking the total number of independent |

## % EXPORTS
50yea50 years of operating history in Ukraine, Directors to five. These appointments
## 4
through our workforce, local communities comprised of Ann-Christin Andersen, who
Ferrexpo’s role in Ukraine increased to
and suppliers located throughout Ukraine. specialises in digital technologies and
represent 4% of exports in 2021 (2020: 3%).
We stand with Ukraine, and look forward to business transformation, and the
the future, whereby Ukraine remains united appointment of Natalie Polischuk, who is an
and can look towards a more positive future economist based in Kyiv, and who provides
for the next generation. To help in thenear further balance to our Board in terms of
term, we have established a Humanitarian regional expertise. Furthermore, aspart of
free cash flow as dividends going forward,
Fund to help direct funding tohumanitarian our initiative to increase our engagement
and to date the Group has distributed 37%
projects both in our local communities, as with the market, I travelled toLondon in
of free cash flow in respect of 2021.

| well as across Ukraine, with details of this | October 2021 to host a corporate |  |
| --- | --- | --- |
| fund available on ourwebsite. | governance roadshow and engage directly | Looking ahead, Ukraine has shown |
|  | with ourshareholders. | resilience to date in 2022 and we have every |

Looking back at 2021 in my second annual
confidence that this will continue in the
review as Chair, this was a year of We recognise the importance of climate
years to come. The country now faces a
positioning our business for the future. change, and in October 2021, we
significant task ahead to first defend itself,
Despite the lingering impact of the global announced our inaugural carbon targets,
and then to rebuild and repair. As a key part
Covid-19 pandemic, we retained our focus effectively moving to align ourselves to our
of Ukraine’s economy, we will play our part
in 2021 on safety, growth and reducing peer group. To further develop this position,
in helping Ukrainians realise a brighter
carbon emissions. Through investing in high we announced our collaboration with
future, through continued investment and
grade production, we can contribute more environmental consultants Ricardo plc
development, as we have done for the past
to the Ukrainian economy, growing our (“Ricardo”) to model and review our
15 years since Ferrexpo listed on the
business to represent 4% of Ukraine’s decarbonisation pathway for Ferrexpo and
London Stock Exchange. With over
export revenues in 2021 (2020: 3%). the role of iron ore pellets in a low carbon
US$3.0billion of investment since listing,
Through financial resilience, we have been economy – see page 37 for more
we now have a strong platform on which to
able to provide additional support to our information. Having set our inaugural
launch our next phase of growth and details
local communities throughout both the medium-term target in line with peers, we
of our progress since 2007 are provided on
global Covid-19 pandemic and more have now achieved a 30% reduction in our
pages 4 to 5, with future growth plans
recently during Russia’s invasion of Ukraine. Scope 1 and 2 emissions combined against
outlined on pages 28 to 29.
our baseline year, demonstrating the
We continue to evolve our management and
progress being made atour operations, and As a final note, on behalf of the Board,
Board to fit our next phase of development.
ahead of our peers. See page 36 for details Iwould like to thank all of Ferrexpo’s
In management changes announced in
of progress made, and page 34 for the stakeholders for their resilience and
February 2022, we appointed Jim North as
external assurance process we are teamwork in exceptional circumstances to
permanent CEO having successfully
undertaking on our 2021 reporting for date in 2022, as well as thank the Group’s
transitioned the Group into a new phase of
carbon emissions, as well as safety. workforce for its collective effort in
its corporate culture and overall growth
producing the Group’s result for 2021.
ambitions. InAugust 2021, we also We also took steps in 2021 to formalise our
Iwould also like to thank those that are
appointed NikolayKladiev as CFO of the approach to shareholder returns. We have
involved in protecting Ukraine’s borders,
Group having worked as our CFO at our maintained a consistent approach to
with every community in Ukraine, including
largest operation in Ukraine for over shareholder returns since listing in 2007, but
our own, suffering at this difficult time.
15years. we felt it important to outline our approach
to help engagement with shareholders. We Lucio Genovese
As a Board, we continue to look to
have structured this policy on the basisof Chair, Board of Directors
strengthen our corporate governance.
free cash flow to ensure that our
InFebruary 2022, we rotated the position
investments in growth can continue,
ofSenior Independent Director to
targeting a payout of 30% of the Group’s
### 02 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Image: Lucio Genovese,
Chair of Ferrexpo’s Board since 2020.
CA SE STU DY:
### THE IMPORTANCE OF STEEL
Steel is crucial for modern life. Iron ore, the
primary ingredient for steel, represents 94%
9
of the total metals mined in the world today
and the average person uses more than ten
times the amount of steel in a single year
than any other single metal, asshown in
thechart below.
METALS CONSUMED PER PERSON
PERYEAR (GLOBAL)
(kg per person per year)
1
228
2
12
3
r 3
4
2
5
2
6
1
7
0.4
8
0.01
In terms of where steel is used in everyday
life, it is widely used in the modern
construction of homes, bridges and key
infrastructure such as railways, electricity
pylons and airports. Research shows that
steel is critical for all forms of renewable

| Image: Ferrexpo constructed a | power generation, representing up to 79% |  |
| --- | --- | --- |
| 5MW solar power pilot plant at its |  | 10 |
|  | of the mass of a wind turbine | , and steel |

operations in Ukraine in 2021.
demand is expected to grow by 31% by
2050 to meet the needs of the transition
11
toalow carbon future . Steel is used
extensively in forms of transport such as
trains, trams and shipping, in household
domestic appliances, and in manufacturing
equipment in factories. Steel is everywhere.
As part of the steel value chain, Ferrexpo
understands the need for society to have
high quality forms of steel for these uses.
The Group is working with its customers to
help deliver high grade forms of iron ore to
facilitate the steel sector’s transition to
alow carbon, more sustainable future.
Per capita usage
Steel
1. World Steel Association (link).
Aluminium 2. USGS (link), Worldometer (link).
3. USGS (link), Worldometer (link).
4. USGS (link), Worldometer (link).
Coppe
5. USGS (link), Worldometer (link).
6. www.european coatings.com (link).
Zinc 7. Henckens & Worrell (2020) (link).
8. USGS (link), Worldometer (link).
9. Visual Capitalist (link).
Lead
10. National Renewable Energy Laboratory (link).
11. International Renewable Energy Agency (link).
Titanium
### Nickel Ferrexpo plc Annual Report & Accounts 2021 03
Lithium
STRATEGIC REPORT
## A Significant Heritage
## MARKING 15 YEARS OF
## INVESTING IN HIGH GRADE
KEY MILESTONES

| 2007 | 2011 | 2015 |
| --- | --- | --- |
| LISTING ON LONDON | DEVELOPING A NEW | DELIVERING |
| STOCK EXCHANGE | MINE – YERISTOVO | HIGHER QUALITY |
| Ferrexpo lists in 2007 with 48% of revenues | In 2011, Ferrexpo’s second mine enters | Following completion of the multi-year |
| derived from steel mills in Eastern Europe, | production, with the Yeristovo mine | Quality Upgrade Programme (approved in |
| and a strategy to increase sales to premium | producing its first ore. This high grade mine | 2010), output of high grade pellets increased |
| global markets such as Japan, whereby | is the first new mine developed in Ukraine | to 89% of production (from own ore) in 2015 |
| sales to this market commenced in 2009. | since the country’s independence in 1991. | (up from 52% in 2014). |

A

| Capital investment |  | since IPO |  |  |
| --- | --- | --- | --- | --- |
|  |  |  | BN | Iron ore price |
| +US$3.0 |  |  |  | (62% Fe, US$/t) |
| $104m | $277m $86m $167m $378m $429m $278m $235m $65m $48m $103m $135m $247m $206m $361m |  |  |  |

$168/t
$160/t
$145/t $146/t
$135/t
$128/t
$109/t
$97/t $97/t
$93/t
$80/t
$71/t $70/t
$56/t $58/t
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
### 04 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## In 2007, Ferrexpo listed on the London Stock
## Exchange with the Poltava mine and processing
## complex – assets in operation since 1960. Through
## further investment, Ferrexpo aims to remain
## relevant for another 50 years of production.
KEY MILESTONES ACHIEVEMENTS SINCE LISTING:
### DEVELOPING A WORLD
### CLASS IRON ORE COMPANY
In 2022, the Group will mark 15 years since
listing on the London Stock Exchange.
Through investing over US$3.0 billion
during this time, the Group has advanced
itself to become not only the third largest
exporter of iron ore pellets globally, but
isalso now beginning to supply global
markets with higher grade (67% Fe) direct
reduction pellets, which is the highest
grade market for commercially available
## 2017 2019
iron ore and represents one pathway to
carbon-free Green Steel – the long-term
## BELANOVO MINE ADDING MINE LIFE future ofsteel production. Below are some
examples of how Ferrexpo’s investment

| COMMENCES | THROUGH DRILLING | has provided returns: |  |
| --- | --- | --- | --- |
| As the Group invests in its assets and looks | In 2019 the Group announced a 26% | Increasing product volumes |  |
| to the future, Belanovo and its high grade | increase in JORC-compliant Ore Reserves, |  |  |
| ores represent the long-term future of | taking the Group’s mine life to over 50 years |  | % |
| Ferrexpo’s growth plans. | at present mining rates. | +27 |  |

8.8Mt of production from own ore in 2007,
growing to11.2Mt in 2021.
Increasing product grades
## pp
## +2
Pivoting from a producer of medium grade
(63% Fe) iron ore in 2007 to only high
grade iron ore (65% Fe and above) in 2021.
Increasing product quality
## %
## 100
Moving to export 100% of production
in2021 (2007: 83% of revenues as
## 2020 2021
exports), reflecting product quality.
Adding mine life
## CONCENTRATOR PELLETISER
## %
## EXPANSION PROJECTS EXPANSION PROJECT
## +46
The Group successfully invested in two key Following the concentrator growth projects
Despite 15 years of production, the Group
development projects in 2020, expanding of 2020, the Group proceeded to upgrade
has grown JORC-compliant Ore Reserves
concentrate production and adding capacity in its pelletiser in 2021.
by 46% since listing in 2007.
operational flexibility.
Increased resilience
## pp
## +22
A
Increasing Underlying EBITDA margin per
tonne produced, from 35% in 2007 to 57%
in2021.
### Ferrexpo plc Annual Report & Accounts 2021 05
STRATEGIC REPORT
## Ferrexpo: Strategic
## SAFETY MODERN
## Priorities

| Safety remains the | Roll-out of autonomous |
| --- | --- |
| first priority. | truckscontinues. |
| p32-33 | p26-27 |

## The Group continues
## toinvest and develop
Injury frequency rate of 0.41, the third Automation completed on automation
yearof performance materially below test work on six ofthe Group’s CAT
## itsassets, with the
Ferrexpo’s iron ore producing peers. 793D haul trucks at the Yeristovo mine.
## following representing a
## LTIFR trucks
## selection of the Group’s
## 0.41 6
## achievements in 2021.
## 1
What we do
1 Extraction:
Ferrexpo’s iron ore mines in Central
Ukrainehaveover 50 years of mine life
remaining atpresent mining rates.
2 Processing:
Through significant investment the Group is
able to produce some of the highest quality
iron ore products commercially available.
3 Export:
Ferrexpo’s products are sold to a network
ofpremium steel mills around the world.
### 06 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

| SUSTAINABLE | GROWTH | PREMIUM |
| --- | --- | --- |
| Reducing emissions and | Wave 1 Expansion approved | Higher grade products, |
| settingcarbon targets. | by the Board in2021. | forlowercarbon steelmaking. |
| p35-39 | p28-29 | p12-15 |


| Sunflower husks are used as a biofuel, |  |  | The Group has launched an investment |  |  | Higher grade (67% Fe) direct reduction |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| helping cut carbon emissions, representing |  |  | project to add 3million tonnes of |  |  | pelletsrepresented 4% of output in 2021 |  |  |
| 18% of pelletiser energy in2021. |  |  | pelletcapacity. |  |  | (2020:3%). |  |  |
|  | % | energy |  | % | growth |  | % | production |
| 18 |  |  | +25 |  |  | 4 |  |  |

## USING PREMIUM
## S T E E L I N S O C I E T Y
## 3 Ferrexpo’s iron ore pellets are used by
steelmakers to produce high quality steels that
are essential for modern life, with the world
using ten times more steel than other major
metals combined – seeCase Study on page 3
for more information. The images below depict
a number of key sectors in which steel is
commonly used:
Automotive sector:
steel represents up to
60% of body structures
of modern vehicles.
(Source: World Steel
Association, link).
## 2
Precision
engineering:
on average, 75%
oftheweight
ofhousehold
appliances is steel.
(Source: American Iron
&Steel Institute, link).
Construction:
steel is critical for high
rise buildings and
infrastructure in
modern cities.
Electrification:
steel is critical to all
forms ofrenewable
power generation.
(Source: World Steel
Association, link).
### Ferrexpo plc Annual Report & Accounts 2021 07
STRATEGIC REPORT

# CEO's Review

# LOOKING TO THE FUTURE

Russia's invasion in 2022 has placed communities throughout Ukraine under severe pressure, but we remain resilient and determined to look to the future.

As we reflect on the events to date in 2022, with Russia's invasion of Ukraine and unprecedented aggression towards communities throughout Ukraine, it is important to note the resilience of our workforce, as well as the people throughout the country. Russia has caused untold damage to parts of Ukraine, but the country's economy and infrastructure will be rebuilt. At Ferrexpo, we understand the importance of our role in the Ukrainian economy, and we are proud of our team's efforts to continue operating during this invasion, helping the Ukrainian economy to continue to operate. To date, we have continued to produce and are able to export our products to Europe via rail and barge. Our ability to export via the port of Ptolemyi remains closed however – please see the Group's press releases for up to date information on the Group's logistics capabilities and capacity. Our operations, which have a close link to the local communities surrounding our mines near Horishnii Plavni, will play an important role in supporting the national and local economies as the reconstruction effort commences. Here, we present our results for 2021, but we are very much focused on the future ahead for Ukraine, and helping to rebuild.

Looking back at 2021, we can report on another year of growth for the Ferrexpo business. From an operating standpoint, we are growing our production volumes through our investments, and we are also growing our product quality through our new higher grade direct reduction pellets. Through our investments in high grade production, we are also growing our profitability, with Underlying EBITDA* margins increasing to 57% in 2021, during a peak in the iron ore market cycle. However, modern companies are much more than production numbers and cash flow generation, they are about developing safe and sustainable businesses with a purpose strongly linked to the communities in which we operate. Crucially, our work is about further developing a brand that all stakeholders can trust and believe in.

# A safety-first culture

Safety remains a key pillar of our business model, with another positive result in safety achieved in 2021, and without safety embedded throughout our operations, there can be no success. In respect of Russia's invasion of Ukraine in 2022, we report further on the wellbeing of our workforce on page 40. In respect of 2021, we are pleased to report on a fatality-free year, alongside an injury rate that continues materially below our trailing five-year average for the business. The lost time injury frequency rate recorded in 2021 of 0.41 was the lowest full year result reported by the Group since listing in 2007, and I would like to thank every employee and contractor that has helped deliver this result; see pages 32 to 33 for more on our progress in safety. In respect of Covid-19, we continue to be vigilant against this risk to our business, and details of our efforts to insulate our workforce and production from this virus are provided on pages 11, 42 and 71, with minimal disruption caused to operations to date.

# REVENUE

+48%

2021: US$2.5BN

2020: US$1.7BN

UNDERLYING EBITDA*

+68%

2021: US$1,439M

2020: US$859M

CAPITAL INVESTMENT*

+75%

2021: US$361M

2020: US$206M

![img-0.jpeg](img-0.jpeg)

08

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
projects once greater certainty on the
Image: Jim North, Chief Executive Officer
outlook for Ukraine is available.
and Executive Director.
In our mines, growth projects are focused
on embracing modern technology, such as
automating our truck fleet, with six trucks
now automated in the Yeristovo mine, and
further phases of automation planned for
the years ahead. We are modernising our
production process and adapting our
product mix for customers as they embark
on the journey to green steel production. In
2021, we signed our first long-term contract
for direct reduction pellets, with this
achievement onlypossible through our
investments into our processing facilities.
We have now finished our initial upgrade
work on our pelletiser lines, and we are
looking to pivot to our next phase of growth.
The Wave 1 Expansion will deliver an
additional three million tonnes of pellet
capacity and we expect that this could be
delivered in the space of three years. This is
a significant undertaking and to put this into
perspective, this is the same uplift in
production volumes that we have achieved
in the past 15 years since listing in 2007. For
more information on our growth ambitions,
please see page 28.
Following approval of the Group’s growth
plans in October 2021, the decision has
been made to focus our operations on
A processing of high grade ores to maximise
Underlying EBITDA margin Consistent operating performance
production volumes, and to meet customer
In 2021, we delivered production
demands. As a result, currently it cannot be
## %
performance in line with 2020 in terms of
reliably predicted as to when the Group’s
## 57
total output, but with increased output of
stockpiled low grade ore will be processed,
our higher grade products. This was
which has resulted in an impairment
46% 3 9% 3 9% 50% 57%
achieved despite a total of over 60 days of
amounting to US$231 million. Please see
planned expansion work on the Group’s
Note 17 Inventories to the Consolidated
pelletiser during 2021, and our operations
Financial Statements for more information.
are in a strong position going into the year
ahead having completed this upgrade work.
Tangible progress in decarbonisation
As an iron ore producer, the grade of our
We have made considerable steps in 2021
products is a key factor in the Group’s
to develop our thinking in respect of
Carbon emissions per tonne (S1+S2)
success, as evidenced by the increasing
decarbonisation. In October 2021, we
premiums being paid for high grade iron
aligned ourselves with our peer group with
## %
ores (see page 13 for more information).
our inaugural carbon targets, which set our
## -30
Asshown in the investment timeline on
goal of being net zero by 2050.
pages 4 and 5, the Group has pursued
130 kg/t 132 kg/t 131 kg/t 110 kg /t 92 kg/t Efforts to decarbonise our operations have
several phases of quality upgrade

| programmes, which have culminated in the | begun well, with the Group delivering a |
| --- | --- |
| strong operational result seen in 2021, with | second year of strong performance, and we |
| 100% of Ferrexpo’s output comprising of | have now registered a 30% decline in our |
| high grade iron ore products. | combined Scope 1 and 2 emissions per |

tonne against our baseline year of 2019.
Growth programme This result matches our medium-term
emissions reduction target and underscores
We are growing and modernising our
where Ferrexpo is relative to its peers, who
business. However, given the conflict in
are predominantly seeking to reach this
Ukraine, we have elected to pause projects
level of decarbonisation by 2030. We will
that are not expected to deliver near-term
now look to maintain this lower level of
See our KPIs on p20-21 growth, with an intention to resume these
carbon emissions going forward as a
### Ferrexpo plc Annual Report & Accounts 2021 09
2019 2020 202120182017 2019 2020 202120182017
STRATEGIC REPORT
## CEO’s Review continued
minimum, and we are working with Engagement with stakeholders
environmental consultants Ricardo to review
In 2021, we increased our focus on developing
our strategy, and to develop a bespoke
our relationships with our stakeholders. We
understanding of our decarbonisation
have continued our regular activities such as
journey ahead – please see the Case Study
our employee engagement survey and
on page 37 for more on this project. Finally,
associated employee engagement forum with
to develop trust on sustainability topics, we
Board members, which is now in its fourth
are undertaking an external assurance
year. We have also moved to engage more
process on our carbon emissions and safety
broadly with institutional investors and the
data, as we understand the significance of
media through the appointment of Liberum
getting this reporting right – see page 34 for
Capital and Tavistock Communications in
more information on thisproject.
London, as well as BDO LLP as the Group’s
CA SE STU DY: Sponsor, with all three appointed in the
Fostering inclusivity
firstquarter of 2021. Furthermore, we
We are also seeking to differentiate launched our new corporate website
### THE IMPORTANCE OF IRON
ourselves through our efforts in diversity, inJanuary 2022, bolstering our online
### ORE PELLETS
and we are extremely proud of the external presencefor informingstakeholders.
recognition received in the fourth quarter of
Emissions saving for steelmakers In February 2022, we were pleased to receive
2021 for having highly-rated, family-friendly
an upgrade in our ESG rating from ratings
policies, whilst also winning awards for
## % Blast furnace pellets agency MSCI Inc. to A, capping a five year
our“Fe_munity” women in leadership
## 40 (vs.sinter fines) journey that has seen our rating increase
programme aimed at improving diversity
byfour notches during this time. In further
Iron ore pellets are a direct charge material byincreasing the skill base of our female
external recognition, we were also pleased to
and therefore do not require sintering prior leaders. For more details on these
receive recognition of our efforts to protect
to use in the blast furnace. Since sintering is initiatives, please see pages 40 to 41.
our workforce and engage proactively with
a step that typically requires the use of coal,
our suppliers, through the successful
steelmakers can avoid generating emissions Technology and innovation
completion of a Sedex Members Ethical
through using more iron ore pellets. Allied
Through a commitment to modern Trade Audit (“SMETA”), with this external
with the high grade nature of Ferrexpo’s
technology and innovation, we are aiming to audit completed in the first quarter of 2022.
pellets, steelmakers can reduce carbon
secure the long-term viability of our mines
1
emissions by 40% for each tonne of sinter
and products, to keep our business Addressing cybersecurity
fines replaced (hot metal basis).
competitive on the world stage. A recent
Given the increasing prevalence of
example of modernising production
Scope 3 emissions saving for Ferrexpo cyberattacks, and war in Ukraine, we have
processes is the initiation of the new press
undertaken a number of steps to address
filtration plant, which represents a modern
## % Direct reduction this rising risk. These efforts in 2021 have
form of technology that will reduce moisture
## 49 pellets (vs. other pellets) included the procurement of additional IT
in green pellet production, therefore
infrastructure to maintain our access to our
Direct reduction pellets offer a pathway improving pellet quality and increasing
data in the event of an attack, and regular
tolow emissions steel production. Blast energy efficiency; see pages 26 to 29 for
audits of our IT security to maintain an

| furnace steelmaking represented 73% of the |  | more information on these projects. |  |
| --- | --- | --- | --- |
|  | 1 |  | up-to-date approach to combating threats; |
| world’s steel production in 2021 | , but this |  |  |

see page 70 for more information.
process requires coal and therefore has Supporting local communities
inherent carbon emissions associated with it.
The Group has long held a close bond with Looking to the future
Steelmaking via the electric arc furnace
its local communities in central Ukraine
production route using direct reduction iron The events of early 2022 have changed
where the Group’s operations are located.
is not reliant on coal, however, and instead Ukraine significantly, but our business model
Through working closely with our local
involves processes that typically utilise and our resolve remains unchanged. We
communities, we aim to understand their
natural gas and electricity, resulting in continue to produce high grade iron ore
needs, to deploy funding to where it is best
asignificantly lower carbon footprint. pellets, and we are continuing to invest in
invested. In March 2021, the Ferrexpo
Compared to Ferrexpo’s blast furnace growing our business for the future, which will
Charity Fund celebrated the tenth
pellets, direct reduction pellets represent help further support the Ukrainian economy to
anniversary since its establishment, during

| afurther emissions saving of 49% for |  |  | rebuild. I would like to thank our workforce |
| --- | --- | --- | --- |
|  | 1 | which time the Group has provided direct |  |
| producing crude steel | , providing a material |  | fortheir collective effort to continue our |

support to over 90 educational projects,
improvement to Ferrexpo’s Scope 3 footprint operations throughout the invasion in 2022,
30healthcare projects and direct aid to over
through producing this particular type of aswell as achieving the strong financial result
4,000 individuals. This has been particularly
pellet. This saving is expected to further for 2021 that is presented here in this report.
relevant during the global Covid-19
increase over time as steelmakers introduce Wehave continued to show resilience as
pandemic, where companies have needed
hydrogen and renewable electricity to this abusiness in 2022 and I look forward to
to step up and provide support to protect
method of steelmaking to pursue the working with allof our stakeholders in the
their workforces and local communities, and
production of carbon-free green steel. years ahead tofurther develop our business.
details of this work are provided opposite.
1. Source: CRU. Natural gas based direct reduction without
Jim North
carbon capture.
Chief Executive Officer & Executive Director
### 10 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

![img-1.jpeg](img-1.jpeg)

# **CASE STUDY:**

# **SHIELDING THE GROUP'S  
WORKFORCE FROM COVID-19**

Since the outset of the global Covid-19 pandemic, Ferrexpo has moved to protect its workforce from the Covid-19 virus and the after-effects that the global pandemic is having on individuals and communities around the world. In early 2020, the Group established the Covid-19 Response Fund, with a total of US$3.5 million of approved funding provided to date.

Through measures initiated in 2020 and continued into 2021, including rigorous testing, social distancing measures and staggered shift patterns, the Group has limited the spread of the Covid-19 virus at its operational facilities and has successfully maintained production and capital investment activities to expand output.

Medical equipment purchased in 2021 for the Group's on-site medical centre included the installation of sample analysis machines to determine the severity of infection that an individual has developed, and equipment to measure an individual's natural immunity to the virus following infection.

Following the development of a vaccine for Covid-19 in late 2020, the Group has moved to promote vaccine uptake in its workforce and to facilitate local authorities in their efforts to administer vaccines to local communities and Ferrexpo's workforce through the provision of its healthcare facility as a vaccination centre for anyone to attend. As of January 2022, the Group's employee workforce had received over 5,900 doses of Covid-19 vaccinations, with 65% of the workforce being fully vaccinated, approximately double the national average of Ukraine$^{1}$.

Ferrexpo is also working with communities to directly counter the spread of the virus beyond its operations. Details of these activities are provided on pages 42 and 72.

**65%**

Double-vaccination rate in Ferrexpo's employee workforce, approximately double the rate in Ukraine$^{1}$.

1 www.euraxvidtrials.org

Ferrexpo plc Annual Report & Accounts 2021

11
STRATEGIC REPORT
## Market Review
## KEY MARKET DRIVERS
## 2021 was a year marked by volatility in global
## market prices for iron ore and rising demand for
## iron ore pellets in response to rising environmental
## measures to reduce steelmakers’ emissions.

| Ferrexpo’s high grade iron ore pellets are | around the world in response to the global | inspections commencing in April 2021 to |
| --- | --- | --- |
| priced using the benchmark 65% Fe fines | Covid-19 pandemic. This upward trajectory | ensure that each province’s annual |
| price, with a pellet premium paid in addition | was then reversed in August 2021, with | production did not exceed 2020 levels. |
| to this index, and a freight rate is typically | average prices declining by US$42 in 3Q | Measures implemented included the |
| deducted according to the location and type | 2021 and US$62 per tonne in 4Q 2021, | removal of export tax rebates in China |
| of contract agreed with each customer. | ending the year at a level last seen in August | fromAugust 2021. |
| Thissection focuses on the factors affecting | 2020, back when prices originally began |  |

In terms of the supply-demand balance of
pellet pricing, in addition to global supply torise.
the iron ore market, movements in iron ore
and demand factors affecting Ferrexpo’s
The decline in fines pricing seen in the pricing in 2021 were primarily driven by
end-market – steel. The Atlantic pellet
second half of 2021 was primarily related to fluctuations in demand for iron ore, rather
premium, published on a monthly basis by
government policies enacted in China to than changes in supply of iron ore, which
S&P Platts (“Platts”), is presented in this
taper markets, and was therefore a remained relatively stable. Independent
section as an indicator of pellet premiums
controlled measure, which was widely consultants CRU estimate that exports of
throughout the year. The Atlantic pellet
anticipated by market participants. With iron ore grew by 38 million tonnes in 2021,
premium is, however, based on the index for
China accounting for 73% of global iron ore representing an increase of 2%. The
iron ore fines grading 62% Fe, as published
1
imports in 2021 , Chinese demand is the majority of this additional material came
by Platts, and therefore is not directly used
primary driver for iron ore fines prices. from Brazil and Australia, with the former
by the Group in the typical pricing of its
Reviewing the market in 2021, Chinese steel relating to recovering supply, and the latter
pellets, which are priced off the 65%
production averaged 94 million tonnes a primarily relating to additional low grade
Feindex.
month in the first half of 2021, representing supply from brownfield sites.
12% growth year on year and a record level
Iron ore fines prices
of steel production, with strong demand for

| Volatility has been a key factor when looking | iron ore during this period. Following |
| --- | --- |
| back at global iron ore markets in 2021, | measures enacted by the Chinese |
| affecting a range of key revenue drivers for | government from July 2021 onwards, |
| iron ore producers like Ferrexpo, with the | Chinese steel output fell to 78 million tonnes |
| range of iron ore prices seen in 2021 | a month in the second half of 2021, |
| approximately three times the average | representing a 17% decline on the first half |
| range in prices seen in the past five years. | of 2021, and demand for iron ore softened |

as a result. Chinese steel production cuts
Iron ore fines prices began 2021 at
enacted in the summer of 2021 were
approximately US$180 per tonne, and rose
originally announced as early as 2020, as
by between US$40 and US$45 per tonne in
part of Beijing’s decarbonisation policy
both 1Q and 2Q of 2021, with this increase
announced at the time, with environmental
driven by government stimulus packages
IRON ORE PELLETS: MARKET FACTORS
300
250
200
150
100
Index price (US$/tonne)
50
0
Mar 21 Apr 21 May 21Feb 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Jan 22Dec 21Jan 21
Image: All of Ferrexpo’s pellets leave
Iron ore (65% Fe) price C3 freight rate Atlantic pellet premium Source: Platts the Group’s operations via rail, with
these routes electrified in Ukraine.
1. Source: CRU.
### 12 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The near-term outlook for the iron ore fines FULL YEAR MARKET INDICES 2021
market and prices in 2022 will depend on
the level of activity seen in China in early (US$/tonne, unless stated otherwise, and represent full year averages) 2021 2020 Change
2022, following production cuts imposed in
Platts 62% Fe iron ore fines price CFR China 160 109 +47%
2021, as well as the degree of stockpile
drawdown that is seen with steel inventories Platts 65% Fe iron ore fines price CFR China 186 122 +53%
that have accumulated. If a strong recovery
65% Fe spread over 62% Fe 26 13 +96%
in Chinese demand continues beyond 2Q
Atlantic pellet premium (BF pellet) 56 29 +92%
2022, then it is expected that the iron ore
fines market is likely to become constrained, China pellet premium (BF pellet) 52 22 +139%
which would potentially provide a tailwind to
Direct reduction (“DR”) pellet premium 61 36 +67%
iron ore fines prices.
DR premium over Atlantic premium 5 7 -28%
High grade premiums
C3 freight (Brazil – China) 27 15 +81%
High grade premiums are the additional C2 freight (Brazil – Netherlands) 16 7 +135%
prices paid for material that is high grade
1
Global steel production (million tonnes) 1,912 1,829 +4%
(65% Fe or above), with this premium
averaging US$26 per tonne in 2021 (2020:
1. Source: World Steel Association (64 producing countries, representing 98% total world crude steel production in 2021).
US$13 per tonne). As the world seeks to
2. Management estimate.
decarbonise, steelmakers are increasingly

| looking to source higher grade iron ores to | CHART: PREMIUMS PAID FOR HIGH |  |  |  |  | measure designed to strengthen the |
| --- | --- | --- | --- | --- | --- | --- |
| reduce their emissions footprints. For more | GRADE IRON ORES (65% FE) |  |  |  |  | European steel industry will improve the |
| information on the environmental benefits of |  |  |  |  |  | purchasing power of European steelmakers |
| high grade iron ores, please see the Case |  |  |  |  |  | to purchase a greater degree of premium |
| Study on page 14. This trend is shown |  |  |  |  |  | raw materials, such as high grade iron ore |
|  | 12% | 15% | 16% | 17% | 18% |  |
| through the premiums paid for high grade |  |  |  |  |  | pellets, and will therefore drive greater |
| iron ore fines, with quarterly average |  |  |  |  |  | demand for the Group’s products. |

premiums climbing consistently throughout
2021, as shown in the chart opposite. Pellet premiums
The pellet premium is a premium applied to
all pellet sales, and is paid above the Platts
65% Fe Index for Ferrexpo’s pellets. The
Atlantic pellet premium in 2021 followed a
similar trend to the iron ore fines indices
during the year. In the first half of the year,
this pellet premium rose as steelmakers
worldwide looked to maximise steel output
and take advantage of high steel prices.
Subsequently, the Atlantic pellet premium
The outlook for the high grade premium is
fell in the second half of 2021, but did not
expected to remain positive going forward
fall to the same extent as iron ore fines
on the basis of steelmakers increasingly
prices, declining from the highs of US$78
looking to reduce emissions, with specific
per tonne seen in the summer months of
markets – particularly Europe – expected to
2021 to close the year at US$56 per tonne.
drive demand for these ore types faster than
This differing dynamic compared to the iron
other regions, based on aggressive
ore fines price is a reflection of the pellet
decarbonisation policies currently being
market being governed by buying in
adopted by key European governments and
different geographic regions – namely steel
the European Commission. An example of
production in Europe and North East Asia,
such a policy change is the European
which collectively account for more than
Union’s Carbon Border Adjustment
2
40% of the global trade in iron orepellets .
Mechanism (“CBAM”), which was
Demand for iron ore pellets is therefore
announced in 2020 and will be gradually
more aligned to the health of the steel
Premium paid for high grade (% of 62% Fe Index) implemented between 2022 and 2025. The
sector in these two regions, as well as
CBAM envisages a tariff applied to specific
overall pace of decarbonisation
goods produced outside of the European
seenglobally.
Union (“EU”), to account for the cost of

| carbon. This legislation is designed to | Global iron ore pellet exports amounted to |  |
| --- | --- | --- |
| strengthen key industries in Europe, such as | approximately 127 million tonnes in 2021, |  |
| the steel industry, particularly as this | reflecting a contraction of 1 million tonnes |  |
| industry faces rising costs associated with |  | 2 |
|  | versus 2020 | . The main driver for the |
| climate change. The Group believes that any | decrease in supply seen in 2021 came from |  |

### Ferrexpo plc Annual Report & Accounts 2021 13
2Q21 3Q21 4Q211Q212020
STRATEGIC REPORT
## Market Review continued
lower exports from producers in Brazil, In terms of the near-term outlook for freight
Indiaand the USA, balanced in part by rates, the forward curve for C3 freight rates
1

| areturning producer in Brazil | . Within | indicates that the index in 2022 will fall |
| --- | --- | --- |
| thistotal, blast furnace pellet exports |  | below the high levels seen in 2021, but will |
| contracted by 6 million tonnes during 2021 |  | remain above the historical averages seen |
| (representing a 7% reduction), with supply |  | inprevious years, reflecting increased |
| of direct reduction pellets growing by |  | energy costs. |

1
4million tonnes (10% increase) . This
relative stability in the supply of iron ore Steel production
pellets is a reflection of the difficulties faced
Global steel production, according to the
by companies looking to introduce new
World Steel Association, increased by 4% in
supply of pellets into the market, since
2021 compared to 2020, which also reflects
newsupply requires significant capital
a rise above 2019 levels, indicating the strong
CA SE STU DY: investment to commence operations and
return to growth as governments worldwide
the relative scarcity of deposits relevant
continue to respond to the global Covid-19
forpelletising operations that have good
### THE IMPORTANCE OF HIGH pandemic. During 2021, the majority of this
access to existing infrastructure.

| GRADE IRON ORES |  | growth in global steel production occurred |
| --- | --- | --- |
|  | Demand for iron ore pellets in 2022 has been | during the first half of the year, which was |
| In iron ore, grade is key. For commercially | strong in European markets following | 15% up year on year, whereas the second |
| available iron ores, which are predominantly | Russia’s invasion of Ukraine, with iron ore | half of 2021 saw a 5% contraction year on |
| hematite, the maximum iron content is 70%, | from Russia subject to trade restrictions. | year in global crude steel output. This trend |
| with the remaining 30% being oxygen (as | Furthermore, pellet demand is expected to | was driven by Chinese output, where |
| part of the iron oxide that iron ores are | increase globally in response to increasing | production increased by 13% year on year in |
| predominantly comprised of). Benchmark | environmental controls. As referenced on | the first half and then contracted by 15% |
| iron ores grading 62% Fe are therefore 62% | page 13, the introduction of the European | year on year in the second half, ending the |
| iron, the oxygen as part of the iron oxide | Union’s CBAM regulations is expected to | year below the total output for 2020. The |
| molecule, and a component of waste that | strengthen the European steel sector in the | European steel sector has continued its |
| represents approximately 11% of this | medium term, and as a result will increase | strong recovery in 2021, growing by 20% |
| material. For low grade ores (58% Fe), the | the ability of EU steelmakers to purchase | inthe first half and a further 10% in the |
| proportion of waste material contained is | premium products for steelmaking such as | second half of the year. North East Asia, |
| higher – approximately 17% of the total | iron ore pellets. Theglobal supply of iron ore | another key market for global iron ore pellet |
| mass of material being sold. Ferrexpo’s | pellets today isrelatively constrained, with | exports, exhibited a similar trend to Europe |
| products are high grade and therefore | the majority ofexisting suppliers operating at | in 2021, growing by 11% in both halves |
| contain between 4% and 7% waste | (or near to) full capacity, particularly following | of2021. |
| material, and as a result contain up to four | the recent completion of the ramp up of |  |

Based on data presented by independent
times less waste than competitors’ iron Samarco, a Brazilian pellet supplier, which
consultants CRU, it is expected that the
ores. This is important, as it is the waste in had previously halted production following
global outlook for hot metal production is
the ore that steelmakers must supply energy atailings dam breach in 2015.
set to peak in 2021 (relevant data on this
to remove when making steel, with ores that
topic to be published in 2022), with global
contain more waste requiring more energy Freight rates
levels of output expected to remain above
to process. In the blast furnace, this energy
The Baltic Exchange’s C3 freight rate, which 1,400 million tonnes between 2022 and
is typically provided by coal, whereas in the
is indicative for the Group’s overall freight 2025. It is expected that the share of steel
direct reduction process this energy comes
costs, increased significantly in 2021 to production from electric arc furnaces will
from either natural gas or electricity. High
US$27 per tonne. This increase was due in grow from 27% of global crude steel
grade ores are therefore a tool available to
part to the market imbalance seen in early production in 2021 to 31% in 2025.
steelmakers to reduce emissions today.
2021 that was created by the global
(% Fe) Covid-19 pandemic, with reduced dry bulk Steel pricing
shipments from Brazil, resulting in fewer
The Group closely monitors the margins
vessels entering the Atlantic basin to receive
being made by steelmakers as a lead
7% 4% cargoes. Secondly, increasing fuel prices in
11% indicator of possible future movements in
17%
the second half of the year resulted in a
the demand for iron ore, with the margin for
sharp increase in freight rates, peaking at
Iron content hot rolled coil (“HRC”) used as an indicator
an average of US$41 per tonne in October
of this. Margins for HRC remained positive
2021, before retreating back to US$26 per
throughout 2021, with steel prices remaining
62% 65% 67% tonne by the end of the year. Freight rates
58% elevated despite the fall in raw materials
are a further example of the volatility seen
costs seen in the second half of 2021.
in2021 and how this contrasts to previous

|  |  |  |  | years. In contrast, the average C3 freight | The Group expects global steel output to |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | rate for the past five years has varied by | rise in 2022, on the basis of steel margins |
| Low | DR | Medium | High |  |  |

1

|  |  |  |  | just | US$4 between US$15 and US$19, | remaining at elevated levels at the present |
| --- | --- | --- | --- | --- | --- | --- |
| grade | grade | grade | grade |  |  |  |
|  |  |  |  | whilst the average for 2021 rose by |  | time, with steelmakers increasing output to |

Iron content Waste Pure iron ore (70% Fe)
US$12to U$27pertonne. meet rising global demand for steel.
### 14 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

![img-2.jpeg](img-2.jpeg)

CASE STUDY:

# THE IMPORTANCE OF PROXIMITY TO KEY MARKETS

In a global world that is facing up to the journey of decarbonisation that lies ahead, consumers are looking increasingly for supplies of goods and services to come from local sources. With assets based in Ukraine, Ferrexpo is well positioned geographically to supply the steel sector in both Europe and the Middle East, with Ferrexpo's peers in Brazil, Canada and South Africa located further away from these key markets. Ferrexpo is able to supply customers in Europe via rail, barge or ocean-going vessel. The Middle East represents the single biggest market for direct reduction pellets today, and with Europe rapidly decarbonising, this is expected to significantly increase pellet demand for this pellet type in the future as steelmakers seek to adapt their production processes.

In a world where ocean-going freight contributed as much to Ferrexpo's total emissions as emissions from mining in 2021, the distance to markets matters.

3X The distance for Canadian iron ore to reach key European steel mills, representing an additional 4,000km.
5X The distance for Brazilian iron ore to reach key European steel mills, representing an additional 8,000km.
6X The distance for South African iron ore to reach key European steel mills, representing an additional 10,000km.

# Future trends: Green Steel

A clear trend within the steel sector is decarbonisation, with many of the world's governments pledging to achieve net zero carbon emissions by either 2050 or 2060. Governments are also setting medium-term targets to establish a trajectory for emissions reduction – typically a 30% reduction by 2030. The European Union is working towards its "Fit for 50" plan announced in July 2021, which is a legislative process aimed at delivering a 55% reduction in carbon emissions by 2030 against a baseline year of 1990. Given Ferrexpo's close proximity to European steelmakers, this provides the Group with a significant opportunity, since iron ore pellets enable steelmakers to reduce emissions through greater use of direct charge material in their blast furnaces. For more information on the environmental benefits of pellets, please see the Case Study on page 10. This shift towards iron ore pellets is mirrored in data presented by independent consultants CRU, who forecast that global iron ore pellet consumption will increase by 15% between 2021 and 2026, whilst consumption of iron ore fines is forecast to contract by 14% during this same period.

Over time, the Group also intends to increase production of its latest product – the higher grade (67% Fe) direct reduction pellets, which are typically converted to steel using natural gas and then electricity in electric arc furnaces. This is in contrast to the blast furnace method of steelmaking, which typically uses coal as the main fuel to produce steel. Through removing coal from the steel-production process, steelmakers can operate with a significantly lower carbon footprint. Direct reduction pellets represented 4% of the Group's production in 2021 (2020: 3%), and the Group intends to utilise its expansion plans in the medium term to increase this proportion of production as steelmakers around the world decarbonise and demand for this pellet type increases.

1. Management estimate.

![img-3.jpeg](img-3.jpeg)

Ferrexpo plc Annual Report & Accounts 2021

15
STRATEGIC REPORT
## Business Model
## GENERATING SUSTAINABLE VALUE
KEY STRENGTHS COMMERCIAL AND OPERATING MODEL
Long life assets Ferrexpo aims to deliver its business model
## CORE ASSETS
through a safety-first operating model,
The Group has 1.6 billion
instilling a culture of safety throughout its
tonnes of Ore Reserves,
business to deliver successful operating
representing over 50 years of
and financial performance.
production ahead at current
processing rates.
Established production
and logistics
## PEOPLE DEPOSITS OPERATIONS
The Group’s assets have

| been supplying the global | Ferrexpo has a workforce of over 10,000 | Ferrexpo mines and processes iron ore | Ferrexpo has three mines, two of which |
| --- | --- | --- | --- |
| steel industry with pellets | people, and aims to continually train and | from the deposits along the Kremenchuk | were developed by the Group since IPO, |
| formore than 50 years. | develop those that work for theGroup. | Magnetic Anomaly, a globally significant | and also operates a processing complex |
|  |  | ore body in scale. | and logistics network. |

Ability to produce
premium products
Ferrexpo produces high
grade iron ore pellets, a Ferrexpo produces high grade iron ore
## HIGH GRADE PELLET

| premium form of iron ore for |  | pellets, which are a premium raw material |
| --- | --- | --- |
| steelmakers. The Group has | PRODUCTION | used by steelmakers to increase |
| commenced production of |  | productivity and reduce emissions. |
| direct reduction pellets, the |  | TheGroup’s products carry an iron |
| highest grade commercially |  | oregrade of either 65% or 67% Fe. |

available form of iron ore.
Premium
customer service
Through developing increasingly high
## PREMIUM
Ferrexpo has an established quality, high grade products, the Group
## network of customers, CUSTOMER BASE isable to market its products to an
spread across four increasing range of premium steelmakers.
continents, which use
pelletsto produce high
gradeforms of steel.
Ability to scale and
grow operations
By focusing on higher quality, higher
## FINANCIAL

| Ferrexpo has invested |  | grade forms of iron ore, and selling these |
| --- | --- | --- |
| overUS$3.0 billion in its | RESILIENCE | products to premium steelmakers, the |
| operation since IPO, growing |  | Group can realise higher margins on its |
| production by 25%. The |  | products, providing financial resilience. |

Group’s Wave 1 Expansion
plan will see production grow
by a further 25% (see page
28 for more information).
Through establishing a cash generative
## PRUDENT CAPITAL
and cost competitive business model, the
## ALLOCATION Group is able to deploy capital effectively
for the benefit of all stakeholders,
balancing investment in future growth
andshareholder returns.
UNDERPINNED BY OUR VALUES
### Responsibility Make it happen Integrity
See p30-44 See p8-10 See p44-45
### 16 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
STAKEHOLDER BENEFITS (US$)COMMERCIAL AND OPERATING MODEL
Ferrexpo aims to deliver its business model Employees Environment
## CORE ASSETS
through a safety-first operating model,
## instilling a culture of safety throughout its M M
## business to deliver successful operating US$113 US$19
and financial performance.

| (2%) | +10% |
| --- | --- |
| Wages and salaries paid | Money spent to safeguard |
| (2020: US$114M) | the environment |

(2020: US$17M)

| PEOPLE | DEPOSITS | OPERATIONS |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Ferrexpo has a workforce of over 10,000 | Ferrexpo mines and processes iron ore | Ferrexpo has three mines, two of which | Customers |  | Government |  |
| people, and aims to continually train and | from the deposits along the Kremenchuk | were developed by the Group since IPO, |  |  |  |  |
| develop those that work for theGroup. | Magnetic Anomaly, a globally significant | and also operates a processing complex |  | BN |  | M |
|  | ore body in scale. | and logistics network. | U S $ 2.5 |  | US$281 |  |
|  |  |  | +48% |  | +180% |  |
|  |  |  | Revenue generated |  | Taxes and royalties paid |  |
|  |  |  | (2020: US$1.7BN) |  | (2020: US$100M) |  |

Ferrexpo produces high grade iron ore
## HIGH GRADE PELLET
pellets, which are a premium raw material
## PRODUCTION used by steelmakers to increase
Suppliers Investors
productivity and reduce emissions.
TheGroup’s products carry an iron
## BN M
oregrade of either 65% or 67% Fe.

|  | US$1.2 | US$619 |
| --- | --- | --- |
|  | +33% | +217% |
|  | Suppliers of goods | Shareholder returns |
| Through developing increasingly high | and services | (2020: US$195M) |

## PREMIUM
quality, high grade products, the Group (2020: US$876M)
## CUSTOMER BASE isable to market its products to an
increasing range of premium steelmakers.
Communities Capital providers
REINVESTMENT FOR FURTHER DEVELOPMENT

|  | M |  | M |
| --- | --- | --- | --- |
| US$6 |  | US$221 |  |
| +11% |  | +49% |  |

By focusing on higher quality, higher
## FINANCIAL Donations through Debt repayments
grade forms of iron ore, and selling these

|  |  | Ferrexpo Charity Fund | and interest |
| --- | --- | --- | --- |
| RESILIENCE | products to premium steelmakers, the |  |  |
|  |  | (2020: US$6M) | (2020: US$148M) |

Group can realise higher margins on its
products, providing financial resilience.
Through establishing a cash generative
## PRUDENT CAPITAL
and cost competitive business model, the
## ALLOCATION Group is able to deploy capital effectively
for the benefit of all stakeholders,
balancing investment in future growth
andshareholder returns.
UNDERPINNED BY OUR VALUES
### Diversity within one team Continuous innovation
See p40-41 See p28-29
### Ferrexpo plc Annual Report & Accounts 2021 17
STRATEGIC REPORT
## Strategic Framework
## GENERATING ATTRACTIVE
## SUSTAINABLE RETURNS
The Group’s purpose is to maximise the value it generates for stakeholders
through its operations inUkraine and global footprint, producing and
marketing the highest quality iron ore pellets to theGroup’s network of
premium customers. This isachieved in tandem with the adoption of modern
technologies to deliver production in a safe and sustainable manner.
STRATEGY GOALS WHAT WAS ACHIEVED IN 2021 STRATEGIC TARGETS FOR 2022
– Expand existing customer – Group’s position maintained as third – Secured first long-term contract for – Maintain production during Russian
## PRODUCE HIGH
portfolio with additional high largest global exporter of iron ore DRpellets. invasion of Ukraine, where possible.
quality steelmakers. pellets, producing 11.2Mt of pellets – Commenced sales of commercial – Further develop new product offering.
## QUALITY
– Develop direct reduction pellet in2021 (2020: 11.2Mt). concentrate. – Maintain sales under long-term contract.
offering with trial cargoes shipped – Increased proportion of high grade – Enhance understanding of DR
## PELLETS

|  | to potential new customers for |  | products to 100% (2020: 99%). | pelletmarkets. |
| --- | --- | --- | --- | --- |
|  | this product type. | – Increasing grade: direct reduction pellets |  |  |
| – Further investments in mining, |  |  | representing 4% of total production |  |
|  | concentrator and pelletiser. |  | in2021 (2020: 3%). |  |

A
– Target further cost reduction – C1 cash cost of production increased – Consumption rate of natural gas, a key – Maintain position as a low cost iron ore
## LOW COST
initiatives through disciplined by 34% toUS$55.8 per tonne, reflecting consumable in the pelletiser operations, producer on global C1 cost curve.
costcontrol and further commodity input costs. increased by 16% in 2021, reflecting trials
## PRODUCTION

| dilutionoffixed costs through | – The Group maintains a low cost position |  |  | of higher grade direct reduction pellets. |
| --- | --- | --- | --- | --- |
| productionincreases. |  | on the global cost curve of iron ore | – Consumption rate of electricity, |  |
|  |  | producers, as assessed by independent |  | predominantly applicable to processing, |
|  |  | consultants CRU (see page 25). |  | rose by 1% in 2021, reflecting |
|  | – Diesel consumption rate per tonne |  |  | increasedprocessing to achieve |
|  |  | mined fell by 7% in 2021, reflecting |  | highergradeproducts. |

improved productivity.
– Develop relationships with new – Pivot of sales back to Europe following – Continue discussions with existing – Effective and clear communication
## SELL TO A WORLD
customers for existing blast peak of global Covid-19 pandemic, customer network, to optimise pellet mix withcustomers during Russian invasion
furnace pellet offering. returning to historic market balance. with customer requirements, particularly of Ukraine.
## CLASS CUSTOMER
– Further work to establish direct – Secured first long-term contract for as customers seek to accelerate – Maintain existing portfolio of premium
reduction pellet offering with directreduction pellets. decarbonisation plans. customers.
## PORTFOLIO
newcustomers. – Developed new relationships for new – Maintain high proportion of sales under
– Establish presence in selling high products (direct reduction pellets and long-term contract.
grade concentrate, either through commercial concentrate). – Add additional premium customers in
synergies with existing customers target markets (Europe and DR markets).
or through new relationships.
– Target zero harm for workforce. – Maintained a safe operating environment – Further 16% reduction in carbon footprint – Protect workforce during Russian
## MAINTAIN
– Maintain LTIFR safety metric with zero fatalities, and LTIFR of 0.41 at operations (direct and indirect) in 2021, invasion of Ukraine.
below five-year trailing average in2021, representing performance matching reduction from 2020. – Maintain strong safety record.
## SOCIAL LICENCE
and iron ore producing materially below five-year trailing – Emissions targets set in 2021, with the – Continue to reduce carbon footprint
peergroup. averagefor third successive year. Group achieving its 30% reduction (Scopes 1, 2 and 3).
## TO OPERATE

| – Continue efforts to improve |  | – UAH 153 million invested in communities |  |  | against the baseline year (2019) and goal | – Promote diversity in the workplace. |
| --- | --- | --- | --- | --- | --- | --- |
|  | productivity and reduce Scope1 |  | through Ferrexpo Charity Fund in 2021, |  | of net zero emissions by 2050. | – Continue to deliver value to communities. |
|  | and 2 emissions footprints |  | which celebrated its tenth anniversary | – “Fe_munity” women in leadership |  |  |
|  | pertonne. |  | since inception in March 2021. |  | programme, for advancing careers |  |

offemale employees.
– Continued development of – Maintained strong balance sheet, – Published shareholder returns policy in – Invest in the Group’s assets for growth.
## DISCIPLINED
operations, delivering volume withnet cash position as at November 2021, targeting returns based – Continue the Group’s balanced approach
growth and quality improvements. 31 December 2021 of US$117 million on free cash flow of the Group, to to stakeholders.
## CAPITAL
– Continue to pay dividends as (2020: US$4 million). maintain ability to invest in operations. – Maintain a strong balance sheet.
appropriate with cash flows – Repaid pre-export finance debt facility, – Todate, the Group has paid dividends
## ALLOCATION
in2021 and in line with de-risking business. amounting to the equivalent 37% of
shareholder returns policy. – Balanced capital allocation in 2021, freecash flow inrespect of 2021.
A
increasing capital investment by 75%
toUS$361 million (33% of operating
cash flow) and shareholder returns
(57%of operating cash flow).
### 18 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
UNDERPINNED BY OUR VALUES

| Responsibility | Integrity | Continuous innovation |
| --- | --- | --- |
| Safety first, environmental responsibility, | Delivering high ethical standards and | Embracing change. Courage to improve and |
| accountable to communities. | delivering on commitments. Accountability. | accepting new thinking. |
| See p30-44 | See p44-45 | See p28-29 |
| Make it happen | Diversity within one team |  |
| Focused efforts to deliver superior business | Valuing difference inopinions and |  |
| results, achieved through an engaged | backgrounds. Building collective strength. |  |
| workforce. | See p40-41 |  |

See p8-10
STRATEGY GOALS WHAT WAS ACHIEVED IN 2021 STRATEGIC TARGETS FOR 2022
– Expand existing customer – Group’s position maintained as third – Secured first long-term contract for – Maintain production during Russian
## PRODUCE HIGH
portfolio with additional high largest global exporter of iron ore DRpellets. invasion of Ukraine, where possible.
quality steelmakers. pellets, producing 11.2Mt of pellets – Commenced sales of commercial – Further develop new product offering.
## QUALITY
– Develop direct reduction pellet in2021 (2020: 11.2Mt). concentrate. – Maintain sales under long-term contract.
offering with trial cargoes shipped – Increased proportion of high grade – Enhance understanding of DR
## PELLETS

|  | to potential new customers for |  | products to 100% (2020: 99%). | pelletmarkets. |
| --- | --- | --- | --- | --- |
|  | this product type. | – Increasing grade: direct reduction pellets |  |  |
| – Further investments in mining, |  |  | representing 4% of total production |  |
|  | concentrator and pelletiser. |  | in2021 (2020: 3%). |  |

A
– Target further cost reduction – C1 cash cost of production increased – Consumption rate of natural gas, a key – Maintain position as a low cost iron ore
## LOW COST
initiatives through disciplined by 34% toUS$55.8 per tonne, reflecting consumable in the pelletiser operations, producer on global C1 cost curve.
costcontrol and further commodity input costs. increased by 16% in 2021, reflecting trials
## PRODUCTION

| dilutionoffixed costs through | – The Group maintains a low cost position |  |  | of higher grade direct reduction pellets. |
| --- | --- | --- | --- | --- |
| productionincreases. |  | on the global cost curve of iron ore | – Consumption rate of electricity, |  |
|  |  | producers, as assessed by independent |  | predominantly applicable to processing, |
|  |  | consultants CRU (see page 25). |  | rose by 1% in 2021, reflecting |
|  | – Diesel consumption rate per tonne |  |  | increasedprocessing to achieve |
|  |  | mined fell by 7% in 2021, reflecting |  | highergradeproducts. |

improved productivity.
– Develop relationships with new – Pivot of sales back to Europe following – Continue discussions with existing – Effective and clear communication
## SELL TO A WORLD
customers for existing blast peak of global Covid-19 pandemic, customer network, to optimise pellet mix withcustomers during Russian invasion
furnace pellet offering. returning to historic market balance. with customer requirements, particularly of Ukraine.
## CLASS CUSTOMER
– Further work to establish direct – Secured first long-term contract for as customers seek to accelerate – Maintain existing portfolio of premium
reduction pellet offering with directreduction pellets. decarbonisation plans. customers.
## PORTFOLIO
newcustomers. – Developed new relationships for new – Maintain high proportion of sales under
– Establish presence in selling high products (direct reduction pellets and long-term contract.
grade concentrate, either through commercial concentrate). – Add additional premium customers in
synergies with existing customers target markets (Europe and DR markets).
or through new relationships.
– Target zero harm for workforce. – Maintained a safe operating environment – Further 16% reduction in carbon footprint – Protect workforce during Russian
## MAINTAIN
– Maintain LTIFR safety metric with zero fatalities, and LTIFR of 0.41 at operations (direct and indirect) in 2021, invasion of Ukraine.
below five-year trailing average in2021, representing performance matching reduction from 2020. – Maintain strong safety record.
## SOCIAL LICENCE
and iron ore producing materially below five-year trailing – Emissions targets set in 2021, with the – Continue to reduce carbon footprint
peergroup. averagefor third successive year. Group achieving its 30% reduction (Scopes 1, 2 and 3).
## TO OPERATE

| – Continue efforts to improve |  | – UAH 153 million invested in communities |  |  | against the baseline year (2019) and goal | – Promote diversity in the workplace. |
| --- | --- | --- | --- | --- | --- | --- |
|  | productivity and reduce Scope1 |  | through Ferrexpo Charity Fund in 2021, |  | of net zero emissions by 2050. | – Continue to deliver value to communities. |
|  | and 2 emissions footprints |  | which celebrated its tenth anniversary | – “Fe_munity” women in leadership |  |  |
|  | pertonne. |  | since inception in March 2021. |  | programme, for advancing careers |  |

offemale employees.
– Continued development of – Maintained strong balance sheet, – Published shareholder returns policy in – Invest in the Group’s assets for growth.
## DISCIPLINED
operations, delivering volume withnet cash position as at November 2021, targeting returns based – Continue the Group’s balanced approach
growth and quality improvements. 31 December 2021 of US$117 million on free cash flow of the Group, to to stakeholders.
## CAPITAL
– Continue to pay dividends as (2020: US$4 million). maintain ability to invest in operations. – Maintain a strong balance sheet.
appropriate with cash flows – Repaid pre-export finance debt facility, – Todate, the Group has paid dividends
## ALLOCATION
in2021 and in line with de-risking business. amounting to the equivalent 37% of
shareholder returns policy. – Balanced capital allocation in 2021, freecash flow inrespect of 2021.
A
increasing capital investment by 75%
toUS$361 million (33% of operating
cash flow) and shareholder returns
(57%of operating cash flow).
### Ferrexpo plc Annual Report & Accounts 2021 19
STRATEGIC REPORT
See pages 207 to 209 for
## Key Performance Indicators
areconciliation of Alternative
Performance Measures to the
IFRSequivalent.
## MEASURING OUR
## PERFORMANCE
FINANCIAL KEY PERFORMANCE INDICATORS (“KPIs”)
A

| Underlying EBITDA |  | Profit after tax |  |
| --- | --- | --- | --- |
|  | M |  | M |
| US$1,439 |  | US$871 |  |

US$1,439m US$871m
US$859m US$635m
US$503m US$403m
A
Underlying EBITDA represents profit before tax and In addition to Alternative Performance Measures,
finance plus depreciation and amortisation, net gains Ferrexpo considers the IFRS results of the Group to be
and losses from disposal of investments and property, an important measurement of profitability. In 2021, profit
plant and equipment, share-based payments and for the year was 37% higher at US$871 million, reflecting
A
write-offs and impairment losses. Underlying EBITDA increased commodity pricing.
measures the Group’s ability to generate cash as well as
Link to strategy: 1, 2, 3, 4 & 5
providing a useful measure of operating performance
excluding certain non-cash items. In 2021, Underlying
A
EBITDA increased by 68% to US$1,439 million,
reflecting increased commodity pricing.
Link to strategy: 1, 2, 3, 4 & 5
Closest equivalent IFRS measure: profit before tax
andfinance
A

| Net Cash/(Debt) |  | Net cash flow from operating activities |  |
| --- | --- | --- | --- |
|  | M |  | M |
| US$117 |  | US$1,093 |  |

US$117m US$1,093m
US$4m US$68 7m
(US$281m) US$473m
Ferrexpo uses its net cash/(debt) position as an indicator Net cash flow from operating activities represents the
of the relative level of indebtedness of the Group and cash flow generation ability of the Group, and indicates
therefore the overall strength of the Group’s balance. the level of cash flow available for investments, returns
Asof the endof 2021, the Group continues to be in a net to shareholders and debt reduction. In 2021, net cash
cash position, reflecting the strong performance of the flow from operating activities increased by 59% to
Groupin recent years. US$1,093 million, reflecting higher realised pellet pricing
and increased product quality.
Link to strategy: 1, 2, 3, 4 & 5
Link to strategy: 1, 2, 3, 4 & 5
2021 2021
2021 2021

| 2020 2020 |  |  |
| --- | --- | --- |
| 2020 2020 |  |  |
|  | 20 | Ferrexpo plc Annual Report & Accounts 2021 |
| 2019 2019 |  |  |
| 2019 2019 |  |  |

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Link to strategy
1. Produce high quality pellets.
2. Be a low cost producer.
3. Sell to a world class customer portfolio.
4. Maintain a social licence to operate.
5. Maintain appropriate capital allocation
between a strong balance sheet,
returns to shareholders and investment
for growth.
NON-FINANCIAL KEY PERFORMANCE INDICATORS (“KPIs”)
Lost time injury frequency rate (“LTIFR”) Production volumes
## MT
## 0.41 11.2
MT
0.41 11.2
MT
0.79 11.2
MT
0.58 10.5
It is the Group’s highest priority to ensure its workforce Production volumes measure the Group’s ability to meet
operates in a safe environment and is trained in safe customer demand as well as provide an indication of the
working practices. The LTIFR is an industry standard Group’s operational performance. In 2021, production
measurement and an important indicator of how safe the was in line with 2020 as a result of the completion of
work environment is. The Group’s LTIFR in 2021 was several projects to upgrade capacity in the Group’s
0.41, representing the third successive year that this pelletiser in Ukraine.
metric is materially below the Group’s five-year trailing
Link to strategy: 1, 2, 3 & 5
average (0.98).
Link to strategy: 1, 2, 3, 4 & 5
A
C1 cash costs of production Sales volume by region
## /T
## US$55.8
202120202019
/T
US$55.8
Region 2021 2020 2019
/T
US$41.5 Europe, including Turkey (BF pellet) 58% 36% 56%
North East Asia (BF pellet market) 8% 5% 16%
/T China & South East Asia (BF pellet market) 30% 56% 28%
US $47.8
Middle East & North Africa
A
The C1 cash cost of production is the cost of (DR pellet market) 0.4% 0% 0%
production processes to the factory gate, divided by
North America (DR pellet market) 3% 2% 0%
production. This is an industry standard measurement
and assesses Ferrexpo’s relative competitiveness
Ferrexpo believes it is important to have a diversified
compared to other pellet producers. In 2021, Ferrexpo’s
A customer base to be able to withstand periods of
C1 cash cost of production increased by 34% to
volatility in specific regions. In 2021, the Group saw a
US$55.8 per tonne, reflecting higher energy costs.
gradual return to historic balance of market demand for
Link to strategy: 2 & 5 its products, following the initial peak of the global
Covid-19 pandemic, which resulted in a temporary pivot
2021 2021 2021
in sales towards China in 2020.
Link to strategy: 3 & 5

| 2020 2020 2020 |  |  |
| --- | --- | --- |
|  | Ferrexpo plc Annual Report & Accounts 2021 | 21 |
| 2019 2019 2019 |  |  |

STRATEGIC REPORT

# Financial Review

# DELIVERING VALUE THROUGH INVESTMENT

Through investment in high grade iron ore products, the Group has been able to maintain its position as a high margin business, further enabling the Group to continue its strategy of investing for future growth and returns.

REVENUE

+48%

Increase in revenues, reflecting strong demand for the Group's high grade iron ore product portfolio.

UNDERLYING EBITDA¹ MARGIN

57%

Investing in high grade iron ore delivers strong Underlying EBITDA¹ margin (2020: 50%).

INVESTING FOR GROWTH

+75%

Investing for future growth with capital investment of US$361 million in 2021 (2020: US$206 million).

Summary

Through rising pellet quality and strong market demand for high grade, premium forms of iron ore such as pellets, the Group saw revenues in 2021 increase by 48% to US$2.5 billion and Underlying EBITDA¹ increase by 68% to US$1,439 million (2020: US$859 million), maintaining the Group's position as a high margin business. The Group has maintained its balanced approach to capital allocation, with capital investment rising by 75% to US$361 million. The Group realised a net operating profit after tax of US$871 million in 2021 (2020: US$635 million) following the accounting of an impairment loss of US$231 million as at 31 December 2021.

Revenue

Group revenues increased in 2021 by 48%, relating to increases in commodity pricing seen during the year – principally iron ore prices, premiums for high grade materials

![img-4.jpeg](img-4.jpeg)

and pellet premiums. Total sales for the period fell by 6%, reflecting the de-stocking process that was conducted in 2020 in response to the onset of the global Covid-19 pandemic. Revenues also benefited from the increase to 100% high grade iron ore products (2020: 99%). For further information, please see the Operational Review section on pages 26 to 27.

Seaborne freight revenue arising from CFR sales increased revenue by US$12 million compared to 2020, reflecting the net effect from higher freight rates, partially offset by lower sales volumes to Asia. Finally, the revenues from the Group's barging and bunker operations, First-DDSG Logistics Holding, increased by US$4 million in 2021 compared with 2020 as a result of higher freight rates and bunker prices, partially offset by a lower volume shipped.

C1 cash cost of production²

The Group's average C1 cash cost of production² was US$55.8 per tonne in 2021, compared with US$41.5 per tonne in 2020, with this increase in the Group's cost base relating to a global rise in commodity input prices, which applies to approximately 50% of the Group's cost base.

In the first half of 2021, global commodity prices rose as global economies experienced a recovery from the financial effects of the global Covid-19 pandemic. Following this rise in the first half of 2021, global energy prices rose further due to a tightness in the supply of crude oil, following production cuts announced in late 2020 by OPEC nations. Consequently, oil prices rose from US$55 per barrel in January 2021 to a peak of US$84 per barrel in October 2021, representing a rise of more than 50%, before retreating during the fourth quarter¹.

22

Ferrrepo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
2
KEY FINANCIAL PERFORMANCE INDICATORS UKRAINIAN HRYVNIA VS. US DOLLAR
US$ million (unless stated otherwise) 2021 2020 Change UAH per US$
Total pellet production (kt) 11,220 11,218 +0.02%
Spot 20.04.22
Sales volumes (kt) 11,350 12,062 -6% 29.255
Iron ore price (65% Fe Index, US$/t) 186 122 +53%
Opening rate 01.01.21
Revenue 2,518 1,700 +48%
28.275
A
C1 cash cost of production (US$/t) 55.8 41.5 +34%
Closing rate 31.12.21
A
Underlying EBITDA 1,439 859 +68%
27.278
A
Underlying EBITDA margin 57% 50% +7pp
Average 2021
Debt servicing 215 146 +47%
27.286
A
Capital investment 361 206 +75%
Average 2020
Closing net cash 117 4 +3,215%
26.958

| The Group pays royalties on the extraction | arising from CFR sales increased by | USdollar denominated receivable balances |
| --- | --- | --- |
| and sale of iron ore products to the | US$36million compared to 2020. | (from the sale of pellets). The operating |
| Ukrainian government, with this royalty |  | foreign exchange loss in 2021 was US$38 |
| regime updated in late 2021. This new | General and administrative expenses | million compared to a gain of US$61 million |
| royalty regime, which came into force in |  | in 2020 when the hryvnia depreciated. |

The general, administrative and other
January 2022, includes a royalty payment
expense in 2021 was US$72 million
based on the spot iron ore (62% Fe) fines Non-operating foreign exchange
(2020:US$62 million), with this increase
price, with no reference to pellet premiums gains/losses
mainly due to higher consulting fees related
or freight rates, which is structured as
to the business improvement projects and Non-operating foreign exchange gains are
follows: (1) at monthly iron ore prices (62%
personnel expenses in Ukraine linked to mainly due to the conversion of the hryvnia
Fe) less than or equal to US$100 per tonne,
local inflation. denominated intercompany payable
a royalty rate of 3.5% will apply to iron ore
balances and the conversion of euro
product sales, (2) at prices less than or
Currency denominated loans (at the Group’s barging
equal to US$200 per tonne a royalty rate
facility) into the functional currency of the
of5% will apply and (3) at prices above Ferrexpo prepares its accounts in US
respective Group’s subsidiary. In 2021, the
US$200 per tonne a 10% royalty rate will dollars. The functional currency of the
Group recorded a non-operating foreign
apply. Royalties are not tiered and therefore Group’s operations in Ukraine is the
exchange loss of US$3 million (2020: gain
the rate applied will apply to the full price Ukrainian hryvnia, which has historically
ofUS$5 million), which was driven by a 4%
ofthe iron ore product being sold. This represented approximately half of the
appreciation of the hryvnia during the year
compares to the previous iron ore royalty Group’s operating costs. In 2021, the
against the US dollar, as well as fluctuations
calculation whereby the Group paid a flat hryvnia appreciated by 4% from UAH
in the euro/US dollar exchange rate. For
royalty rate ofapproximately US$3.5 per 28.275 per US dollar on 1 January 2021
further information, please see Note 9
tonne of all tonnes sold. toUAH 27.278 per USdollar as of
Foreign exchange gains and losses to the
31 December 2021. For further information,
In line with previous years, the Group’s C1 Consolidated Financial Statements.
please see section on C1 cash cost of
A
cash cost of production represents the
A
production on page 22 and Case Study A
cash costs of production of iron pellets from Underlying EBITDA
onpage 25.
own ore (tothe mine gate), divided by
A
Underlying EBITDA in 2021 increased by
production volume from own ore, and
Local balances as of 31 December 2021 68% to US$1,439 million, with this increase
excludes non-cash costs such as
areconverted into the Group’s reporting reflecting a balance of positive factors,
depreciation, pension costs and inventory
currency at the prevailing exchange rate. including the 53% increase seen in iron ore
movements, aswell as the costs of
The appreciation of the hryvnia resulted in fines prices, a 92% increase in the Platts
purchased ore, concentrate and gravel. The
aUS$79 million increase in net assets in Atlantic pellet premium, balanced by
A
C1 cash cost of production (US$ per tonne)
2021 (2020: decrease of US$301 million), negative factors such as a 6% decrease in
is regarded as an Alternative Performance
asreflected in the translation reserve, sales volumes, 34% increase in C1 cash
Measures (“APM”). For further information,
netofanassociated tax effect. A
costs of production and an 81% increase in
please see pages 207 to 209.
the C3 freight rate. The Group’s Underlying
Operating foreign exchange A
EBITDA for 2021 includes anon-cash
Selling and distribution costs
gains/losses operating forex loss of US$38million in
Total selling and distribution costs were 2021 (2020: non-cash operating forex gain
Given that the functional currency of the
US$340 million in 2021 (2020: US$309 of US$61 million).
Ukrainian subsidiaries is the hryvnia, an
million), reflecting an increase in freight
appreciation of the hryvnia against the
rates, offset by a decrease in sales to Asia.
USdollar results in foreign exchange loss 1. Source: EIA.
As a result, international freight costs
onthe Group’s Ukrainian subsidiaries’ 2. Source: National Bank of Ukraine.
### Ferrexpo plc Annual Report & Accounts 2021 23
STRATEGIC REPORT
## Financial Review continued
Interest outflow largely reflects higher balances of Following repayment of the Group’s PXF
trade and other receivables, prepayments Facility in June 2021, the Group no longer
Interest expense on loans and borrowings
made as of 31 December 2021 and higher has a financial covenant restriction over the
declined by 57% to US$10 million compared
inventories, which were mainly as a result of total available distributable profits of the
to US$22 million in 2020, due to a lower
shipments that slipped into 2022 due to bad Group (noting that any dividend payment
average outstanding debt balance. The
weather conditions at the Group’s loading must still comply with distributable reserve
average cost of debt was 4.7% for the
port at year end. requirements under company law).
period until the full repayment of the

| Group’s major debt facility in June 2021 | As a result of the higher operating cash flow, | The Group’s Board will consider, as |
| --- | --- | --- |
| (average 31 December 2020: 5.2%). Further | the net cash flow from operating activities | appropriate, whether or not to propose a |
| details on finance expense are disclosed in | increased 59% to US$1,094 million in 2021 | further interim dividend in respect of 2021. |
| Note 10 Net finance expense to the | (2020: US$687 million). Capital investment |  |
| Consolidated Financial Statements. | was US$361 million, an increase of 75% | Debt and maturity profile |

compared to 2020 (US$206 million), while
Ferrexpo has a strong balance sheet, low
Tax dividends paid during the 2021 calendar
levels of gross debt and had a net cash
year increased by 220% to 105.6 US cents
In 2021, the Group’s tax expense was position as of 31 December 2021. As of
compared to 33.0 US cents in 2020.
US$200 million (2020: US$113 million). 31 December 2021, the Group’s net cash
Theeffective tax rate for 2021 was 18.7% A position was US$117 million (31 December
Capital investment

| (2020: 15.1%). The increase in the effective |  | 2020: US$4 million net cash position). |
| --- | --- | --- |
| tax rate was driven by a higher proportion | Capital expenditure in 2021 was US$361 | Grossdebt as of 31 December 2021 was |
| oftaxable profits in Ukraine and the | million compared to US$206 million in 2020. | US$50million compared with US$266 |
| impairment loss, which is not tax deductible. | Of this amount for 2021, sustaining and | million as of 31 December 2020. The |
| In2021, the Group paid income taxes of | modernisation capex was US$113 million | Group’s gross debt relates to short-term |
| US$228 million (2020: US$57 million), of | (2020: US$103 million), covering activities at | trade finance facilities that typically have |
| which US$221million were paid inUkraine | all of Ferrexpo’s major business units. In | tenures of less than 12 months. |

A
(2020: US$54million). relation to growth capital investment , total
As of 31 December 2021, the credit ratings
investment in the Group’s concentrator and
A total of US$29 million of income taxes agency Moody’s has a long-term corporate
pelletiser, including the Wave 1 Expansion,
related to 2021 are expected to be paid in and debt rating for Ferrexpo of B2, with a
amounted to US$111 million in 2021
2022, of which US$21 million in Ukraine. negative outlook. The credit ratings agency
(2020:US$34.3 million). In addition, FPM
Further details on taxation are disclosed Fitch maintains aBB- rating on the Group,
invested US$34 million on the press filtration
inNote 11 Taxation to the Consolidated with a stable outlook. While the credit rating
project, which is set for completion in 2022.
Financial Statements. of Ferrexpo is capped by the sovereign
A
Further areas of capital investment included
credit rating of Ukraine, the ceiling for credit
mine stripping and development of US$69
Items excluded from underlying ratings ascribed to Ferrexpo by both Fitch
million in 2021 (2020: US$14 million) and
earnings and Moody’s are higher (one notch above
US$6 million invested in the infrastructure,
sovereign for Moody’s and two notches
The Group has recognised an impairment development and exploration of the
above sovereign for Fitch).

| charge of US$231 million as at 31 December | Bilanivske (Belanovo mine), Galeschynske |  |
| --- | --- | --- |
| 2021, relating to stockpiled low grade ore as | and Northern Deposits (2020: US$6 million). | Following the start of the Russian invasion |
| it cannot reliably predict when this material | For further information on the Group’s | of Ukraine on 24 February 2022, the credit |
| will be processed. Please see Note 17 | growth plans, please see pages 28 to 29. | ratings agencies have taken steps to update |
| Inventories to the Consolidated Financial |  | their assessment on Ukrainian issuers. As of |
| Statements for more information. | Shareholder returns | 4 April 2022, with regards to Ferrexpo plc, |

Moody’s has a long-term corporate and
In view of Russia’s invasion of Ukraine and
Profit for the period debt rating for Ferrexpo of Caa2, with a
the ongoing hostilities, the Board has
negative outlook, while the credit ratings
Profit for the period increased 37% to decided to defer any decision in relation to
agency Fitch has a long-term corporate and
US$871 million compared with US$635 an interim dividend in conjunction with the
debt rating for Ferrexpo plc of B-, with a
million in 2020, reflecting a 44% increase in Group’s full year results for 2021. The Board
negative outlook. While the credit rating of
operating profit (including operating foreign will continue to assess the situation and
Ferrexpo is capped by the sovereign credit
exchange effects) and US$3 million lower when appropriate make a decision in
rating of Ukraine, the credit rating ascribed
net financial expense and a foreign relation to shareholder returns.
to Ferrexpo by Fitch is higher. The credit
exchange loss of US$38 million compared
Total dividends paid to date in respect of ratings agency Standard & Poor’s has
to a foreign exchange gain of US$61 million
2021 are 46.2 US cents (2020 total: 85.8 US temporarily suspended the credit rating for
in2020, in addition to a higher income tax
cents). In November 2021, the Group Ferrexpo plc.
expense of US$200 million.
announced ashareholder returns policy
outlining the Group’s intention to deliver Related party transactions
Cash flows
30% of free cash flows as dividends in
The Group enters into arm’s length
Operating cash flow before working capital respect of a given year. To date, the Group
transactions with entities under the common
increased 85% while the working capital has announced dividends in respect of the
control of Kostyantin Zhevago and his
outflow in 2021 was US$139 million 2021 financial year representing 37% of the
associates. For further information, please
compared to an outflow of US$24 million in Group’s free cash flow in 2021.
see Note 34 Related party disclosures.
2020. The increase in the working capital
### 24 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
A
CHART: BREAKDOWN OF FERREXPO’S C1 CASH COST OF PRODUCTION CA SE STU DY:
Electricity 23%
### MAINTAINING A LOW CASH
Gas + Biofuel 16%
### COST OF PRODUCTION
Fuel 6% A
The Group’s C1 cash cost of production
Materials 8% isgoverned byarange of factors, with
energy costs historically representing
Spare parts 11%
approximately halfof the cost base
Personnel costs 8% throughthe Group’s exposure to diesel
prices (mining), electricity prices
Repair service 11%
(predominantly processing) and natural
## US$55.8/t
Grinding bodies 8% gasprices (pelletising).
(2020: US$41.5/t)
Royalties 6% The Group’s full year C1 cash cost of
A
production rose by 34% to US$55.8 per
Blasting 2%
tonne, primarily reflecting a rise in the
second half of the year due to high energy
Note: above numbers are rounded.
costs. Over the full year, increasing energy
costs have accounted for a combined
US$10 per tonne increase in the Group’s C1
A
cash cost of production , with a further
US$2 per tonne increase attributable to
spare parts and maintenance costs per
tonne combined. Elevated energy prices are
expected to remain in place going into 2022,
CRU BREAKDOWN PELLET COST CURVE TO NATURAL MARKETS
with a gradual decline to historic levels
(US$ PER TONNE)
expected during the course of first half of
the year.
90
Through its production of high grade iron
80
ore pellets, the Group remains competitive
70 3rd Quartile for costs on a global scale, as shown in the
pellet cost curve, presented by independent
60 consultants CRU. With the increases in
energy costs described above, the Group
50
has moved from the first to the second
2nd Quartile
quartile of costs for pellet producers, but
40
the Group retains a cost advantage over
30 more than 55 million tonnes of existing
1st Quartile
pellet production, representing
20
approximately half of the current market of
Pellet cost for delivery to China (US$ per tonne) iron ore pellets. Given the long-term value
10
proposition of high grade iron ore and pellet

| 0 |  | FERREXPO | premiums, as outlined in the Case Studies |
| --- | --- | --- | --- |
| 0 30 60 90 |  |  | provided in this report, the Group believes |
|  | Cumulative pellet exports, 2021, Mt (dry) |  | that it will continue to be globally |

competitive on its cost of production.
Definition: Business costs are the sum of realisation costs and site costs. Realisation costs include the cost of getting the
material to market, the marketing of the material and the financing cost of selling the material. The power of business costs is For more details of the increasing
that by adjusting all product qualities relative to the same benchmark (62% Fe fines product delivered to North China), it allows premiums paid for high grade iron
all mines to be compared on a cost curve on a like-for-like basis. This also means that by subtracting the benchmark price from
ore, please see page 13.
the business costs for a mine an estimate of cash flow from that operation is obtained. Source: CRU Group.
### Ferrexpo plc Annual Report & Accounts 2021 25
STRATEGIC REPORT
## Operational Review
## PRODUCTION
## SUMMARY
STRONG PRODUCTION PERFORMANCE
## 2021 saw operations continue to develop and grow,
## with work already under way for the next phase of
## MT
## growth, with the Wave 1 Expansion set to add three
## 11.2
## million tonnes of additional capacity. Pellet production in line with previous year,
despite 60 days of planned downtime for
pellet line upgrades in 2021.
Russia-Ukraine conflict (2022) Additional projects under way in the Group’s
mines include the ongoing automation of the
To date, the Group has managed to
haul truck fleet at FYM (see Case Study on
QUALITY IMPROVEMENTS CONTINUE
continue production operations during
page 27), as well as ongoing discussions to
Russia’s invasion of Ukraine in 2022, with
electrify the Group’s mining fleet, which is
the Group curtailing non-core activities.
## likely to include trolley assist and battery %
Shipments continue via rail and barge to
## technology (see Case Study on page 29). +27
Europe, but seaborne exports via the
Both projects are expected to offer
portofPivdennyi have been temporarily Output of higher grade direct reduction
long-term benefits in safety performance,
suspended. Please see the Group’s press pellets rose by 27% in 2021, and is
productivity and emissions reduction.
releases for up-to-date operational updates. expected to increase further in 2022.
Total mining volumes in 2022 across the
Mining (2021) Group’s two ore-producing mines – FPM
and FYM – are expected to remain in line PREPARING FOR FUTURE GROWTH
Total mining volumes increased by 21% in
with 2021, reflecting the recent step up in
2021, with the Group preparing for the Wave
waste stripping activities ahead of the Wave
## 1 Expansion, which will require an increase %
1 Expansion. For more information on the
## in supply of iron ore to the Group’s +21
Group’s growth plans, please see page 28.
processing plant upon completion. At FPM,
21% increase in mining volumes in 2021,
mining activities in 2021 remained in line
Processing (2021) inpreparation for the Wave 1 Expansion.
with 2020, but the Group significantly

| increased total volume movements at FYM | The Group’s processing plant has seen |
| --- | --- |
| to over 60 million tonnes, representing a | significant investment in recent years, and |
| 39% increase, underscoring FYM’s role for | as a result, ore tonnes processed and |
| the Group’s near-term growth ambitions. | concentrate tonnes produced both |
| FBM is the key project in the Group’s | increased by 5% in 2021, with the Group |
| medium-term growth plans, and this project | expecting further growth in future years. |
| saw a seven-fold increase in material moved | The pelletiser was the focus of investments |
| to 10 million tonnes in 2021, with this mine | in processing in 2021, with upgrade work |
| expected to continue its ramp up of | taking place in three distinct phases |
| activities over time. | throughout the year. |

OPERATIONAL PERFORMANCE
(000’t unless otherwise stated) 2021 2020 Change
Production
Iron ore mined 33,764 29,842 +13% Image: Inspecting one of the Group’s automated
CAT 793D haul trucks during regular maintenance.
Strip ratio 3.5 3.2 +9%
Iron ore processed 31,111 29,723 +5%
Concentrate production 14,655 14,007 +5%
Pellet production 11,220 11,218 +0.02%
– Direct reduction pellets (67% Fe) 431 339 +27%
– Premium blast furnace pellets (65% Fe) 10,790 10,780 +0.1%
– Basic blast furnace pellets (62% Fe) – 98 -100%
Commercial concentrate production 234 183 +28%
Iron ore sales
– Pellets 11,115 11,878 -6%
– Concentrate 234 183 +28%
Image: Installation of new equipment at the new
– Total products sold 11,349 12,062 -6% press filtration complex, one of the final
processing stages in the Group’s concentrator.
### 26 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
1
JORC-COMPLIANT ORE RESERVES AND MINERAL RESOURCES
Proven Probable Total
Fe Fe Fe Fe Fe Fe
total magnetic total magnetic total magnetic
JORC-compliant Ore Reserves Mt % % Mt % % Mt % %
Gorishne-Plavninske-Lavrykivske (“GPL”) 300 33 26 829 31 23 1,135 32 24
Yerystivske 220 30 25 290 33 26 510 32 26
Total 526 32 26 1,119 32 24 1,645 32 25
Measured Indicated Inferred Total
Fe Fe Fe Fe Fe Fe Fe Fe
total magnetic total magnetic total magnetic total magnetic
JORC-compliant Mineral Resources Mt % % Mt % % Mt % % Mt % %
Gorishne-Plavninske-
L a v r y k i v s ke ( “ G P L” ) 472 35 29 1,627 30 22 744 32 24 2,843 31 24
Yerystivske 269 35 29 571 34 27 382 33 27 1,222 34 27
Bilanivske 336 31 24 1,149 31 23 217 30 21 1,702 31 23
Total 1,077 34 27 3,347 31 23 1,343 32 24 5,767 32 24
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 2022. 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 59 for more information.

| Following the approval of the Group’s Wave | Ferrexpo continues to use sunflower husks |
| --- | --- |
| 1 Expansion in October 2021, the Group has | as a substitute for natural gas in the |
| taken the decision to focus on the | pelletiser, with 18% of pelletiser energy use |
| processing of high grade ores to maximise | sourced from sunflower husks in 2021 |
| production, and has therefore realised an | (2020: 25%). The decrease seen in 2021 |
| impairment on the value of the low grade | correlates to commercial trials of producing |
| ore stockpiled at site. Please see Note 17 | direct reduction pellets, and the Group |
| Inventories to the Consolidated Financial | expects consumption rates of sunflower |
| Statements for more information. | husks to increase as the Group’s |

understanding of the technical requirements
A key project completed in early 2022 is the CA SE STU DY:
of producing this pellet type increases.
Group’s press filtration complex, which will
help improve product quality and reduce
Logistics (2021)
### natural gas consumption through lowering MINING FLEET AUTOMATION
the moisture content of pellets before Sales volumes fell 6% in 2021 as a result of
In December 2020, the Group was proud
entering the pelletisation process. The work the Group conducting a one-off de-stocking
tounveil the latest phase of autonomy in
completed to date represents the first phase process in early 2020. Production and sales
itsbusiness – Europe’s first large scale
of this project, which will help facilitate an volumes in 2021 returned to a level broadly
autonomous haul trucks. The Group has
increase in throughput of material through matching each other.
continued to progress this project, with
the Group’s processing facilities.

|  | In December 2021, the Group also | thefirst phase of automation completed, |
| --- | --- | --- |
| In terms of product quality, the Group has | conducted a trial shipment to a German | representing the first six CAT 793D trucks |
| phased out production of medium grade | steel mill via rail, which has the potential | atthe Yeristovo mine. Over time, the Group |
| products, transitioning to 100% high grade | toreduce the Group’s Scope 3 emissions | plans to continue to introduce fleet |
| (65% Fe and above) production as of | footprint through use of the electrified rail | automation throughout its mining operations |
| 2021(2020: 99%). This shift marks the | network in Europe, as well as having the | in line with this equipment showing |
| culmination of 15 years of investment in high | potential to cut delivery times in half to | improvements in both safety and productivity. |
| grade production since the Group’s IPO, | certain customers. |  |

Through automation, the Group expects
and reflects a shift in preference by the
In 2021, the Group’s subsidiary First-DDSG tosee significant benefits in safety,
Group’s premium customers, who use
transported 0.8 million tonnes of iron ore productivity and maintenance. The
pellets to make premium types of steel.
pellets via the River Danube (2020: autonomous fleet continues to improve in
Tounderstand the importance of high
0.8million tonnes), providing additional itsfleet utilisation levels, and in November
gradematerials to steel companies,
logistics flexibility for the Group to supply 2021 the Group’s automated fleet achieved
pleasesee the Case Study on page 14.
customers in Europe. the same rates of utilisation as the Group’s
historic level.
### Ferrexpo plc Annual Report & Accounts 2021 27
STRATEGIC REPORT
## Operational Review continued
## GROWTH PLANS
## The Group has now invested over US$3 billion in
## itsoperations since IPO, with over 85% of this
## investment at the Group’s operations in Ukraine.
Growth projects in 2021 WAVE 1 EXPANSION
Recent projects completed include the
pelletiser upgrade work primarily completed
## 1. MINING
in 2021, as well as the concentrator upgrade

| and concentrate stockyard that were both | – Scale: increasing total volumes mined |
| --- | --- |
| completed in 2020. Through this work, | from 125Mt in 2020 to approximately |
| theGroup aims to provide stability and | 265Mt. |

consistency in pellet production, growth
– Equipment required: additional
inproduction volumes, and growth in
excavators and haul trucks.
product quality.
– Phasing: gradual increase.
Wave 1 Expansion
– Total investment: US$180 million,
The Group’s Wave 1 Expansion is an excluding trolley-assist.
ambitious project to add approximately 25%
of the Group’s existing pellet capacity in the
next three years. In light of the current
## 2. CRUSHING &
conflict in Ukraine, the Group has
temporarily paused investment in growth
## BENEFICIATION
projects and will look to recommence
growth activities once additional clarity on – Scale: increasing crushing capacity
the outlook for Ukraine is known. Please see tomore than 45Mt.
the Principal Risks section for more
– Equipment required: minor upgrades to
information (pages 56 to 72).
primary crushing, additional secondary
Expansion plans in the processing of and tertiary crushing capacity. Contracts
magnetite iron ore are modular in nature, signed with Metso and Weir Minerals.
whereby processing increased volumes
– Total investment: US$240 million.
uses larger and more advanced pieces of
equipment, largely replicating the existing
process flow sheet. The Group’s
## investments to date have been a reflection 3. PELLETISING
of this, and the Group’s Wave 1 Expansion
– Scale: increasing capacity of one
will be a continuation of this strategy.
pelletiser line (out of four) by three million
Each key aspect of the production process tonnes.
required to deliver the Wave 1 Expansion
– Equipment required: pelletiser kilns to
are shown in the diagram opposite, with
remain as is, with modifications to
pre-stripping activities commencing in 2021,
pre-heating stages to add capacity.
and reflected in a 21% increase in the total
tonnes mined during the year. The all-in – Phasing: timing to be after concentrate
capital intensity of the Wave 1 Expansion at capacity completed.
the Group’s operations is expected to be
– Total investment: US$181 million.
approximately US$200 per tonne of
additional pellet capacity.
## 4. LOGISTICS
The Group also expects to see additional

| benefits and flexibility in processing | – Scale: capacity to transfer three |
| --- | --- |
| different ore types as a result of the Wave 1 | milliontonnes of additional products |
| Expansion. Through adding modern | tocustomers. |

equipment, such as the planned high-
– Equipment required: additional rail cars,
pressure grinding rolls in the beneficiation
upgraded port capacity.
plant, the Group expects to see efficiency
savings for key consumables such as – Phasing: gradual implementation.
electricity, which will have a positive effect
– Total investment: US$28 million.
on the Group’s cost structure and
environmental footprint.
### 28 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## VOLUME &
## QUALITY
## GROWTH
Image: An autonomous truck undergoing trial
mining activities at FYM in 2021.
CA SE STU DY:
occurs when fully-loaded trucks ascend out which represents a technology that is
### DECARBONISATION
of the Group’s mines, making this a clear rapidly developing. The Group considers
### OFMINING FLEETS
area to target in decarbonisation efforts. itself to be a fast follower for new
The Group is continuing discussions with technologies, and is looking to implement
With 40% of Scope 1 (direct) emissions in
suppliers of this technology, and in 2021, afleet-replacement strategy with battery
2021 relating to diesel consumption in the
representatives of the Group visited a technology trucks once this becomes a
Group’s mining fleet, projects to address
mining operation with trolley-assist widespread solution in the mining industry.
this area will have a clear impact on the
equipment already in operation. It is The Group expects this to be a gradual
overall carbon footprint.

|  | expected that the installation of such | phasing out of diesel trucks over time, with |
| --- | --- | --- |
| In the short term, diesel consumption rates | equipment would take two to three years to | this becoming a viable pathway inthe |
| declined by 7% in 2021 as productivity | implement. Aside from the benefits of | medium to long term. |
| measures continue to be implemented, and | decarbonisation, trolley-assist technologies |  |

Diesel efficiency improvement (2021)
the Group is working towards continuing also allow trucks to ascend pit ramps using
this progress in future years. 100% of each truck’s engine capacity,
## %
leading to shorter cycle times, therefore
For over ten years, Ferrexpo has operated
## 7
reducing the requirement for the number of
electric excavators, taking advantage of the
trucks operating, as well as more efficient Reduction in diesel consumption rate in
fact that Ferrexpo’s mines are located with
mining practices. 2021, reflecting increases in productivity
good access to the Ukrainian electricity
and electric excavator usage.

| grid, a key advantage of Ferrexpo’s mines | The longer-term solution is however to |  |  |
| --- | --- | --- | --- |
| over the majority of iron ore mines operated | completely remove diesel consumption from |  |  |
| by the Group’s peers in Australia. With this | the Group’s haul trucks. This is possible |  |  |
| in mind, the Group continues to review the | through a range of technologies and the |  |  |
| installation of trolley-assist infrastructure | Group believes that, as of today, the best |  |  |
| along the upward section of the haul ramps | opportunity to implement diesel-free fuelling |  |  |
| of its mines, as 50% of diesel consumption | of trucks is through battery technology, |  |  |
|  |  | Ferrexpo plc Annual Report & Accounts 2021 | 29 |

STRATEGIC REPORT

# HSEC Committee Chair's Review

# POSITIONED TO LEAD ON SUSTAINABILITY

The events in the first quarter of 2022 have highlighted the importance of sustainability, particularly Ferrexpo's community support initiatives, at this difficult time. The Group's newly established Humanitarian Fund is designed to help address the needs of communities across the country.

DELIVERING RESULTS: SAFETY

0.41

Key safety lost time injury frequency rate remains materially below the Group's trailing five year average (0.98).

DELIVERING RESULTS: CARBON

-16%

Combined Scope 1 and 2 emissions per tonne reduced by 16% in 2021, achieving a cumulative 30% reduction against the Group's benchmark year (2019).

DELIVERING RESULTS: DIVERSITY

20.1%

Women in management roles across the Group increases to 20.1% in 2021 (2020: 18.2%).

New Chair appointed

In February 2022, I assumed the role of HSEC Committee Chair, with Fiona MacAulay moving to become the Senior Independent Director. In this section, we look back at progress made in a number of sustainability topics, with further details available in our Responsible Business Reports, which are available on the Group's website (www.ferrexpo.com).

Prioritising safety and wellbeing

Safety and wellbeing have never been more prominent in our activities than during Russia's invasion of Ukraine in early 2022. Further details of our humanitarian efforts are provided in our community support section on page 42, with US$12.5 million of

![img-5.jpeg](img-5.jpeg)

approved funding for the Group's Humanitarian Fund¹.

Looking back at 2021, we can report a fatality-free year, alongside the Group's lowest recorded full-year lost time injury frequency rate ("LTIFR") since its listing in 2007. Our safety performance in 2021 was once again materially below our five-year trailing average for LTIFR, and also continues below the same metric as recorded by Ferrexpo's Iron ore producing peers in Western Australia², with further details provided on page 32.

1. As at 21 April 2022.
2. Source: Government of Western Australia (G3) Accessed April 2022.

Workforce wellbeing is a key area of focus to ensure that people are well looked after during the conflict, including the free provision of psychological support and on-site childcare facilities. In external recognition of our efforts in 2021, we were pleased to be recognised as one of the top four companies in Ukraine for family-friendly policies in a country-wide survey sponsored by the United Nations Population Fund. Further details are provided on page 41.

Addressing climate change

On carbon emissions, we are continuing to deliver reductions, with a 16% reduction in combined Scope 1 and 2 carbon emissions per tonne for a second successive year, with this decrease in 2021 driven by our clean

30

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## HSEC Committee Chair’s Review
power purchasing strategy, which helped to of women in management roles advancing
reduce Scope 2 emissions by 40% in 2021 to 20.1% in 2021 (2020: 18.2%).
on a per tonne basis. We did, however,
record an 11% increase in Scope 1 Strong links to local communities
emissions per tonne, which was driven by
Since the development of Horishni Plavni in
increased mining activity as we ramp up our
the 1960s for the original construction of the
Wave 1 Expansion activities, and reduced
iron ore mining and processing operations,
sunflower husk consumption in our
there has been a close association between
pelletiser as we trial the production of our
the mine and the town. In 2022, we are set
latest product, direct reduction pellets. This
to celebrate 15 years since Ferrexpo’s listing
emphasises the need for us to advance our
and we are proud of the support that we
plans to electrify our mining activities – see
have been able to provide during this time.
page 29 on this work stream – and the
In March 2021, the Ferrexpo Charity Fund
importance of biofuels today, which will
celebrated its tenth year, during which time
facilitate the transition away from natural
the Group has directly assisted over 90
gas in thefuture.

|  | schools and other educational facilities, | CA SE STU DY: |
| --- | --- | --- |
| Through the result presented here for 2021, | over 30 hospitals and related facilities, and |  |
| we have nominally achieved a 30% | direct aid to over 4,000 individuals requiring |  |

### SUPPORTING LIFE ON AND

| reduction in carbon emissions against our | assistance, such as regular support |  |
| --- | --- | --- |
| baseline year, which was the medium-term | packages or expensive medical operations. | IN THE DNIEPER RIVER |
| target set by the Group in 2021. This 30% | See pages 42 to 43 for more on our work |  |

Ferrexpo and the Group’s local communities
target is the benchmark level set in the with local communities.
are fortunate to be situated close to one of
mining industry, and by achieving this goal,
Europe’s great rivers, the Dnieper River,
we can demonstrate where Ferrexpo is Sustainable environments
which flows through Ukraine to the Black
relative to its peer group in reducing
At Ferrexpo, we understand the need for Sea and is more than two kilometres wide
emissions. From here, we intend to continue
sustainable working practices. The Dnieper as it passes Ferrexpo’s operations.
to reduce our emissions, and through
River runs close to our operations, and we
ourongoing work with environmental Whilst the Group does not operate in a
have a number of projects to promote both
consultants Ricardo plc (“Ricardo”), we region considered to be high risk for water
biodiversity in the river and local community
planto establish a bespoke pathway for stress (in accordance with the Water
use on the river (see Case Study opposite).
Ferrexpo’s net-zero ambitions. The Group’s Resources Institute), the Group aims to
Furthermore, in 2021, we undertook a new
long-term emissions reduction target reduce its water consumption regardless,
phase of biodiversity mapping – looking at
remains to be carbon neutral by 2050, and and the Group is pleased to report a third
the species of plants, fungi and animals in
we look forward to reporting further on this consecutive year of materially lower water
our local ecosystems, and we expect to
when our work with Ricardo concludes later withdrawal from the local water supply
compile our first biodiversity monograph
this year; further details of this project are network. Furthermore, the Group’s
in2022 following this project’s work.

| provided on page 37. Further to our work |  | processing plant regularly recycles 98% |
| --- | --- | --- |
| with Ricardo, we understand the importance | Sustainability is a broad topic however, | ofwater used in processing operations, |
| of external assurance of sustainability data, | andwe regularly report our performance | minimising the impact of processing on |
| particularly given the prominence of these | across more than 30 standards under | thelocal water system. |
| topics in stakeholder discussions. As a | theframework published by the Global |  |

To promote biodiversity, the Group is
result, we are currently conducting an Reporting Initiative, as part of our
continuing its initiative to reintroduce native
external assurance process with an Responsible Business Reports
fish species to the Dnieper River, with this
independent consultant on our reporting of (availableatwww.ferrexpo.com).
project winning a sustainability award at an
carbon emissions and safety data, with
In conclusion, our efforts to mitigate the award ceremony in Kyiv in December 2021
details of this project provided on page 34.
detrimental humanitarian effects of Russia’s for helping implement the UN’s Sustainable
invasion of Ukraine are ongoing and have Development Goal 14 (Life Below Water).
Promoting diversity and inclusion
highlighted the need for a close and effective Further details of this project are available in
Diversity, equity and inclusion (“DEI”) is an relationship with local communities to quickly the Group’s Responsible Business Report.
area where we have recently increased our deliver relevant support where it is needed.
With a healthy Dnieper River, local
focus. In 2021, we appointed a dedicated Despite the war, we are continuing to work
communities are able to utilise the river for
DEI officer to further our understanding of on our Responsible Business activities,
sport and leisure. The Group is proud to
our own workforce, and we also conducted andIwould like to thank our workforce
support the local sailing club, which had
our inaugural DEI survey. Gender diversity is forembracing the fundamental values of
four Olympians travel to the Tokyo Olympics
a focus of a range of training programmes at sustainability to help deliver this progress.
in the summer of 2021 (with local canoeist
our operations, from attracting women into Ferrexpo has strong credentials in
Liudmyla Luzan, pictured above, winning
atypical roles, to providing management sustainability and we look forward to
two silver medals). The Group also regularly
training to women identified as high updating the market on our progress
sponsors local and national dragon boat
potential future leaders of our business intheyear ahead.
racing competitions on the river in
aspart of our “Fe_munity” women in
Ann-Christin Andersen HorishniPlavni, which is a popular sport
leadership programme. We are proud of the
Chair, HSEC Committee within Ukraine.
progress made to date, with the proportion
### Ferrexpo plc Annual Report & Accounts 2021 31
STRATEGIC REPORT
## Responsible Business
## HEALTH AND SAFETY
## REVIEW
## A successful mining company is one that delivers value
## forall stakeholders in a safe and sustainable manner.
## Following Russia’s invasion of Ukraine in 2022, the Group’s
## primary focus is the safety and wellbeing of its workforce,
## with the following a review of safety in 2021.
In recent years, the Group has seen SAFETY INDICATORS 2020/21
significant progress in safety, with zero
fatalities in 2021 (2020: 1) and a lost time 2021 2020 Change
injury frequency rate – a key benchmark of
Lagging indicators
safety in the mining industry – continuing to
1

| remain below the Group’s trailing five-year | Fatalities |  | 0 1 -100% |
| --- | --- | --- | --- |
| average. The Group also records a range of |  | 1 |  |
|  | Lost time injuries |  | 9 17 -47% |

leading and lagging indicators of safety,
1
LTIFR 0.41 0.79 -48%
aiming to encourage a culture of safety that
2

| requires an employer to identify risks before | TRIFR |  | 0.97 1.25 -22% |  |
| --- | --- | --- | --- | --- |
| safety incidents occur, monitor near miss |  | 2 |  |  |
|  | Near miss events |  |  | 5 7 -29% |

events and analyse incidents when they
2
have occurred, to learn and improve. Significant incidents 12 17 -29%
2
Road traffic accidents 43 31 +39%
Reviewing the safety indicators for 2021
shows an improvement in the majority of 2
Lost work days 497 1,046 -52%
lagging indicators, demonstrating that
2
Leading indicators
progress is being made in instilling a
safety-first culture throughout the Ferrexpo HSE inspections 3,293 3,305 -0.4%
business. Of particular note is the ten-fold
HSE meetings 1,165 1,528 -24%
increase in hazard reporting in 2021, which
HSE inductions 11,602 7,335 +58%
is a reflection of the recent adoption of ISO
45001:2019. A number of leading indicators Training hours 11,786 14,755 -20%
are, however, down against the level set in
Hazard reports 595 51 +1,067%
2020, which is an area to monitor in the year
ahead to ensure that the standards being Management high visibility tours 124 131 -5%
set today are maintained. In recognition of
the recent trend in road traffic incidents, the 1. Group-level indicators.
2. Ferrexpo’s operations in Ukraine only.
Group has commenced a process to test
visitors’ driving safety awareness before
being permitted to drive between areas
ofplant and administrative buildings
(miningareas being already subject
tostrictcontrols).
As part of the Group’s newly announced
‘Vision Zero’ programme to reduce
operational injuries and instances of
occupational disease, the Group has
introduced a range of new measures such
as the installation of a new aspiration
system to reduce particulate emissions
inthe pelletiser in 2021, which will have
benefits for both improving working
conditions as well as the environment.
As part of the Group’s efforts to further
develop its position on sustainability, an
independent assurance process is being
undertaken on the Group’s safety data
(LTIFR and TRIFR) for 2021 by an external
consultant, which is expected to be
completed later in 2022. Details of this Image: Training the next generation of
operators through Ferrexpo’s Dual Education
assurance process are provided in the Case
programme, which has trained 61 students
Study on page 34. since 2019.
### 32 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

![img-6.jpeg](img-6.jpeg)

# **CASE STUDY:**

# **INTERVIEW WITH NATALIA STOROZH, HEAD OF SAFETY AT FPM**

**Q: Health and safety is clearly an important department at Ferrexpo; how many people work in the safety department?**

**A:** In total we have 72 people working in the safety department at Ferrexpo's operations in Ukraine, the equivalent of approximately 1 for every 100 employees across our operations.

**Q: Since starting the role of Head of Safety at FPM in March 2021, what were the main safety projects implemented in 2021?**

**A:** Safety projects often go hand in hand with modernisation of equipment, which comes with additional benefits such as improved productivity. Good examples of projects implemented include the

installation of a stationary jib at the primary crusher, removing the need for operators to enter the crusher hoppers to break oversized ore, and the installation of a fully automated lathe in our workshops, both of which are projects that help to remove operators from hazardous areas. Safety projects range from improving signage – such as clearer demarcation of container storage areas – to the installation of six speed bumps on the main road entering our production facilities.

**Q: Were there any particular departments that required a specific approach for establishing safety protocols?**

**A:** Every area of our operations has a tailored approach to safety. A good example would be our maintenance workshops of the processing plant, where work is carried out at height and where a large number of contractors are involved. Here, we have a strong focus on risk assessments and

safety training, given the higher concentration of contractors, to familiarise those working in maintenance with the identified risks.

**Q: How often does the Safety Committee meet at site?**

**A:** At FPM, Ferrexpo's main operating entity, we have a committee for labour protection, industrial safety and the environment, as well as a council board for labour protection, industrial safety and the environment of the plant. Meetings are held to help draw up measures aimed at improving working conditions, organising the safe performance of work, to eliminate inconsistencies and manage hazards and risks. During 2021, FPM's Safety Committee met four times at site.

**Q: Which safety projects are planned for the coming year?**

**A:** We have a number of projects that we are continuing to roll out from previous years, such as the leg-out lock-out system for isolating machinery during maintenance, as well as safety training programmes specifically for those working at height. In 2021, we obtained certification for our occupational health and safety management system under ISO 45001:2019 and we continue to update practices and introduce standards as part of this project. New projects for 2022 include the installation of additional traffic calming measures and the installation of a training simulator to help train operatives for working at height. Ultimately we are aiming to develop our own safety standard across the Group for operatives working at height.

To help further deliver safety improvements in the year ahead, we have developed the concept of "Vision Zero" to eliminate workplace injuries and occupational diseases, with efforts under way to raise awareness of this programme, such as the installation of 12 large billboards around our operational areas, as well as notices on internal communications channels.

**Lost time injury frequency rate (2021)**

**0.41**

Record-lost full-year lost time injury frequency rate recorded since the Group's IPO in 2007 (2020: 0.79).

Ferrexpo plc Annual Report & Accounts 2021

33
STRATEGIC REPORT

# Responsible Business continued

# CASE STUDY:

# EXTERNAL ASSURANCE – PROVIDING TRUST IN SUSTAINABILITY PROGRESS

Ferrexpo recognises that a company's reporting around climate change is an important pillar on which stakeholders base their trust in a company. In order to build trust in Ferrexpo's performance on climate change reporting, the Group is in the process of undertaking an external assurance process (ISAE 3000) with an independent consultant, with the first year of this project looking at both reporting of data for carbon emissions and safety.

In terms of carbon reporting, the process will provide external assurance on the Group's Scope 1 (direct) and Scope 2 (indirect) emissions, as these are directly associated with the Group's pellet production facilities. Over time, the Group intends to provide assurance on a broader range of topics within sustainability.

The assurance process to date for the Group's carbon footprint has highlighted a number of minor amendments to the Group's calculation of its carbon footprint, amounting to an overall decrease in the Group's carbon footprint of 1% in absolute terms for 2020 and a 2% reduction on a unit basis for 2020. The full list of amendments raised through this process will be provided on the Group's website once this assurance process is completed, including the following amendments for the Group's 2020 data:

- Removal of steam from Scope 2 calculation, as this is generated from purchased natural gas and therefore previously double counted. (Net impact on 2020 data: -24kt CO₂e.)
- Increase carbon factor for nuclear power purchases from 5g to 12g per kilowatt-hour, aligning with World Nuclear Association' data. (Net impact on 2020 data: +2kt CO₂e.)
- Correction of factor for sunflower husks from 0.73kg/t to 0.073kg/t, bringing into line with other biofuels. (Net impact on 2021 data: -113kt CO₂e.)
- Inclusion of the Group's commercial concentrate sales of 183kt in calculating per tonne emissions.

![img-7.jpeg](img-7.jpeg)

1. www.wyid-nuclear.org/information-4everyenergy-what-the-environment-towborn-double-removal-in-in-terminals-by-seps

34 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## ENVIRONMENTAL REVIEW
## Ferrexpo works closely with the natural
## environment, to minimise any impact and strive to
## improve as new technology becomes available.

| The Group’s interaction with the | and tailings facility acts as a closed loop, | the river’s natural ecosystem. The Group is |
| --- | --- | --- |
| environment is encapsulated not just | with water used to pump waste material to | working with the Poltava Fish Conservation |
| through carbon emissions, but also through | the tailings facility reclaimed and pumped | Patrol on this multi-year project, with the |
| other forms of emissions, energy use, water | back to the processing plant, resulting in | second phase of this project introducing |
| withdrawal and recycling, waste generation | 98% of process water being recycled by the | two tonnes of local species (carp) into the |
| and biodiversity. These topics are covered | Group’s processing plant. The remaining | river in November 2021. |
| in detail in the Group’s Responsible | 2% of water is lost through processes such |  |
| Business Reports, which are published | as evaporation when green pellets are | Responsible waste management |
| annually and available on the Group’s | heated in the pelletiser or surface |  |

The Group primarily produces waste
website (www.ferrexpo.com). evaporation at the tailings facility.
through overburden removal in mining
operations, and waste separated from iron
Delivering progress on carbon Supporting local biodiversity
ores during processing. In 2021, the Group’s

| In 2021, the Group not only announced | A key natural habitat located close to the | three mines stripped a combined 118 million |
| --- | --- | --- |
| decarbonisation targets to frame its | Group’s operations in Ukraine is the Dnieper | tonnes of waste rock and sand (2020: 95 |
| net-zero ambitions, but also engaged with | River, one of Europe’s largest rivers. As a | million tonnes), with this material stored |
| environmental consultants Ricardo plc | consequence of domestic detergent use | locally in waste facilities designed by the |

1

| (“Ricardo”) to further develop the Group’s | and fertiliser use in agriculture | , this river | Group’s mining engineers and reviewed by |
| --- | --- | --- | --- |
| understanding and reporting around climate | faces frequent blooms of blue-green algae |  | local authorities. Waste mining activities |
| change. Further details of the Group’s | in the summer months, which are harmful to |  | increased in 2021, ahead of the Group’s |
| engagement with Ricardo are provided in | the river’s ecosystem, as well as limiting |  | Wave 1 Expansion, with details of this |
| the Case Study on page 37. | local communities from using the river for |  | project provided on page 28. Waste material |
|  | recreation. Through an initiative launched in |  | from processing, referred to as tailings, |

The Group continues to make progress in
2020, which was proposed internally by an increased by 6% to approximately 16 million
cutting its carbon footprint, delivering a
employee, the Group is aiming to improve tonnes, with approximately 40% of this
16% reduction in its Scope 1 and Scope 2

|  |  | local conditions in the Dnieper River through | waste subsequently recycled by the Group |
| --- | --- | --- | --- |
| carbon emissions (CO | 2 e) per tonne in 2021. |  |  |
|  |  | the introduction of native species of fish that | as other materials such as gravel for |

Details of this progress, as well as the
live off these algae and will help to balance roadconstruction.
Group’s reporting under the TCFD, are
provided on page 38.
Image: Ferrexpo supports biodiversity
Cutting water consumption tohelplocal communities to enjoy the
river,withevents such as dragon boat
The Group typically interacts with water in racingcompetitions.
two areas of its operations: (1) in mining,
water ingress into the Group’s open pits
(groundwater and precipitation) is pumped
out of mining areas and back into the
natural environment (“dewatering”), and (2)
in processing, water that is used to facilitate
the processing of iron ore. Dewatering
represented 95% of the Group’s total water
withdrawal in 2021, and the Group’s
activities in mining areas do not
predominantly utilise this water (aside from
dust suppression activities, which utilises
the equivalent of 4% of dewatering
volumes). Ferrexpo, however, maintains
regular inspections of the quality of this
water, monitoring 13 chemical elements at
each operation and other attributes, to
maintain standards, to ensure compliance
with local laws and to ensure a minimal
impact on the environment that this water
isreturned to. With water that is used in
processing, the Group’s processing plant
1. Source: NASA (link).
### Ferrexpo plc Annual Report & Accounts 2021 35
STRATEGIC REPORT
## Responsible Business continued
## CLIMATE CHANGE
Scope 1 and Scope 2 emissions The Group calculates its carbon footprint related to the Group’s increasing production
via the application of carbon factors of direct reduction pellets.
The Group’s Scope 1 (direct) and Scope 2
supplied by the Greenhouse Gas Protocol
(indirect) emissions relate to the Group’s
(https://ghgprotocol.org/), in line with Cutting carbon: targets
controlled activities to produce and
guidance provided by the Global Reporting
transport products to customers, and are The Group understands the importance of
Initiative, which is the framework that the
shown in the table below. The Group has climate change, and for stakeholders to
Group uses to publish its annual
made significant progress in its efforts understand a company’s long-term
Responsible Business Reports. The carbon
relating to climate change in 2021, with a ambitions in respect of climate change. In
factors supplied by this initiative are
combined 16% reduction in Scope 1 and 2 recognition of this, the Group announced its
combined with consumption data for the
1 inaugural carbon reduction targets for
carbon emissions in 2021.
Group’s activities at its mining, processing
Scope 1 and Scope 2 emissions in October
The Group has therefore reduced its and logistics subsidiaries, including the
2021, primarily designed to show a clear
1 Group’s consumption of diesel, natural gas,
emissions by 30% in the space of two
ambition of achieving net zero carbon
years, and whilst this meets the Group’s gasoil and electricity, which collectively
emissions by 2050 and to align the Group
medium-term target of reducing emissions accounted for 98% of the Group’s Scope 1
with its peer group in terms of the trajectory
1 and 2 emissions in 2021 (2020: 98%). Using
by 30% by 2030 , Ferrexpo understands
to achieve this net zero goal, through a 30%
that progress in sustainability is only the factors provided by the Greenhouse Gas
reduction in carbon emissions by 2030 on a
achieved through improvements that are Protocol, the Group is able to incorporate a
per tonne basis. Through announcing
maintained over a period of time. The Group range of greenhouse gases into its
inaugural targets, the Group is aligned with
therefore commits to continuing to sustain calculation to generate a carbon-equivalent
its peer group, but the Group also
this level of reduction, and will look to figure. Gases included in this calculation are
understands the importance of setting goals
publish more on its decarbonisation as follows: carbon dioxide, methane and
that are specific to a company’s operations;
pathway once its work with Ricardo is nitrous oxide.
for more on this work stream, please see the
completed – with this project designed to
Case Study on Ricardo opposite.
outline a bespoke, emissions reduction Scope 3 emissions
journey for the Group. See Case Study
The Group’s Scope 3 (value chain) The capital investment required to
opposite for more information on this
emissions relate to the upstream and decarbonise the Group’s activities is a key
workstream.
downstream emissions related to the aspect of the Group’s ongoing collaboration
1 Group’s activities, and over 90% of which with Ricardo, and the results of this work
The reduction in carbon emissions in 2021

| has primarily been achieved through the |  |  | are related to the conversion of iron ore to |  | stream are expected to be published later |
| --- | --- | --- | --- | --- | --- |
| Group’s targeted power purchasing |  |  | steel. The Group’s understanding of its |  | in2022. |
| programme, driving the improvement in |  |  | Scope 3 emissions continues to develop |  |  |
| Scope 2 emissions, which has delivered a |  |  | through the Group’s ongoing engagement |  | The Group is also developing its |
|  | 1 |  | with Ricardo. Furthermore, following the |  | understanding of Scope 3 emissions and as |
| 40% reduction in this category | . Conversely, |  |  |  |  |
| with increased mining volumes and reduced |  |  | Group’s increased focus on direct reduction |  | outlined in the Case Study on page 10, the |
| biofuel consumption in 2021, Scope 1 |  |  | pellets, the Group has engaged |  | Group can reduce its Scope 3 emissions |
|  |  | 1 | independent consultants CRU to provide an |  | through the gradual increase in output of its |
| emissions per tonne rose by 11% |  | . The |  |  |  |
| Group intends to continue to improve |  |  | emissions factor specific to this pellet type, |  | higher grade direct reduction pellets. Since |
| efficiencies in the consumption of diesel |  |  | with this work summarised in the Case |  | direct reduction pellets are processed by |
| and natural gas, as well as increase biofuel |  |  | Study on page 10. As a result of this work, |  | steelmakers using a combination of natural |
| consumption, along with the various |  |  | the Group can disclose that its Scope 3 |  | gas and electricity to produce steel, these |
| decarbonisation projects outlined in the |  |  | emissions footprint was 1.28tCO | 2 /t in 2021 | pellets have a 49% lower carbon footprint |

2
Case Study onpage29. (2020 : 1.29tCO 2 /t), with this 1% reduction than the Group’s blast furnace pellets. The
Group intends to develop its forward
2021 2020 3 Change thinking around reducing Scope 3 emissions
as the Group’s understanding of producing
Emissions (CO 2 e, kilotonnes)
this pellet type increases over time.
– Scope 1 649 580 +12%
Improving energy efficiency
– Scope 2 404 675 -40%
The Group understands the importance of
– Combined 1,053 1,255 -16%
reducing its energy consumption over time,
Footprint (CO 2 e kg/t) and is implementing a series of energy
– Scope 1 57 51 +11% efficiency projects across its operations.
The Group’s energy consumption mirrors
– Scope 2 35 59 -40%
the Group’s carbon emissions, with natural
– Combined 92 110 -16% gas, electricity and diesel the key drivers for
energy consumption. As a result of a 21%
Biofuels (tonnes CO 2 ) 10 13 -24%
increase in mining activities and a 5%
3
Energy consumption (kWh) 5,489,232,550 5,142,974,253 +7% increase in ore tonnes processed, total
energy consumption increased by 7%
1. Scope 1 and 2 emissions on a per tonne basis, carbon dioxide equivalent basis.
in2021, as shown in the table opposite.
2. Adjusted versus 2020 Annual Report as a result of the review by Ricardo, see page 37 for more details.
3. Adjusted versus 2020 Annual Report as a result of the ongoing external assurance process, see page 34 for more details.
### 36 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Image: Since 2015 Ferrexpo hastaken
advantage of Ukraine’s sizeable sunflower
oilindustry tousesunflower husks as
abiofuel in the Group’s pelletiser.

| CA SE STU DY: | – Module 1: Government legislation – |  | – Module 4: Life cycle analysis. Looking |  |
| --- | --- | --- | --- | --- |
|  |  | risks and opportunities. Looking |  | at Ferrexpo’s role in the circular |
|  |  | primarily at the jurisdictions into which |  | economy, this module aims to outline |

### RICARDO: A NEW PHASE
Ferrexpo sells its pellets, this module how pellets have a lower environmental
focuses on the changing regulatory impact beyond Ferrexpo’s own
### OFCLIMATE CHANGE
framework. Through this work stream operations than other forms of iron ore.
### REPORTING FOR FERREXPO
theGroup intends to gain a better For example, Ferrexpo’s higher grade
understanding of the likely decarbonisation iron ore pellets are typically used to
In October 2021, alongside inaugural
pathways ahead in each of the jurisdictions make higher grade forms of steel, which
decarbonisation targets, Ferrexpo
into which the Group sells its products. in turn are more likely to be recycled,
announced its collaboration with Ricardo
– Module 2: TCFD reporting. The group lowering the environmental footprint of
plc (“Ricardo”) to produce the next phase
has disclosed under TCFD since 2019 this type ofsteel.
ofclimate change reporting for the Group.
Through working with Ricardo, Ferrexpo and with the help of Ricardo the Group
Through a clear understanding of Ferrexpo’s
aims to further develop its forward-looking will present more detailed climate
future pathway, the Group expects to be
understanding around climate change, change scenario analysis. This will
able to present a further level of detail on
todevelop a bespoke understanding of the provide more in-depth insight to
climate change than has been previously
Group’s pathway tonet-zero emissions and understand the risks and opportunities
published by the Group. It is expected that
a clear picture onthe role of iron ore pellets for the group and inform future strategy.
the Group will be in a position to present the

| in the decarbonisation of the global steel | – Module 3: Pathway to net-zero carbon |  | results of its collaboration with Ricardo in its |
| --- | --- | --- | --- |
| industry. This project is specifically looking |  | emissions. The Group has established | next Responsible Business Report, to be |
| at the modules shown opposite. |  | anet-zero ambition with its inaugural | published later in 2022. |

targets announced in October 2021,
andwith thehelp of Ricardo, the Group
hopes toadvance this process and
identify abespoke pathway for the
Group’s emissions.
### Ferrexpo plc Annual Report & Accounts 2021 37
STRATEGIC REPORT
## Responsible Business continued
## TCFD REPORTING
## The Group is proud to support the Task Force on
## Climate-Related Financial Disclosures (“TCFD”), which
## is designed to help companies provide clear reporting
## for stakeholders on climate change.

| Topics reported by the Group in accordance | The Group is currently conducting a | Scope 1 emissions in 2021 (2020: 40%), and |
| --- | --- | --- |
| with TCFD are provided in the table | process with environmental consultants | an overview of these projects is provided on |
| opposite. | Ricardo that is reviewing three different | page 29 of this report. |

climate change scenarios and the Group will
Ferrexpo understands that climate change The Group has been utilising biofuels
publish the results of this climate change
presents the Group with a range of risks and (sunflower husks) as a partial substitute for
modelling following the conclusion of this
opportunities, and these are presented in natural gas consumption in its pelletiser
process later in 2022.
detail in the Group’s Responsible Business since 2015, with this activity having the
Report for 2020 (pages 48 to 52). benefit of reducing the Group’s Scope 1
Climate change risks

| Inaddition, Principal Risks relating to |  | emissions as well as reducing the Group’s |
| --- | --- | --- |
| climate change are outlined on page 71 | In respect of climate change, the Group | exposure to the availability and pricing of |
| ofthis report. | considers this to be a Principal Risk, and | natural gas. In 2021, the Group substituted |
|  | details of this are provided on page 71 of | 18% of the pelletiser’s energy requirements |

In respect of climate change scenario
this report. The Group also considers that with sunflower husks (2020: 25%), with this
planning, the Group is working with Ricardo
climate change poses opportunities to the level of consumption expected to increase
to conduct a detailed modelling exercise
Group as well as risks, since the Group in future years as the Group’s understanding
ofa range of climate change scenarios –
produces a form of iron ore that is known of producing direct reduction pellets
further details of this work stream are
toreduce emissions for steelmakers when increases.
provided in the Case Study on page 37.
used instead of more commonly traded
Ahead of the conclusion of this process with In 2020, the Group commenced a clean
forms of iron ore. A full breakdown of the
Ricardo, theGroup has completed a power purchasing programme, aimed at
Group’s approach to climate change risks
qualitative review of two potential climate utilising new legislation in Ukraine that
and opportunities is presented on pages 48
scenarios, which are as follows: enabled the purchase of electricity from
to 52 of the Group’s Responsible Business
selected producers. As a result of this
o
– 2 C scenario (Paris Agreement), with Report for 2020, which is available on the
programme, the Group reduced its Scope 2
anassociated increase in government Group’s website (www.ferrexpo.com).
emissions footprint on a per tonne basis by
regulation compared to today. Under
Climate change represents both a material 40% in 2021 (see page 36 for more details).
thisscenario, the Group expects carbon
risk and opportunity to the Group in how it
pricing in Ukraine to increase to align
is shaping the global steel industry, as Compliance Statement (FCA’s
with pricing envisaged under the Paris
described in the Market Review section Listing Rule 9.8.6(8)R)
Agreement (US$50-100/t). Based on the
(Green Steel) on page 15. In response to this
Group’s Scope 1 and 2 emissions, this In line with the current UK listing Rules
global trend towards lower emissions
would equate to an additional C1 cash requirements, we have included climate
steelmaking, the Group has commenced
A
cost of production of between US$5 related financial disclosures consistent with
production of higher grade (67% Fe) direct
and US$9 per tonne directly relating to the four TCFD pillars and 11 recommended
reduction iron ore pellets, which are used in
carbon costs. Inaddition, the Group disclosures. The table opposite provides a
lower carbon forms of steelmaking – see the
expects that the cost of electricity in summary of the Group’s climate-related
Case Study on page 10 of this report for
Ukraine will increase during the transition financial disclosures, with these disclosures
more information. The transition to
to renewables. intended to be in accordance with the
producing direct reduction pellets will be
o recommendations by the TCFD. The
– +3 C scenario, whereby a lack of
led by market factors as the Group’s
legislative action results in increased location of further information regarding the
customers pivot to production processes
physical effects of climate change, such Group’s climate change disclosures is
that will require the use of this pellet type.
as increased water stress, as forecast by presented in the table opposite as well as in
Inorder to produce greater volumes of
US Aid’s projections for Eastern Europe, the Group’s Responsible Business Reports,
direct reduction pellets, the Group is
which envisages prolonged periods which are available at the Group’s website
investing in its operations to increase
ofdrought. The Group uses water (www.ferrexpo.com).
capacity and operational flexibility, as
throughout its operations, in theform of
described in the Growth Plans section Throughout the year, Ferrexpo has made a
dust suppression in mining operations
ofthis report (page 28). number of steps to progress its reporting
and in the wet processing ofores to
ofclimate change topics in order to fully
separate contained iron from waste The Group is investing in reducing its
comply with TCFD recommended
material. Any restriction on water use greenhouse gas emissions throughout its
disclosures. Where full compliance is yet
would potentially require additional business. The Group is undertaking a range
possible, disclosure is included as to the
capital investment to adjust existing of projects to decarbonise its mining
various work streams that are underway
mining practices and reconfigure the operations, with diesel consumption from
tofacilitate full compliance.
Group’s oreprocessing flow sheet. mining representing 40% of the Group’s
### 38 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Summary disclosure against TCFD recommendations
Strategy
Climate-related risks Climate change is considered to be a Principal Risk to the Group, and this risk is detailed on page 71 of this
andopportunities over the report, alongside risk mitigation actions. The risks and opportunities relating to climate change and their
short, medium and long term effect on the Group’s operations are outlined in detail in the Group’s Responsible Business Report, which
isavailable on the Group’s website. These include transition risks and physical risks associated with the
transition to a lower carbon economy. The time horizon for these risks and opportunities to emerge are
alsodescribed being short-term (less than 2 years), medium-term or long-term (greater than 10 years).
TheGroup’s Risk Management Process is outlined on page 54 of this report.
Impact on the Ferrexpo The Group has incorporated climate change into its strategic planning and is currently pivoting its production
business, strategy and base towards direct reduction pellets as a consequence of this process, as discussed on page 10 (Case
financial planning Study: The Importance of Iron Ore Pellets) and page 15 (Market Review, Future Trends: Green Steel). The
Group has incorporated climate change into its financial modelling through the establishment of an internal
cost of carbon, which has been used when evaluating capital investment projects during the year. Please see
the Corporate Governance Report (page 88) and Principal Risks Section (pages 56 to 72) for more
information on the Group’s approach to evaluating the impact of climate change on its business.
Resilience based on The Group is conducting a detailed climate change modelling exercise with environmental consultants
climatechange scenarios Ricardo, which is a process that is expected to complete later in 2022. The Group has conducted scenario
analysis as presented in this report based on two climate change scenarios – see page 38 for more details.
Governance
The Board’s role in The Board of Directors has ultimate oversight of the Group’s strategy, including its approach to the effect
oversight of climate-related ofclimate change on the Group’s business model. Climate change was a standing agenda item at all five
risks and opportunities 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 change are on page 88.
TheHSEC Committee has been delegated management of climate change risk, 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 Chair of
theHSEC Committee, which met four times during the year and climate change has been a standing agenda
item at all scheduled HSEC Committee meetings throughout the year.
Management’s role The Board is accountable for the long-term stewardship of the group. The Board has delegated oversight of
inassessing risks climate change related activities to the HSEC Committee. The Group’s executive management team monitors
andopportunities and assesses climate-related risks through its risk monitoring activities as part of the Group’s Finance, Risk
Management and Compliance Committee, which typically meets ten times a year. 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 54 to 55 of this report.
Risk management
Processes for identifying, The Group regularly assesses risks applicable to the Group through its Finance, Risk Management and
assessing and managing Compliance Committee, which assesses risks based on the probability of occurrence and severity of impact
climate-relatedrisks 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 56 to 72, with climate change
identified as a Principal Risk and detailed on page 71 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.
How Ferrexpo integrates Ferrexpo’s governance relating to climate change risks has been designed to ensure that the management of
these risks into the Group’s the financial risks from climate change are integrated across the whole governance system and embedded
overall risk management into the existing risk management framework. The Group’s approach to assessing and managing risk,
including climate-related risks, is described on page 54.
Metrics and targets
Metrics used to assess Ferrexpo’s approach to managing its performance with respect to climate change is to fully integrate climate
climate-related risks and change into the Group’s overarching strategy to grow production of direct reduction pellets, which have a
opportunities lower Scope 3 footprint for the Group, as well as decarbonise the key elements of the Group’s production
process, with consumption of diesel, electricity and natural gas collectively accounting for 90% of the
Group’s Scope 1 and 2 emissions. Details of projects to reduce consumption of each of these consumables
are provided on pages 29 and 38.
Greenhouse gas emissions Details of the Group’s Scope 1, 2 and 3 emissions are provided on page 36 of this report.
Targets Details of the Group’s targets for reducing Scope 1 and 2 emissions are provided on page 36 of this report.
Approximately 90% of the Group’s Scope 3 emissions relate to the conversion of the Group’s products to
steel, with the emissions from this process primarily governed by the type of iron ore pellet that the Group
produced – see the Case Study on page 10 for more information. The Group will be in a position to establish
Scope 3 emissions targets once its technical understanding of producing direct reduction pellets has been
further established.
### Ferrexpo plc Annual Report & Accounts 2021 39
STRATEGIC REPORT
## Responsible Business continued
## WORKFORCE DEVELOPMENT
## AND INCLUSION
## Ferrexpo’s workforce comprises over 10,000
## employees and contractors, making it one of the
## largest employers in the region.

| Image: Ferrexpo strives to | A new programme to promote inclusivity |
| --- | --- |
| promote female participation in | amongst different age groups was launched |
| atypical roles. Pictured here | in May 2021 with the Group’s “STEM |

iswelder Oksana Kisilyova, who
Streamers” programme, which attracted
works atFerrexpo Poltava Mining.
90local students aged 14-18 from local
schools. Children were invited to participate
in a one-day workshop event consisting of
interactive talks and activities to promote
inclusivity, gender equality, and tackling
stereotypes within society. Other events
inthe same month included Ferrexpo
representatives participating in a panel
discussion on diversity and inclusion at the
People Management Conference, held in
Kyiv in May 2021, as well as events held at
schools in Ferrexpo’s local communities.
It is a legal requirement in Ukraine for
companies of Ferrexpo’s size to ensure
that4% of their workforces in Ukraine are
registered as disabled, with this regulation
deliberately designed to aid those with
disabilities. Ferrexpo is proud to adhere
tothis legislation, with 4.4% of employees
Through the Group’s employee engagement pandemic in 2021. Ferrexpo understands
inUkraine having a registered disability
initiatives, and through providing training that as a responsible employer, the Group’s
in2021 (2020: 4.3%).
and development, the Group aims to foster interaction with its workforce goes beyond
a positive and inclusive culture within basic safety, and through this approach, the
Local recruitment for sustainable
itsorganisation. Group intends to foster aconstructive and
communities
positive working environment.
Training and development Ferrexpo benefits from having a location
A positive culture is achieved through
close to well-established communities, with
With an employee workforce of over 5,000 projects such as the Employee Wellbeing
strong educational facilities for providing
men and over 2,000 women, the Group is a Programme, which provides training on soft
high calibre individuals to work at its
substantial employer in central Ukraine, with skills such as courses to help people identify
operations. In 2021, the Group was able
the Group accounting for 4% of Ukraine’s the signs of burnout as well as training in
tosource 96% of new recruits from local
export revenues in 2021 (2020: 3%). The financial literacy, to provide people with the
communities (2020: 85%). In management
Group has a long-held belief that it can only tools required for managing the stresses of
roles, the same trend is also evident, with
deliver strong financial results through a modern life, which have been magnified by
84% of newly recruited managers coming
close relationship with its workforce, which the global pandemic. As an example of the
from local communities (2020: 60%).

| can only be fostered through a strong | work carried out in this area, the Group has |  |
| --- | --- | --- |
| programme for workforce development. | recently worked to instil a culture at its | The Group regularly recruits apprentices |
| During the year, the Group held 6,442 | operations of not contacting colleagues for | and provides bursaries to students to plan |
| training courses for employees (2020: | work reasons after hours or at weekends, to | for the future, with a total of 98 sponsored |
| 6,863), with a further 931 training courses | establish astrong work-life balance for the | learners in 2021 (2020: 135). Through the |
| provided to contractors (2020: 490). The | Group’sworkforce in Ukraine. | “Dual Education” programme, the Group |
| focus of this training remains primarily |  | offers opportunities to students wishing to |
| safety and skills training, with 99% of | Diversity, equity and inclusion | learn practical, on-the-job skills, whilst |
| Ferrexpo’s employees having an annual |  | continuing their educational studies. This |

The development of the initiatives outlined
training and development review in 2021 programme alone has helped 62 local
here has been the product of the Group
(2020: 86%). students begin their careers with Ferrexpo
appointing a Diversity, Equity and Inclusion
since 2019.
(“DEI”) Officer in 2021, and the Group’s
Employee wellbeing
inaugural DEI survey, gathering responses

| Over the course of the past year the Group |  | from over 600 employees to help establish |
| --- | --- | --- |
| has increased its focus on the health and |  | a360-degree DEI strategy and promote |
| wellbeing of its workforce with the |  | equal opportunities for all employees |
| continuation of the global Covid-19 |  | goingforward. |
| 40 | Ferrexpo plc Annual Report & Accounts 2021 |  |

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Image: Ferrexpo representatives collect
the award for Diversity and Inclusion at the
HR Pro Awards in Kyiv (November 2021).
CA SE STU DY: “Fe_munity” women in leadership External recognition in 2021
programme
Further to the gains being witnessed
Started in 2020, the “Fe_munity” internally within Ferrexpo’s workforce,
### PROMOTING DIVERSITY
programme is a series of training modules theGroup has received external recognition
### THROUGH LEADERSHIP for high performing female employees within for its efforts in promoting diversity and
Ferrexpo to receive training on a range of inclusion within its workforce. In November
Given Ferrexpo’s heritage and location in
topics, from business topics such as 2021, the Group won the award for Diversity
Ukraine, the Group is able to call upon a
leadership and negotiation, to soft skills for and Inclusion at the HR Pro Awards in Kyiv
highly skilled female population for roles
developing business networks. The goal (see picture above), which is an award
throughout its business. As of 31 December
ofthis programme is to help identify and ceremony that promotes the achievements
2021, three of the Group’s eight directors
fasttrack the careers of high potential ofthe companies that are contributing to
were female (37%), and the Group’s
individuals, tohelp improve gender diversity raising the level of professional practices in
Executive Committee (“Exco”) consists of
throughout the management structure of the Ukraine. In the diversity category, Ferrexpo
five males. Of the 43 individuals reporting to
Ferrexpobusiness. received recognition of its diversity efforts
the Exco, the number of females in this group
from a panel of 30 leading representatives
rose to nine in 2021 (representing 20.9%) Launched in 2020 with an intake of 72
of the human resources community in
from seven in 2020 (representing 17.9%). women, the Group welcomed its second
Ukraine from across 15 industries.
intake of 86 participants in 2021, with

| Workforce diversity | Non-executive Directors Ann-Christin | In addition, the Group was recognised |
| --- | --- | --- |
|  | Andersen and Fiona MacAulay hosting the | in2021 by a study initiated by the United |
|  | opening session in HorishniPlavni in | Nations Population Fund, which surveyed |

## %
September 2021. 50 companies across 16 sectors within
## 29.2
Ukraine. Reviewing family-friendly policies,
Gender diversity in Ferrexpo’s employee The Group is already seeing the benefits
such as the Group’s approach to offering
workforce in 2021 (2020: 29.2%). ofthis programme, with women in
parental benefits equally between men
management roles across the Ferrexpo
andwomen, this study placed Ferrexpo
Diversity in management roles Group increasing by 11% in 2021, rising
inthe top four for family-friendly companies
torepresent 20.1% of the Group’s total
in Ukraine.
management roles (2020: 18.2%), which
## %
underscores the role of dedicated diversity
## 20.1
projects such as Fe_munity.
Women account for 20.1% of Ferrexpo’s
management roles in 2021 (2020: 18.2%).
### Ferrexpo plc Annual Report & Accounts 2021 41
STRATEGIC REPORT
## Responsible Business continued
## COMMUNITY SUPPORT
## ANDENGAGEMENT
## Russia’s invasion of Ukraine in 2022 has
## emphasised the importance of working
## withlocalcommunities, to help communities
## duringthis humanitarian crisis.
Russia-Ukraine war (2022) Response Fund, which primarily focused on
meeting the needs of local hospitals with
Following Russia’s invasion of Ukraine in
equipment for the treatment of conditions
February 2022, the Group has moved to
that are more prevalent as a consequence
support both its local communities and
of Covid-19 infections, such as respirators
communities across Ukraine, through a
and x-ray equipment for diagnosing
dedicated Humanitarian Fund with an
respiratory conditions, as well as continuing
approved US$12.5 million of funding.
the supply of personal protective equipment
Through this fund, the Group is able to
for hospital workers.
coordinate its response to the humanitarian
needs of Ukraine both quickly and As part of its community engagement
effectively. Numerous projects have been strategy, Ferrexpo aims to support
approved through this fund, with details Ukrainian cultural events, to preserve
available on the Group’s website (www. Ukrainian culture in local communities as
ferrexpo.com/responsibility/humanitarian- well as to promote Ukrainian culture
projects) and recent press releases. overseas. Locally, the Group continues to
assist the Palace of Culture in Horishni
Community support in 2021 Plavni, which is a significant resource in
recording local history and culture in
In March 2021, the Ferrexpo Charity Fund,
Ferrexpo’s local communities. The Group
through which the Group conducts its
also sponsored the exhibition of art by local
engagement activities in its local
artist Ivan Dryapachenko, along with the
communities surrounding its operations,
installation of a statue in commemoration of
celebrated its tenth anniversary. The Group
the artist in his home village of Vasylivka. In
aims to support local schools, hospitals,
September 2021, Ferrexpo had the honour
cultural centres and other public
of being able to sponsor the Ukrainian Ballet
institutions, as well as providing direct
Gala in its performance of “Innovation” at
support to individuals in the form of care
the Sadleres Wells Theatre, London, which
packages for the vulnerable and funding for
was an event attended by over 1,400
medical procedures that are not available in
people, including the Ukrainian Ambassador
local facilities. The Group also sees sports
to the UK and guests invited through the
and recreation as a key aspect of both its
Ukrainian Embassy in London. Ferrexpo
community engagement activities as well as
also sponsored the Ukrainian Investment
employee wellbeing initiatives. As a result,
Roadshow in London in December 2021,
the Group has a strong focus on supporting
anevent aimed at highlighting Ukraine’s
local teams and local sports facilities,
investment potential. In December 2021,
helping to facilitate local sporting events th
Ferrexpo celebrated the 50 anniversary of
and sponsoring local sports men and
the twinning of the Japanese city of Kyoto
women to compete at national and
and Kyiv with a tree-planting ceremony
international competitions – see the Case
inKyoto.
Study opposite for more information on this

| area of engagement. The Group is proud of | Additional local community support projects |
| --- | --- |
| the five local athletes that participated in the | completed in 2021 included the purchase |
| Tokyo Olympics in the summer of 2021 – | ofa car for the family doctor covering local |
| quite an achievement for a city of only | communities in the Pryshyb region, the |
| 50,000 people! | supply of medical equipment to the |

outpatient clinic in Pyrogy village,
Funding of community projects increased
sponsorship of local football team
by 63% to UAH153 million in 2021
“Geologiya” and refurbishment work of
(equivalent of US$6 million), reflecting the
community and cultural centres in
strong operating performance of the Group,
NovaGaleschyna.
and therefore the Group’s ability to reach

| abroader range of local stakeholders. In |  | To understand more about Ferrexpo’s |
| --- | --- | --- |
| addition, the Group financed UAH24 million |  | community support work, please see the |
| (equivalent to approximately US$1 million) of |  | Group’s website (www.ferrexpo.com/ |
| expenditures through the Group’s Covid-19 |  | what-we-do/projects-map/). |
| 42 | Ferrexpo plc Annual Report & Accounts 2021 |  |

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CA SE STU DY:
### PROMOTING SPORT FOR THE
### HEALTH AND WELLBEING OF
### LOCAL COMMUNITIES
The Group continued to support a number
of sporting activities in 2021, to promote
healthy and balanced lifestyles amongst
local community members, with well-
documented benefits to both individuals
and communities alike.
Ferrexpo has long supported the local
football club “Girnyk-Sport” in the city of
Horishni Plavni, and, in 2021, the Group was
pleased to help the club in establishing its
first women’s teams within its structure, in
accordance with recent efforts made on a
national level to promote women’s sports
inUkraine, and the club is now recruiting
female players born between 2011 and 2017
for these newly established teams.
Furthermore, Girnyk-Sport has already
established mixed-gender teams that
compete in local and national competitions.
The Group is also proud to sponsor the
local football team “Geologiya Sport Club”,
who were successful in winning a number
ofregional and national competitions in
Ukraine – including the Dnipro Cup, Odessa
Open Cup and Energy Cup championships.
Away from football, the Group promotes
arange of activities in local communities,
including the Group’s support for the local
rowing club, which hosts a number of local
athletes that have represented Ukraine
atOlympic, World and European
championships. The Group is also proud to
help Horishni Plavni host local and national
dragon boat competitions on the River
Dnieper, which is a popular sport in Ukraine.
The Group has long held a close association
with the local summer camp “Horyzont”,
pictured opposite, which hosts local
schoolchildren during the summer months
and aims to promote healthy lifestyles. The
Group provided UAH1 million (approximately
US$35,000) of funding for this project in
2021 and this represents a relationship that
has existed for over ten years.
Ferrexpo also helps support the local chess
club in the local community of Horishni
Plavni, which was recently renovated with
assistance from Ferrexpo.
Image: Children at the local youth Camp
‘Horyzont’, which Ferrexpo has supported
formore than ten years.
### Ferrexpo plc Annual Report & Accounts 2021 43
STRATEGIC REPORT
## Responsible Business continued
## CORPORATE GOVERNANCE
## Ferrexpo understands the importance of good
## corporate governance for transparency and building
## trust with stakeholders. In 2021, the Group has
## continued to strengthen its approach to corporate
## governance throughout its organisation, from its
## Board of Directors to training programmes for
## operators in Ukraine.
Board structure and appointments 33% representation at the senior leadership increase its engagement with a broader
level and those reporting directly into senior range of stakeholder groups, in order
The Board understands the need for a
leaders. As a result of the appointments of tounderstand stakeholder needs and
balanced and effective Board and senior
Ms Andersen and Ms Polischuk in 2021, the communicate effectively on a range of
leadership team, in order to operate a
Group now has 38% female representation topics. The Group intends to further
successful business model. As the Group
on its Board, meeting this requirement. The broaden its engagement with its
develops as a business, and aligns itself
same review also recommends that women stakeholders in the year ahead, working
towards a new phase of growth, changes
are promoted into senior roles such as the with its advisors in London and Kyiv to
have been made within the Board and
Chair, Senior Independent Director and achieve this goal.
senior leadership team to reflect this
Executive Director, and the Group now has
changing environment.
a female in one of these roles. The Group is Related party matters
As of early 2022, the Group appointed Jim also focusing on increasing diversity further
The Group has a controlling shareholder
North as CEO on a permanent basis, down its organisational structure; further
that also has a number of different
reflecting Mr North’s successful period as details of this work can be found on pages
businesses with which the Group has a
Interim CEO, with Mr North already 40 to 41, and in the Corporate Governance
commercial relationship. In order to maintain
appointed as an Executive Director. In Report on pages 100 to 105.
strong levels of corporate governance, and
February 2022, Fiona MacAulay was
to ensure that these business relationships
appointed as Senior Independent Director, Corporate governance controls
are conducted on an arm’s length basis,
meeting a target outlined by the FCA’s
The Group continues to strengthen its the Group has both the Committee of
recent consultation on Board Diversity and
internal corporate governance controls Independent Directors at the Board level
Inclusion. In March 2021, a further
and adapt its processes, further details and the Executive Related Party Matters
Independent Non-executive Director –
of which are presented in the Corporate Committee at the management level.
Ann-Christin Andersen – was added to the
Governance Report (pages 76 to 133).
Board. In December 2021, Natalie Polischuk As discussed in the Group’s 2020 Annual
Furthermore, the Group bolstered its
was appointed as an Independent Non- Report and Accounts, the Committee of
advisory set-up in January 2021 through
executive Director, who is an economist Independent Directors (“CID”) has
the appointment of financial advisors
based in Kyiv, Ukraine. previously conducted a review in connection
Liberum, who act to advise both the Board
with the Group’s sponsorship arrangements
The above appointments have served to and executive management team on
with FC Vorskla and concluded its enquiry
increase the number of Independent corporate matters. In addition, BDO LLP
in March 2021. Arrangements were put in
Non-executive Directors to five out of eight was appointed in early 2021 as the Group’s
place by Kostyantin Zhevago and his
Board positions. Further details of the steps Sponsor in accordance with the Listing
associated entities, which are required to be
made to enhance corporate governance Rules to provide advice and guidance on
executed by 31 July 2022. As of the date of
procedures in 2021 can be found in the certain corporate matters as required.
this Annual Report and Accounts, the CID
Corporate Governance Report on pages 76
understands that these arrangements have
to 93. Stakeholder engagement
not yet been completed.
The Group’s engagement with its
Hampton-Alexander Review
stakeholders is summarised in the Business

| The Hampton-Alexander Review is an | Model (pages 16 to 17, and in more detail on |
| --- | --- |
| independent review that was established to | pages 46 to 49). Highlights of stakeholder |
| ensure that talented women at the top of | engagement activities during 2021 include |
| business are recognised, promoted and | the hosting of a number of shareholder and |
| rewarded, with a particular focus on female | analyst events in London with the |
| representation on FTSE Boards and women | assistance of the Group’s advisors Liberum |
| in senior leadership roles. As a result of this | Capital, the employee engagement forum |
| work, the Hampton-Alexander Review | held at site in September 2021, and the |
| recommends that companies listed within | Group’s Family Day in July 2021 for |
| the FTSE 350 have at least 33% female | engaging directly with local communities in |
| representation at the Board level, as well as | Ukraine. The Group is actively working to |

### 44 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 2020 available on the Group’s website and the report for 2021 expected to be released in the coming months.
Reporting requirements Policies and standards Additional information Risks
Environmental – Tailings Management Greenhouse gas emissions (pages 35-36) Principal risks,
Energy consumption (page 36) pages56-72
www.ferrexpo.com/responsibility/protecting-environments/

| Employees | – Ethics and Responsible Business Policy | Health and safety (pages 32-33) | Principal risks, |
| --- | --- | --- | --- |
|  | – Code of Conduct | Learning and development (pages 40-41) | pages56-72 |
|  | – Health and Safety Policy | Diversity, equity and inclusion (pages 40-41) |  |

www.ferrexpo.com/responsibility/workforce-development/
www.ferrexpo.com/responsibility/safety-performance/

| Human rights | – Human Rights Policy | Diversity, equity and inclusion (pages 40-41) | Principal risks, |
| --- | --- | --- | --- |
|  | – Data Privacy Policy | Ferrexpo Code of Conduct | pages56-72 |
|  | – Anti-Slavery and Trafficking Statement | www.ferrexpo.com/about-ferrexpo/corporate-governance/ |  |
|  | – Information Security | policies-and-standards |  |
| Social matters | – Donations Policy | Chair’s Statement (pages 2-3) | Principal risks, |
|  | – Community Policy | Social engagement (pages 42-43) | pages56-72 |

www.ferrexpo.com/responsibility/supporting-communities/
www.ferrexpo.com/responsibility/stakeholder-engagement/
Anti-corruption – Anti-Bribery Policy Chair’s Statement (pages 2-3) Principal risks,
– Anti-Money Laundering and Governance (page 44) pages56-72
andanti-bribery

| CounterTerroristFinancing Policy | Governance Report (pages 76 to 133) |
| --- | --- |
| – Fraud Risk Management | www.ferrexpo.com/about-ferrexpo/corporate-governance/ |
| – Whistleblowing Policy | policies-and-standards/ |

www.ferrexpo.com/whistleblowing/
Principal risks and Business model (pages 16-17) Principal risks,
Risk management (pages 54-55) pages56-72
impact on business
Viability Statement (pages 73-75)
activities Going Concern Statement (page 131)
Non-financial KPIs Key Performance Indicators (pages 20-21)
Image: Ferrexpo is proud of its 20 years of
collaboration with local partner Zeppelin,
which has trained over 200 local engineers
andmaintainers to provide maintenance of the
Group’s Caterpillar mining equipment.
### Ferrexpo plc Annual Report & Accounts 2021 45
STRATEGIC REPORT
## Review of Stakeholder
## Engagement Activities
### EMPLOYEES AND CONTRACTORS CUSTOMERS SUPPLIERS COMMUNITIES

| Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – 2021 employee engagement |  | – To foster a strong corporate |  | – Relationship management, |  | – To develop strong, long-term |  | – Relationship management. | – To develop mutually |  | – Regular and consistent |  | – A strong and healthy link |  |
|  | survey. |  | culture. |  | adapting in an environment |  | relationships that are | – Regular feedback. |  | beneficial, long-term |  | engagement provided |  | withlocal communities is |
| – Training and development. |  | – To promote workforce |  |  | whereby Covid-19 limits |  | mutually beneficial. |  |  | relationships, supporting |  | directly through the Group’s |  | essential for sustainable |

– Contract negotiations.
development and alignment face-to-face interactions. – To promote sustainability theGroup’s operations. operating entities or Ferrexpo production and executing
– Annual performance reviews.
with corporate values. – Continuous dialogue with throughout the value chain. – To promote sustainability Charity Fund. future growth plans.
– Engagement via Labour
– To promote good corporate customers around each throughout the value chain. – The Group’s Covid-19
Council.
governance. shipment, particularly for Response Fund, with
– Compliance efforts and
new relationships and new US$3.5million of
Integrity Line.
products. approvedfunding.
– Board workforce
– Contract negotiations for
engagement session.
long-term contracts.

| What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Safe production. |  | – Fatality-free operations |  | – High quality products. |  | – Regular discussions between |  | – High quality goods and |  | – Where possible, goods and |  | – High levels of local |  | – Over 98% of employees from |  |
| – Employee wellbeing. |  |  | in2021. | – Consistent product quality. |  |  | the Group’s representatives |  | services. |  | services are sourced from |  | employment. |  | Ukraine, with majority based |
|  |  | – Injury rates of 0.41 per million |  |  |  |  | and customers. | – High standards of employee |  |  | local providers. The Group | – High level of engagement |  |  | in local communities. |
| – Workforce development. |  |  |  | – Sustainability throughout the |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  | hours, materially below the |  |  | – Effective communication |  |  | welfare throughout the |  | typically sources over 85% |  | with local businesses. | – The Group typically sources |  |
| – A diverse and inclusive |  |  |  |  | value chain. |  |  |  |  |  |  |  |  |  |  |
|  |  |  | Group’s historical average. |  |  |  | between Ferrexpo’s |  | Group’s supply chain. |  | ofgoods and services from |  |  |  | over 85% of goods and |
|  | working environment. |  |  |  |  |  |  |  |  |  |  | – Engagement with local |  |  |  |
|  |  |  |  |  |  |  | marketing and operations |  |  |  | providers within Ukraine. |  |  |  | services from Ukrainian |
|  |  | – Training department |  |  |  |  |  | – Sustainability throughout the |  |  |  |  | authorities and local groups |  |  |

– Fair pay.
providing 6,442 courses teams. value chain. – 95% of contracts signed to provide direct support companies.
in2021. refer to Code of Conduct where it is needed. – Including Covid-19 support,
– Good corporate governance.
forSuppliers (2020: 87%). UAH177 million of funding for
local communities (2020:
UAH158 million).

| How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  |
| – Performance of safety |  | – Maintain safety and support |  | – Longevity of customer |  | – Continue relationships with |  | – Adoption of Code of Conduct |  | – Maintain supplier |  | – Direct feedback through |  | – Humanitarian Fund with |  |
|  | metrics relative to peers |  | individuals’ wellbeing during |  | relationships. |  | long-term customers. |  | for Suppliers. |  | relationships during the |  | community support officers. |  | US$12.5 million of approved |
|  | andFerrexpo’s historical |  | Russia’s war with Ukraine. | – High proportion of sales |  | – Continue to maintain |  | – Reports to the Group’s |  |  | Russian invasion of Ukraine. | – Quarterly town hall meetings |  |  | funding (as of 21 April 2022). |
|  | performance. | – Employee engagement |  |  | under long-term contracts |  | consistent and high quality |  | Integrity Line, maintaining | – Maintain high level of goods |  |  | with General Directors. | – Focus on humanitarian |  |
| – Strong working relationship |  |  | survey. |  | (2021: 97%). |  | supply of products. |  | good corporate governance |  | and services from local |  |  |  | assistance in 2022 in |
|  | with unions at operations | – Continued workforce |  |  |  | – Continue to publish clear and |  |  | standards. |  | providers. |  |  |  | response to the Russian |
|  | inUkraine. |  | development. |  |  |  | comprehensive sustainability |  |  | – Further adoption of |  |  |  |  | invasion of Ukraine. |
| – Increasing levels of diversity |  | – Programmes to further |  |  |  |  | information in Responsible |  |  |  | Ferrexpo’s Code of Conduct |  |  | – Employee engagement |  |
|  | within all levels of workforce. |  | increase workforce diversity. |  |  |  | Business Reports. |  |  |  | for Suppliers. |  |  |  | survey. |

### 46 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
### EMPLOYEES AND CONTRACTORS CUSTOMERS SUPPLIERS COMMUNITIES

| Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – 2021 employee engagement |  | – To foster a strong corporate |  | – Relationship management, |  | – To develop strong, long-term |  | – Relationship management. | – To develop mutually |  | – Regular and consistent |  | – A strong and healthy link |  |
|  | survey. |  | culture. |  | adapting in an environment |  | relationships that are | – Regular feedback. |  | beneficial, long-term |  | engagement provided |  | withlocal communities is |
| – Training and development. |  | – To promote workforce |  |  | whereby Covid-19 limits |  | mutually beneficial. |  |  | relationships, supporting |  | directly through the Group’s |  | essential for sustainable |

– Contract negotiations.
development and alignment face-to-face interactions. – To promote sustainability theGroup’s operations. operating entities or Ferrexpo production and executing
– Annual performance reviews.
with corporate values. – Continuous dialogue with throughout the value chain. – To promote sustainability Charity Fund. future growth plans.
– Engagement via Labour
– To promote good corporate customers around each throughout the value chain. – The Group’s Covid-19
Council.
governance. shipment, particularly for Response Fund, with
– Compliance efforts and
new relationships and new US$3.5million of
Integrity Line.
products. approvedfunding.
– Board workforce
– Contract negotiations for
engagement session.
long-term contracts.

| What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Safe production. |  | – Fatality-free operations |  | – High quality products. |  | – Regular discussions between |  | – High quality goods and |  | – Where possible, goods and |  | – High levels of local |  | – Over 98% of employees from |  |
| – Employee wellbeing. |  |  | in2021. | – Consistent product quality. |  |  | the Group’s representatives |  | services. |  | services are sourced from |  | employment. |  | Ukraine, with majority based |
|  |  | – Injury rates of 0.41 per million |  |  |  |  | and customers. | – High standards of employee |  |  | local providers. The Group | – High level of engagement |  |  | in local communities. |
| – Workforce development. |  |  |  | – Sustainability throughout the |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  | hours, materially below the |  |  | – Effective communication |  |  | welfare throughout the |  | typically sources over 85% |  | with local businesses. | – The Group typically sources |  |
| – A diverse and inclusive |  |  |  |  | value chain. |  |  |  |  |  |  |  |  |  |  |
|  |  |  | Group’s historical average. |  |  |  | between Ferrexpo’s |  | Group’s supply chain. |  | ofgoods and services from |  |  |  | over 85% of goods and |
|  | working environment. |  |  |  |  |  |  |  |  |  |  | – Engagement with local |  |  |  |
|  |  |  |  |  |  |  | marketing and operations |  |  |  | providers within Ukraine. |  |  |  | services from Ukrainian |
|  |  | – Training department |  |  |  |  |  | – Sustainability throughout the |  |  |  |  | authorities and local groups |  |  |

– Fair pay.
providing 6,442 courses teams. value chain. – 95% of contracts signed to provide direct support companies.
in2021. refer to Code of Conduct where it is needed. – Including Covid-19 support,
– Good corporate governance.
forSuppliers (2020: 87%). UAH177 million of funding for
local communities (2020:
UAH158 million).

| How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  |
| – Performance of safety |  | – Maintain safety and support |  | – Longevity of customer |  | – Continue relationships with |  | – Adoption of Code of Conduct |  | – Maintain supplier |  | – Direct feedback through |  | – Humanitarian Fund with |  |
|  | metrics relative to peers |  | individuals’ wellbeing during |  | relationships. |  | long-term customers. |  | for Suppliers. |  | relationships during the |  | community support officers. |  | US$12.5 million of approved |
|  | andFerrexpo’s historical |  | Russia’s war with Ukraine. | – High proportion of sales |  | – Continue to maintain |  | – Reports to the Group’s |  |  | Russian invasion of Ukraine. | – Quarterly town hall meetings |  |  | funding (as of 21 April 2022). |
|  | performance. | – Employee engagement |  |  | under long-term contracts |  | consistent and high quality |  | Integrity Line, maintaining | – Maintain high level of goods |  |  | with General Directors. | – Focus on humanitarian |  |
| – Strong working relationship |  |  | survey. |  | (2021: 97%). |  | supply of products. |  | good corporate governance |  | and services from local |  |  |  | assistance in 2022 in |
|  | with unions at operations | – Continued workforce |  |  |  | – Continue to publish clear and |  |  | standards. |  | providers. |  |  |  | response to the Russian |
|  | inUkraine. |  | development. |  |  |  | comprehensive sustainability |  |  | – Further adoption of |  |  |  |  | invasion of Ukraine. |
| – Increasing levels of diversity |  | – Programmes to further |  |  |  |  | information in Responsible |  |  |  | Ferrexpo’s Code of Conduct |  |  | – Employee engagement |  |
|  | within all levels of workforce. |  | increase workforce diversity. |  |  |  | Business Reports. |  |  |  | for Suppliers. |  |  |  | survey. |

### Ferrexpo plc Annual Report & Accounts 2021 47
STRATEGIC REPORT
## Review of Stakeholder
## Engagement Activities continued
### ENVIRONMENT GOVERNMENT INVESTORS CAPITAL PROVIDERS

| Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Emissions reduction |  | – A healthy natural ecosystem |  | – Meetings, calls and emails |  | – Governments are central to |  | – Yearly reporting suite. |  | – To foster a strong |  | – Regular dialogue with banks, |  | – To maintain a successful |  |
|  | programme. |  | is essential for sustainable |  | with government officials |  | operating a successful | – AGM (May) and post-AGM |  |  | understanding between the |  | ratings agencies and other |  | working relationship for |
| – Water recycling and |  |  | production. |  | across jurisdictions in which |  | business, for example: |  | engagement. |  | Group and its investors, with |  | lenders. |  | existing and future debt |
|  | initiatives to reduce water | – Strong environmental |  |  | the Group operates. |  | through providing operating |  |  |  | investors understanding the | – Provision of information, |  |  | facilities, and other sources |

– Investor roadshows for both
consumption. credentials positively licences, whilst also Group’s business model and including both internal of capital.
financial results and
influence all stakeholder providing a platform for the Group understanding updates and market updates – To enable future investment
– Biodiversity baseline studies. corporate governance.
groups, with the opposite effective community investor concerns and such as analyst research on in the business.
– Waste recycling programme. – Analyst round table event
also applicable. engagement. priorities. Ferrexpo and commodities.
inNovember 2021.

| What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Producing iron ore products |  | – 16% reduction in carbon |  | – Operating within a consistent |  | – Taxes and royalties of |  | – Clear and transparent |  | – Financial advisors Liberum |  | – Clear, consistent and |  | – Provision of market research |  |
|  | that facilitates overall |  | emissions per tonne in 2021 |  | and understood financial and |  | US$281 million paid in 2021 |  | reporting of the Group’s |  | appointed in January 2021. |  | transparent reporting of the |  | and credit ratings research |
|  | emissions reductions in the |  | (Scope 1 and 2 basis). |  | legal framework. |  | (2020: US$100 million). |  | activities. | – Corporate and financial |  |  | Group’s operations, financial |  | on the Group, commodity |
|  | global steel value chain. | – Maintain high level of water |  | – Payment of taxes and |  | – Total taxes and royalties |  | – Reporting that is |  |  | communications advisors |  | results and Responsible |  | research and country |
| – Emissions reductions at |  |  | recycling within plant (2021: |  | royalties. |  | since IPO of more than |  | independently assured and |  | Tavistock Communications |  | Business activities. |  | research. |
|  | operations (direct and |  | 95%). | – Companies providing |  |  | US$1.3 billion. |  | comparable to peers. |  | appointed in March 2021. | – Providing information that is |  |  |  |
|  | indirect emissions). | – Second year of biodiversity |  |  | employment and support to | – Workforce of over 10,422 |  | – Generating long-term, |  | – First analyst round table |  |  | directly comparable to peer |  |  |
| – Reduced environmental |  |  | project for reintroducing |  | local communities, as well as |  | in2021 (2020: 10,911). |  | sustainable value. |  | event held since changes in |  | group reporting. |  |  |
|  | footprint. |  | native species of fish in the |  | export revenues. |  |  |  |  |  | Group’s management (event |  |  |  |  |
|  |  |  | Dnieper River. | – Sustainability in the |  |  |  |  |  |  | held in November 2021). |  |  |  |  |

valuechain.

| How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  |
| – Continued strong |  | – Maintain Horishni Plavni’s |  | – Continued government |  | – Working with government to |  | – Feedback received from |  | – Clear communication with |  | – Successful repayment of |  | – Continued dialogue with |  |
|  | performance in assessments |  | place as having the cleanest |  | support at local and national |  | disperse funds through |  | shareholders, analysts and |  | investors throughout the |  | US$221 million of debt in |  | capital provider space. |
|  | of air quality in Ferrexpo’s |  | air of all 39 industrial cities |  | level in Ukraine. |  | Ferrexpo Humanitarian Fund. |  | other external parties. |  | Russian invasion of Ukraine. |  | 2021 (2020: US$148 million). |  |  |
|  | local community of Horishni |  | inUkraine. | – Continued government |  | – Working with local |  | – Market valuation of the |  | – Institutional investor |  | – Full repayment and |  |  |  |
|  | Plavni, placing first in | – Further reduce carbon |  |  | support in all corporate and |  | government to ensure the |  | Group relative to its |  | roadshows. |  | cancellation of the Group’s |  |  |
|  | 2021study. |  | emissions, continuing |  | marketing office locations for |  | health and wellbeing of local |  | peergroup. |  |  |  | Pre-Export Finance (“PXF”) |  |  |

– Broadening of investor

| – Continued reduction in |  |  | trajectory towards carbon | the Group. |  | communities. | groups reached. |  | Facility. |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | withdrawal of water from |  | neutral pellet production. |  | – Continued support during |  |  | – Continuation of existing |  |
|  | local water supply network. | – Third year of biodiversity |  |  |  | pandemic through dedicated |  |  | relationships with domestic |
| – Reduction in blue-green |  |  | project with Dnieper River, |  |  | Covid-19 Response Fund. |  |  | and international banks. |
|  | algae in Dnieper River as a |  | contingent on resolution of |  | – Continued investments in |  |  |  |  |
|  | result of biodiversity project |  | Russia-Ukraine conflict. |  |  | operations, workforce and |  |  |  |
|  | reintroducing native fish. |  |  |  |  | communities. |  |  |  |

### 48 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
### ENVIRONMENT GOVERNMENT INVESTORS CAPITAL PROVIDERS

| Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  | Engagement activity in 2021 |  | Reasons behind engagement |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Emissions reduction |  | – A healthy natural ecosystem |  | – Meetings, calls and emails |  | – Governments are central to |  | – Yearly reporting suite. |  | – To foster a strong |  | – Regular dialogue with banks, |  | – To maintain a successful |  |
|  | programme. |  | is essential for sustainable |  | with government officials |  | operating a successful | – AGM (May) and post-AGM |  |  | understanding between the |  | ratings agencies and other |  | working relationship for |
| – Water recycling and |  |  | production. |  | across jurisdictions in which |  | business, for example: |  | engagement. |  | Group and its investors, with |  | lenders. |  | existing and future debt |
|  | initiatives to reduce water | – Strong environmental |  |  | the Group operates. |  | through providing operating |  |  |  | investors understanding the | – Provision of information, |  |  | facilities, and other sources |

– Investor roadshows for both
consumption. credentials positively licences, whilst also Group’s business model and including both internal of capital.
financial results and
influence all stakeholder providing a platform for the Group understanding updates and market updates – To enable future investment
– Biodiversity baseline studies. corporate governance.
groups, with the opposite effective community investor concerns and such as analyst research on in the business.
– Waste recycling programme. – Analyst round table event
also applicable. engagement. priorities. Ferrexpo and commodities.
inNovember 2021.

| What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  | What matters most |  | The Group’s response |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| – Producing iron ore products |  | – 16% reduction in carbon |  | – Operating within a consistent |  | – Taxes and royalties of |  | – Clear and transparent |  | – Financial advisors Liberum |  | – Clear, consistent and |  | – Provision of market research |  |
|  | that facilitates overall |  | emissions per tonne in 2021 |  | and understood financial and |  | US$281 million paid in 2021 |  | reporting of the Group’s |  | appointed in January 2021. |  | transparent reporting of the |  | and credit ratings research |
|  | emissions reductions in the |  | (Scope 1 and 2 basis). |  | legal framework. |  | (2020: US$100 million). |  | activities. | – Corporate and financial |  |  | Group’s operations, financial |  | on the Group, commodity |
|  | global steel value chain. | – Maintain high level of water |  | – Payment of taxes and |  | – Total taxes and royalties |  | – Reporting that is |  |  | communications advisors |  | results and Responsible |  | research and country |
| – Emissions reductions at |  |  | recycling within plant (2021: |  | royalties. |  | since IPO of more than |  | independently assured and |  | Tavistock Communications |  | Business activities. |  | research. |
|  | operations (direct and |  | 95%). | – Companies providing |  |  | US$1.3 billion. |  | comparable to peers. |  | appointed in March 2021. | – Providing information that is |  |  |  |
|  | indirect emissions). | – Second year of biodiversity |  |  | employment and support to | – Workforce of over 10,422 |  | – Generating long-term, |  | – First analyst round table |  |  | directly comparable to peer |  |  |
| – Reduced environmental |  |  | project for reintroducing |  | local communities, as well as |  | in2021 (2020: 10,911). |  | sustainable value. |  | event held since changes in |  | group reporting. |  |  |
|  | footprint. |  | native species of fish in the |  | export revenues. |  |  |  |  |  | Group’s management (event |  |  |  |  |
|  |  |  | Dnieper River. | – Sustainability in the |  |  |  |  |  |  | held in November 2021). |  |  |  |  |

valuechain.

| How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  | How quality of engagement |  | Further plans for engaging |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  | isassessed |  | in2022 |  |
| – Continued strong |  | – Maintain Horishni Plavni’s |  | – Continued government |  | – Working with government to |  | – Feedback received from |  | – Clear communication with |  | – Successful repayment of |  | – Continued dialogue with |  |
|  | performance in assessments |  | place as having the cleanest |  | support at local and national |  | disperse funds through |  | shareholders, analysts and |  | investors throughout the |  | US$221 million of debt in |  | capital provider space. |
|  | of air quality in Ferrexpo’s |  | air of all 39 industrial cities |  | level in Ukraine. |  | Ferrexpo Humanitarian Fund. |  | other external parties. |  | Russian invasion of Ukraine. |  | 2021 (2020: US$148 million). |  |  |
|  | local community of Horishni |  | inUkraine. | – Continued government |  | – Working with local |  | – Market valuation of the |  | – Institutional investor |  | – Full repayment and |  |  |  |
|  | Plavni, placing first in | – Further reduce carbon |  |  | support in all corporate and |  | government to ensure the |  | Group relative to its |  | roadshows. |  | cancellation of the Group’s |  |  |
|  | 2021study. |  | emissions, continuing |  | marketing office locations for |  | health and wellbeing of local |  | peergroup. |  |  |  | Pre-Export Finance (“PXF”) |  |  |

– Broadening of investor

| – Continued reduction in |  |  | trajectory towards carbon | the Group. |  | communities. | groups reached. |  | Facility. |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | withdrawal of water from |  | neutral pellet production. |  | – Continued support during |  |  | – Continuation of existing |  |
|  | local water supply network. | – Third year of biodiversity |  |  |  | pandemic through dedicated |  |  | relationships with domestic |
| – Reduction in blue-green |  |  | project with Dnieper River, |  |  | Covid-19 Response Fund. |  |  | and international banks. |
|  | algae in Dnieper River as a |  | contingent on resolution of |  | – Continued investments in |  |  |  |  |
|  | result of biodiversity project |  | Russia-Ukraine conflict. |  |  | operations, workforce and |  |  |  |
|  | reintroducing native fish. |  |  |  |  | communities. |  |  |  |

### Ferrexpo plc Annual Report & Accounts 2021 49
STRATEGIC REPORT
## Section 172 Statement
## CONSIDERING STAKEHOLDERS
## INDECISION-MAKING
The Board of Directors acts to promote the How considering stakeholders in The stakeholder groups which the Board
long-term success of the Company for the decision-making works in practice has identified as being fundamental for an
benefit of shareholders as a whole, and in effective, successful business, together with
The Group engages regularly with its
doing so recognises the importance of the engagement activities carried out by the
stakeholders. This engagement is largely
having due regard to the matters set out in Group in 2021, are outlined on pages 46
conducted by the Group’s management
section 172(1)(a) to (f) of the Companies Act to49.
team, as part of the day-to-day
2006, being:
management of the Group delegated by the In addition to these stakeholder groups, the
– the likely consequences of any decision Board to the management team, although Board considers the likely consequences of
in the long term; the Board will also engage directly with decisions in the long term, the impact of the
– the interests of the Company’s stakeholders as appropriate. Where Group’s operations on the community and
employees; stakeholder engagement has been the environment and the importance of
conducted by management, the stakeholder maintaining a reputation for high standards
– the need to foster the Company’s
issues are considered at Board level of business conduct. The Board will also
business relationships with suppliers,
through regular updates from the Chief beguided in its decision-making by the
customers and others;
Executive Officer and senior management. Group’s purpose and values and its
– the impact of the Company’s operations
This will include presentations by members strategic framework as outlined on
on the community and the environment;
of the senior management team to the pages18to 19.
– the desirability of the Company
Board on particular stakeholder
maintaining a reputation for high
considerations, and the Board will discuss Key decisions made in 2021
standards of business conduct; and
feedback received from stakeholders
– the need to act fairly as between The Board and its Committees took a broad
directly with the management team.
members of the Company. range of factors and stakeholder
Considerations relating to stakeholder
considerations into account when making
The Board receives regular training on matters are also included in management
decisions in the year. Details on how the
directors’ duties and briefings in relation to papers prepared for the Board,
Board and its Committees operate and the
corporate governance developments and asappropriate.
way in which they reach decisions, including
stakeholder engagement. New directors
As part of its discussions and decision- the matters discussed and debated during
appointed to the Board receive tailored,
making process, the Board will take into the year, can be found in the Corporate
individual briefings on their duties.
account relevant stakeholder considerations Governance Report on pages 88 to 90.
and the potential impacts of their decisions
The following are some examples of how the
on such stakeholders and the environment.
Directors have had regard to the matters set
This will include considering the impact of
out in section 172(1) (a) to (f), and the need
competing stakeholder interests, and the
to foster the Company’s business
Board is cognisant of the fact that some of
relationship with customers, suppliers and
its decisions may have an adverse impact
other stakeholders, when making principal
on certain stakeholders or affect different
decisions and the effect of that on certain of
stakeholder groups in different ways.
the decisions taken by them.
### 50 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 Page

| Workforce | – Case Study: Shielding the Group’s workforce from Covid-19 | 11 |
| --- | --- | --- |
|  | – Responsible Business: Health and Safety Review | 32-33 |
|  | – Responsible Business: Workforce Development and Inclusion | 40-31 |
| Suppliers and | – Case Study: The importance of steel | 3 |
|  | – Case Study: The importance of proximity to key markets | 15 |

customers

| Community | – CEO’s Review – Supporting Local Communities | 10 |
| --- | --- | --- |
|  | – Responsible Business: Community Support and Engagement | 42-43 |
| Environment | – Case Studies: The importance of iron ore pellets and high grade iron ores | 10 and 14 |
|  | – Case Study: Decarbonisation of mining fleets | 29 |
|  | – Case Study: External assurance – providing trust in sustainability progress | 34 |
|  | – Environmental Review, Climate Change and TCFD Reporting | 35-39 |
| High standards of conduct | – HSEC Committee Chair’s Review | 30-31 |
|  | – Responsible Business: Health and Safety Review | 32-33 |
|  | – Case Study: External assurance – providing trust in sustainability progress | 34 |
|  | – Case Study: Promoting diversity through leadership | 41 |

– Responsible Business: Corporate Governance
44

| Investors | – Financial Review – Delivering Value Through Investment | 22-24 |
| --- | --- | --- |
|  | – Case Study: Maintaining a Low Cash Cost of Production | 25 |
|  | – Case Study: Mining Fleet Automation | 27 |

Image: a CAT 793D being loaded at Ferrexpo’s
Yeristovo mine in 2021.
### Ferrexpo plc Annual Report & Accounts 2021 51
STRATEGIC REPORT
## Section 172 Statement continued

| CA SE STU DY: | Ferrexpo has always been, and remains, a | As part of designing the shareholder returns |
| --- | --- | --- |
|  | company focused on growth, both in the form of | policy, the Board considered the interests of |
|  | production volumes and product quality, | investors but also had regard to other matters as |
| SHAREHOLDER | andrecognises the importance of delivering | set out in Section 172, including ensuring that |
|  | shareholder returns throughout the commodity | there was an appropriate balance between |
| RETURNS POLICY | cycle, as established through the Group’s track | shareholder returns and retaining capital for |
|  | record since listing. | future growth of the Group – which is in the |

longterm interests of the Group. It was also
Following discussions with investors and other important to ensure that the level of returns asset
market participants, it was identified that the out in the policy would not impact the Group’s
Company could benefit by adopting a ability to meet its commitments towards
sustainable, predictable, consistent and suppliers, customers, employees and others,
measurable dividend policy. The adoption andmaintaining sufficient flexibility inthe policy.
ofsuch a policy would benefit all of the
shareholders of the Company and would alsoput The Board concluded that free cash flow was the
the Company in alignment with its industry peers. most appropriate financial metric for the Group to
use in its shareholder returns policy given that it
The Board therefore embarked on a process is net of capital investment and financing
todesign and implement a new shareholder activities, and therefore does not restrict the
returns policy. As part of the process, an industry Group from continuing its focus on investing in its
analysis was undertaken and the Board reviewed operations in Ukraine and its wider logistic
a variety of potential metrics tobe adopted in the network. Investors are one of theGroup’s key
policy, including Free Cash Flow, EBITDA and stakeholders and the Board determined that
Earnings. Input from the Group’s financial adopting a formal policy is aclear demonstration
advisers was also obtained as to the most of the Group’s strong commitment to shareholder
appropriate financial metric for the Group, returns throughout the commodity cycle.
takinginto account the policies adopted by
othermetals and mining companies and general
investor expectations.
CA SE STU DY:
### EARLY REPAY MENT
### OF DEBT FACILITY
On 30 June 2021, the Board was pleased to
announce that it had approved the early repayment
and cancellation of its outstanding pre-export
finance facility (PXF facility). The PXFfacility
agreement was signed in 2018 and repayment was
scheduled to take place quarterly between 2020
and 2022. As at 31 December 2020, the Group had

| US$257m of debt drawn onits PXFfacility. | Overall the Board determined that through | The decision to repay the PXF involved |
| --- | --- | --- |
|  | previous investments, and the Group’s ongoing | considering the interests of a number of different |
| The Board’s decision to repay the PXF early was | growth program, the Group has been able to take | stakeholders, including the Group’s lending |
| largely driven by the additional liquidity available to | advantage of the strong iron ore market in 2021, | banks and investors, and more broadly the |
| the Company due to favourable iron ore market | with particular demand for high-grade ores such | customers and suppliers of the Group and the |
| conditions. As part of its decision making process | as the Group’s 65% Fe iron ore pellets. The | local community who benefit from the operations |
| the Board was required to balance a number of | repayment of the PXF brought an end to the | and investments made by the Group. Ultimately, |
| different factors, including the need to maintain | deleveraging program and leaves the Group well | the Board concluded that it was in the best |
| sufficient liquidity, future operational and capital | positioned to continue to invest in our assets, | interests of the Company and its shareholders |
| expenditure, and also the desire to deliver | delivering further growth in pellet volumes and | asa whole to repay the PXF, and that the early |
| increased levels of shareholder returns at | pellet quality, whilst also continuing to deliver | repayment would not haveanadverse impact |
| atimeofstrong performance by the Group. | returns to shareholders – each of which will | onthe interests ofotherstakeholders. |

promote the long term sustainable success
oftheGroup.
### 52 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

| CA SE STU DY: | Given the increased focus on climate change, | The Board has appointed environmental |
| --- | --- | --- |
|  | including as part of the COP26 conference | consultants Ricardo Plc to work with the Group |
|  | inNovember 2021 and the decarbonisation targets | todevelop science-based decarbonisation targets |
| ANNOUNCEMENT OF | made by the Group’s peers, the Board recognised it | as a second-phase of publishing carbon |
|  | was important for the Company to provide a clear | commitments. Ricardo Plc are experts that have |
| DECARBONISATION | public commitment around its intention to | been helping organisations around the world to |
|  | decarbonise the Group’s operations. Many of the | develop robust and science-based pathways to |

### TARGETS
Group’s investors and institutional investor bodies achieving net zero carbon emissions. Through this
also want to see clear commitments from the Group collaboration, the Group expects to advance our
The Board recognises the importance of climate
to reduce its environmental impact. targets and develop a clear roadmap of reducing
change, including acknowledging itsimpacts on
Scope 1, 2 and 3 emissions, whilst also identifying
the environment and the local communities that
After due consideration, the Board agreed that the market and regulatory risks and opportunities,
are a key stakeholder for theCompany. This has
Group undertakes a commitment to achieve modelling of climate change scenarios and looking
been a long-term focusfor the Group, and the
net-zero carbon emissions from its operations by at the environmental footprint of a Ferrexpo pellet
Group’s iron orepelletsoffer our customers the
the year 2050. In addition, the Group has made an beyond the steelmaking process. As part of this,
opportunity to significantly reduce their
initial commitment to achieve a minimum of a 30% the Group intends to engage with stakeholders in
owncarbon emissions.
reduction in combined Scope 1 and 2 emissions by 2022 with a clear, science-based understanding of
2030, against the Group’s baseline year for our carbon journey that lies ahead.
emissions (2019), in line with our peer group.
Reducing the Group’s carbon emissions, whilst
itself being important to reducing the impact of the
Group’s operations on the environment and the
local communities surrounding our mines, isalso
important in terms of the Group’s relationships with
its suppliers, customers and employees many of
whom are focused on their own environmental
impacts and expect the Groupto do the same
aspart of being a responsible business.
Image: July 2021: Installation of
5MW solar farm completed.
### Ferrexpo plc Annual Report & Accounts 2021 53
STRATEGIC REPORT
## Risk Management
## ASSESSING AND
## MANAGING RISK
## Ferrexpo identifies and assesses risks based
## oneach risk’s probability of occurrence and the
## potential 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
The process to identify risk areas is
conducted through each business function
within the Ferrexpo Group, with senior
management responsible for conducting
regular assessments to identify risk in each
aspect of the Group’s activities. Risks are
managed locally through the implementation
of policies and procedures, which are
maintained by local risk owners that have
individual responsibilities for specific
business functions. Risks are reported
internally through the Group’s risk register
and assessed against risks identified
throughout the business on the basis of
probability of occurrence and the potential
severity of an event. Through the
identification of principal risks facing the Image: inspection of an automated
Group, management are able to optimise CAT 793D in Ferrexpo’s modern
maintenance facilities at Yeristovo.
the risk management process through the
dedication of increased resources to these

| risks, whilst also monitoring other risks for | the potential severity of impact, and | togeopolitical tensions between Russia and |
| --- | --- | --- |
| increases either in probability or severity. | identifying material changes in either | Ukraine. The primary focus of the Group’s |
| The Group considers emerging risks to be | variable to all of the risks listed. Over 30 | Principal Risks, as outlined on pages 54 to |
| risks that are newly developing, increasing | risks are reported to the FRMCC on a | 72, are on the ongoing Russia-Ukraine war, |
| in potential severity of impact or changing | monthly basis, with each risk attributed a | global market prices for iron ore pellets, |
| risks that are difficult to quantify. The risks | potential monetary impact should an event | costs impacting the Group’s profitability |
| that have been assessed by the Group’s | occur. The FRMCC reports to the Group’s | andclimate change. |
| management to be the Principal Risks | Executive Committee, which in turn reports |  |

The ongoing global Covid-19 pandemic
facing the Ferrexpo Group are presented to the Board, which has the ultimate
remains a Principal Risk, with continuing
onpages 54 to 72. responsibility for the Group’s approach to
infections of this virus both within Ukraine
risk management. The Audit Committee,
and around the world, but the Group notes
Risk mitigation asub-committee of the Board, assists the
that the severity of recent strains of this
Board in its regular monitoring of the risks
The Group’s management understands that virus do not appear to be as harmful to
faced by the Group. The Group’s internal
risk is an inherent aspect of operating a human health as previous strains. The
audit function assists with the process of
business, and the Group’s executive Group continues to monitor the risk profile
risk review, and conducts ad hoc reviews of
management team and the Board aim to related to Covid-19 for any potential impact
risk management controls and procedures.
mitigate the risks faced by the business on operations in Ukraine or any loss
For more information in relation to the Audit
through prudent decision-making to limit ofability to distribute and market the
Committee’s monitoring and assessment of
the Group’s exposure to risk where Group’s products.
the effectiveness of the risk management
possible. The Group’s approach to risk
and internal control systems, see the Audit Cybersecurity is a risk that has been added
mitigation for each of the Group’s Principal
Committee Report on page 98. as a Principal Risk given Russia’s invasion
Risks is presented opposite.
of Ukraine in early 2022. Further details of
Risk assessment for 2022 the considerations relating to this risk are
Risk governance framework
provided on page 70.
The Principal Risks faced by the Group, as
Risks are reported internally on a monthly
assessed by the Group’s management, are
basis, as part of the Finance, Risk
shown in the risk matrix opposite. The
Management and Compliance Committee
overall profile of the risks faced by the
(“FRMCC”), with the Group’s senior
Group in 2022 has increased relative to
leadership team reviewing the Group-level
2021, principally related to risks relating
risk matrix, which plots probability against
### 54 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 HSEC Committee
– Supports the Board in monitoring risk – Assesses and mitigates Group-wide risk. – Oversees corporate social responsibility
exposure and risk appetites. – Monitors internal controls. related matters and performance.
– Reviews effectiveness of risk management – Has specific focus on safety and climate
and control systems. change related risks.
Finance, Risk Management – Monitors centralised financial
andCompliance Committee risk management structures.
– Monitors Group compliance.
Internal audit function – Supports the Audit Committee in reviewing
the effectiveness of risk management.
– Maintains and develops internal control
systems.
Operational level – Risk management processes and internal
controls embedded across all Ferrexpo
operations.
RISK MATRIX HEAT MAP

| The Principal Risks identified inthe | Key |  |  |  | 1.1 |
| --- | --- | --- | --- | --- | --- |
| heat map to the right highlight which | 1.1 | Conflict risk |  |  |  |
| risks could have the greatest severity | 1.2 Ukraine country risk |  |  |  |  |
| of impact onthe Group’s operations | 1.3 Counterparty risk |  |  |  |  |
| andviability. |  |  | 4.4 | 1.2 |  |

2. Global demand for steel
Please see pages 54 to 72 of 3.1 Changes in pricing methodology
5.
thisreport for a full summary 3.2 Lower iron ore prices
ofPrincipal Risks 3.3 Pellet premiums and pellet supply 2.
1.3 3.2
3.4 Seaborne freight rates
ImpactVery low Severe
6. 3.3
4.1 Operating risks related
tomining,processing, pelletising
andlogistics
3.1
4.2 Operating risks related tohealth
andsafety

| 4.3 | Operating risks related | 4.1 |
| --- | --- | --- |
|  | tooperatingcosts | 4.23.4 |
| 4.4 | Risks relating to information | 4.3 |

technology and cybersecurity
LikelihoodUnlikely Almost certain
5. Risks related toclimate change
6. Risks related to Covid-19
### Ferrexpo plc Annual Report & Accounts 2021 55
STRATEGIC REPORT
## Principal Risks
## PRINCIPAL RISK FACTORS
## & MITIGATION MEASURES
## Principal Risks are those considered to have the
## greatest potential impact on the Ferrexpo business,
## assessed on the basis of impact and probability.
Introduction Principal Risks include, but are not Covid-19
necessarily limited to, those that could
Principal Risks are considered to be the The Group continues to consider the global
result in events or circumstances that
main risks that have the potential to Covid-19 pandemic as a Principal Risk given
mightthreaten the Group’s business model,
negatively affect the Group’s strategy and the scale and impact that this global event
future performance, solvency or liquidity
business model, which are outlined on demonstrated in 2020 and 2021. As noted,
and reputation.

| pages 54 to 72 and summarised through the |  | however, on page 52, the global outbreak of |
| --- | --- | --- |
| items shown below. | Risks are inherently unpredictable, and, | this virus has continued to evolve into |
|  | therefore, the risks outlined in this report are | different strains, which appear to be |

Principal Risks are defined as factors that
considered the main risks facing the Group. increasing in the transmissibility of the virus
may negatively affect the Group’s ability to
New risks may emerge during the course of with each new strain, but also reducing the
operate in its normal course of business,
the coming year, and existing risks may also severity and death rate for those contracting
and may be internal, in the form of risks
increase or decrease in severity and/or the virus. The Group therefore notes that
derived through the Group’s own operations
likelihood, and this is why it is important to with this trend, in addition to increasing
and activities, or external, such as political
conduct regular reviews of the Group’s risk vaccination rates both locally in Ukraine and
risks, market risks or climate change
register throughout the year. The Group globally, that the risks to the Group
relatedrisks.

|  | maintains a more extensive list of risks, | associated with Covid-19 appear to be |
| --- | --- | --- |
|  | covering over 30 different risk areas at the | decreasing in 2022. The Group however |
| Each Principal Risk is linked to the | Group level, with additional risks considered | notes that the Russian invasion of Ukraine in |
| aspects of the Group’s strategy that | in local risk registers at each operating | 2022 has resulted in reduced testing and |
| could be potentially impacted if an | entity. The Group risk register is reviewed | vaccination rates, and therefore this risk |
| event were to occur. | on a monthly basis for completeness and | may increase as a result. The Group will |
|  | relevance by the Group’s FRMCC, which | maintain its protective measures to curb the |
| 1. Produce high quality pellets. |  |  |
|  | ultimately reports into the Board for further | spread of Covid-19, however, noting that |
| 2. Achieve low cost production. | review and approval of the risk register. The | further waves of infection and/or more |
|  | Group’s risk register is also reviewed by the | severe new strains of the Covid-19 virus |

3. Maintain strong relationships with
Audit Committee at least four times a year. may emerge.
anetwork of premium customers.
The members of the Executive Committee
4. Conduct business in a safe and manage risk within the business on a Cybersecurity
sustainable manner. day-to-day basis, which is a committee
As the Group seeks to increasingly
thatincludes the Chief Executive Officer,
5. Retain a balanced approach to modernise and digitise its operations and
ChiefFinancial Officer and Chief
capital allocation. business activities, the Group notes the
MarketingOfficer.
rising importance of cybersecurity, and

| Risk currently considered | The Group has updated its Principal Risks | threats that may emerge via electronic |
| --- | --- | --- |
| tobematerially increasing | as shown in this section, in accordance with | means. Since the NotPetya cyberattack in |
| insignificance to the | the known risks facing the business. Further | 2017, which was a cyberattack that affected |
| Group’sactivities. | updates to the Group’s Principal Risks will | systems on a global basis, however, |
|  | be provided in the Group’s Interim Results | primarily targeted at Ukraine, the Group has |
|  | announcement, which is due for publication | sought to significantly increase its |

Risk currently considered to
in August 2022. Where the Group has understanding and to bolster its protocols
beneither materially increasing
identified a Principal Risk, details of the and defence relating to its digital presence.
nor materially decreasing
Group’s efforts to mitigate each risk are Given the Russian invasion of Ukraine in
insignificance to the
alsoprovided. early 2022, the Group notes the rising
Group’sactivities.
significance of cyber-threats to its business,
Russian invasion of Ukraine
and has therefore elevated this topic to

| Risk currently considered | On 24 February 2022, Russia commenced | become a Principal Risk, as discussed on |
| --- | --- | --- |
| tobematerially decreasing | an invasion of Ukraine. This action has | page 70. |
| insignificance to the | resulted in significant loss of life within |  |
| Group’sactivities. | Ukraine, the destruction of key |  |

infrastructure across Ukraine and poses a
threat to the Group’s mining, processing
and logistics operations in Ukraine. This
riskis discussed in detail on page 57.
### 56 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 1. COUNTRY RISK
### 1.1 Conflict risk (external risk)

| Ukraine is currently at war with Russia. On | Further consequences of the ongoing | Responsibility |
| --- | --- | --- |
| 24 February 2022, Russia commenced an | invasion relate to a number of aspects of the | Board of Directors and |
| invasion of Ukraine using significant and | Group’s business. Ukraine’s government | ChiefExecutiveOfficer |
| widespread military force. To date, the | has declared a state of martial law, and a |  |
| invasion of Ukraine has resulted in the | number of the Group’s employees have |  |
| temporary occupation of south eastern | been enlisted into the armed forces of | Risk appetite |
| territory within the sovereign nation of | Ukraine. The Group relies on key | Low |
| Ukraine, loss of life for citizens of Ukraine | consumables, such as (but not limited to) |  |
| and damage to infrastructure within Ukraine. | diesel, natural gas and electricity, to |  |
|  | produce the Group’s products, and the | Link to strategy |

The situation in Ukraine remains uncertain
ongoing invasion may limit the supply of 1, 2, 3, 4 and 5
and unpredictable. As of early April 2022,
these items. Should the Group not receive
the Group’s operations, located adjacent to
one or more of its key consumables, the
### the city of Horishni Plavni, has not been a Change
Group’s ability to effectively produce may
centre of armed conflict, but this remains a
be impaired.
risk should the current conflict continue to

| escalate and grow in terms of the areas | The Group relies on continuous and reliable |
| --- | --- |
| directly affected. The Group has however | access to key infrastructure – principally |
| temporarily lost the ability to export its | Ukraine’s railway network and the port of |
| products via the Black Sea, as the port | Pivdennyi, to rail and ship its products to |
| operator has closed the Group’s normal | customers, and both have been the subject |
| port of operations (Pivdennyi). Should the | of significant disruption, including the full |
| area surrounding the Group’s operations | stoppage of all port operations in Ukraine. |
| and local communities be the setting for | On 24 February 2022, the Group announced |
| armed conflict, there will be a significant risk | that it had received notification of a |
| posed to the safety of the Group’s | suspension of Ukraine’s railway network, |
| workforce, as well as a significant risk to key | which was subsequently partially lifted (see |
| assets and infrastructure required for the | release 28 February 2022). On 25 February |
| Group to operate effectively. The Group’s | 2022, the Group announced that it had |
| workforce of more than 10,000 people is | received formal notification from the port |
| predominantly based in local communities | authorities at Pivdennyi that all operations |
| surrounding the Group’s operations and | were being halted and the Group has served |
| therefore the Group does not have the | force majeure notices to customers affected |
| ability to effectively evacuate its workforce | by this suspension. Given the nature of the |
| from the conflict zone. The Group will | situation, the Group may not be able to |
| always prioritise the safety and wellbeing of | accurately forecast the likely availability and |
| its workforce and therefore may partially | scale of its access to infrastructure or key |
| halt, or fully halt, its operations to protect | consumables until the conclusion of |
| itsworkforce. | Russia’s warfare towards Ukraine. |

### Ferrexpo plc Annual Report & Accounts 2021 57
STRATEGIC REPORT
## Principal Risks continued
## 1. COUNTRY RISK (CONTINUED)
### 1.1 Conflict risk (external risk) (continued)

| On 2 April 2022, a Russian missile strike | be able to maintain civil order and there may | cyberattacks in the recent past. Any |
| --- | --- | --- |
| onKremenchuk oil refinery, located | be a risk posed to either the safety of the | disruption to the digital infrastructure |
| approximately 15-20 kilometres from the | Group’s workforce, or threat to the integrity | belonging to either the state of Ukraine, |
| Group’s operations, resulted in damage | of the Group’s assets and/or key supplies. | operators of key infrastructure or Ferrexpo |
| tothis facility. This facility is one of the | Furthermore, any conflict in the local area | would likely result in a significant |
| sources of fuel for the Group and this | may reduce the local authorities’ ability to | interruption to the Group’s ability to operate. |
| incident has resulted in the suspension of | provide basic emergency services, such as |  |

With regards to international lending
regular deliveries of diesel, with supplies medical services and fire protection, with
activities, it is unclear as to whether the
now being provided periodically. The Group potential effects on the Group’s workforce,
Group will have access to external financing
has existing arrangements in place to communities and production facilities.
following the cessation of hostilities. For the
source alternative supplies of diesel from
Following the outbreak of hostilities, it is duration of the ongoing conflict, the Group
Europe, with these supplies arriving via both
expected that the business and operating does not expect to have any access to debt
rail and road delivery routes.
environment in Ukraine will be materially markets, domestic or international.
To date, the situation within the Group’s worse than previously, and these conditions
The current war between Russia and
operations and in the local communities may not completely recover to previous
Ukraine is a threat to regional stability and
surrounding the Group’s operations, has levels for a period of time beyond the
may impact international relations in the
remained orderly, with local authorities cessation of hostilities.
longer term beyond the region in which
remaining in control. In the event of a
It is also expected that cyber-warfare will be Ferrexpo operates. As a consequence,
prolonged and/or escalated conflict in the
a tool used against Ukraine and corporate trading relationships between sovereign
area where the Group operates, there is a
companies based in Ukraine, with Ukrainian nations may be amended, or cut, and the
risk that the local authorities may no longer
corporates being the subject of availability of key goods and services may
become restricted and/or limited.
RISK MITIGATION
The risks posed to Ferrexpo, its workforce operations, the Group’s first priority will be for processing should access to the
and operations as a result of the invasion the protection of its workforce, and the Group’s mines become restricted. In
are difficult to predict in scale and nature, Group will enact measures to protect its logistics, the Group has investigated
and therefore difficult to mitigate as a workforce that are proportional to the alternative options for accessing
result. The Group has prepared itself, and extent, severity and location of any customers, either by different rail routes,
continues to prepare, in a number of hostilities occurring. This will include, different methods of transport, or different
areas, such as enacting safety measures, where appropriate, the demobilisation of loading ports for ocean-going vessels.
practising orderly shutdowns of the Group’s workforce from operational
In addition to the above measures, the
equipment, implementing asset protection sites and actions to distance individuals
Group has also established a dedicated
measures and planning to operate with from any areas affected by armed conflict
humanitarian fund to direct assistance to
multiple logistics pathways for sourcing and/or a breakdown in civil order.
the people of Ukraine affected by the
key consumables for delivery to site, as
In mining, the Group has implemented conflict. More details of this fund’s work
well as delivering the Group’s products to
measures to increase the volume of are provided on page 42 and in the
its customers. In the event of any
blasted ore available for mining and has Group’s recent press releases.
hostilities happening close to the Group’s
increased stockpiles of raw ore available
### 58 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 1. COUNTRY RISK
### 1.2 Ukraine country risk (external risk)
Ferrexpo’s operating base is in Ukraine, short- to medium-term stability of the Responsibility
where all of the Group’s iron ore production Ukrainian economy, local currency, and Board of Directors and
is generated, and therefore the Group is local operating environment for businesses, ChiefExecutiveOfficer
materially exposed to the business amongst other factors, particularly if the
environment within Ukraine, which availability of this external funding were
continues to be defined as an emerging tochange unexpectedly. Risk appetite
market by Western governments and Medium
The independence of the judicial system,
institutions. As such, the Group is subject to
and its immunity from economic and
heightened risks, relative to developed
political influences in Ukraine, remains
economies, relating to the stability of the Link to strategy
questionable, and the stability of existing
environment in which the Group operates, 1, 2, 3, 4 and 5
legal frameworks may weaken further with
including risks relating to the local economy,
future political changes in Ukraine. Because
currency, labour market, infrastructure and
### Ukraine is a civil law jurisdiction, judicial Change
other key resources essential for operating.
decisions generally have no precedential
This exposure to an emerging market can
effect on subsequent decisions, and courts
directly and indirectly affect the Group
are generally not bound by earlier decisions
through a range of factors, including
taken under the same or similar
changes in government legislation,
circumstances, which can result in the
decision-making related to changes in
inconsistent application of Ukrainian
political policy at a local or national level,
legislation to resolve the same or similar
access to key operating licences and
disputes. In addition, court claims are often
infrastructure essential for producing and
used in the furtherance of political aims. The
distributing the Group’s products, access to
Group may be subject to such claims and
financial services and the Group’s ability to
may not be able to receive a fair hearing.
transact with external parties either within
Ukraine or abroad, in addition to other The risk factors discussed here, either
factors. Ukraine also continues to receive a individually or in combination, have the
relatively low score in Transparency ability to adversely impact the Group’s
International’s Corruption Perceptions ability to operate its pellet production
nd
Index, placing 122 out of 179 countries facilities, ability to export its iron ore
th
(2020 Index: 117 place) in the latest survey products, access to new debt facilities and
published in January 2022. ability to repay debt, ability to reinvest in the
Group’s asset base, either in the form of
In recent years, Ukraine has been the
A
sustaining capital investment to maintain
subject of armed conflict with Russia and
A
production or expansion capital investment
this is identified as a separate Principal Risk
for future growth, as well as the Group’s
on page 57. Russia’s invasion of Ukraine, in
ability to pay dividends.
addition to the annexation of Crimea and

| temporary occupation of sections of eastern | As at the date of approval of this report, the |
| --- | --- |
| Ukraine since 2014, has caused a significant | share dispute lodged by four claimants to |
| strain on the Ukrainian economy and the | invalidate a share sale and purchase |
| budget of the Ukrainian government, which | agreement concluded in 2002 remains |
| in turn has resulted in changes to the | ongoing. Following a statement of defence |
| business environment within Ukraine. In | filed by Ferrexpo AG (Ferrexpo’s Swiss |
| addition, these factors will likely continue to | subsidiary), earlier in 2021, the relevant |
| negatively affect Ukraine’s economy for a | court in Ukraine ruled on 27 May 2021 in |
| period of time beyond the cessation of | favour of Ferrexpo AG. The opposing parties |
| hostilities in Ukraine. In recent years, the | filed their appeals in June 2021 and the next |
| government of Ukraine has been reliant on | hearing is expected to take place later this |
| external funding through overseas | year. The court of appeal has opened the |
| governments and agencies, principally the | appeal proceedings, and several hearings |
| International Monetary Fund (“IMF”), for | have now been held, but without a court |
| funding. Through this reliance on external | decision being made as of the date of |
| funding, there is increased risk around the | thisreport. |

### Ferrexpo plc Annual Report & Accounts 2021 59
STRATEGIC REPORT
## Principal Risks continued
## 1. COUNTRY RISK (CONTINUED)
### 1.2 Ukraine country risk (external risk) (continued)
Following the cancellation of the licence for owned or controlled) by the Group’s
Galeschynske deposit, which is a project in controlling shareholder may be subject to
the exploration phase that is situated to the restrictions, in Ukraine or elsewhere, or that
north of the Group’s active mining the Group may be impacted by, or become
operations, Ferrexpo Belanovo Mining has involved in, legal proceedings relating to
commenced a legal action in the Ukrainian these matters, in Ukraine or elsewhere.
courts system. For further information on
Despite the recent cancellation of the share
ongoing legal disputes, please see Note 30
freeze action in Ukraine regarding the
Commitments, contingencies and
Group’s shareholding in FPM, held via the
legaldisputes to the Consolidated Financial
Group’s Swiss subsidiary Ferrexpo AG,
Statements.
there continues to be a risk that this action
As referenced in the Group’s Interim Results may be resumed, despite several court
published in August 2021, there are decisions to dismiss this action.
outstanding matters in Ukraine relating to
the Group’s controlling shareholder that
remain unresolved, and there is a risk that
assets owned or controlled (or alleged to be
RISK MITIGATION
Ferrexpo operates in accordance with transactions, appropriate procedures, through skills training and by offering
relevant laws and utilises internal and systems and controls are in place. competitive wages, taking into account
external legal advisors as required to movements of the Ukrainian hryvnia
Ferrexpo prioritises a strong internal
monitor and adapt to legislative changes against the US dollar and local
control framework including high
or challenges. inflationlevels.
standards of compliance and ethics. The
The Group maintains a premium listing on Group operates a centralised compliance Ferrexpo has a high profile given its
the London Stock Exchange and as a structure that is supported and resourced international client base and London
result is subject to high standards of locally at the Group’s operations. Ferrexpo listing. It is therefore important that
corporate governance, including the UK has implemented policies and procedures Ferrexpo’s Board of Directors and relevant
Corporate Governance Code and Market throughout the Group including training. senior management engage with the
Abuse Regulation. Ferrexpo has a Ferrexpo prioritises sufficient total Group’s stakeholders to effectively
A
relationship agreement in place with liquidity levels and strong credit metrics communicate the economic contribution
Kostyantin Zhevago, which stipulates that to ensure smooth operations should that Ferrexpo makes to Ukraine and
the majority of the Board of Directors must geopolitical or economic weakness disrupt toshow that it operates to high
be independent of Mr Zhevago and his the financial system of Ukraine. Ferrexpo internationalstandards.
associates. For all related party looks to maintain a talented workforce
### 60 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 1. COUNTRY RISK
### 1.3 Counterparty risk (external risk)
Ferrexpo is exposed to counterparty risk the ongoing conflict with Russia, which Responsibility
through its interactions with government mayresult in damage to key infrastructure Board of Directors, Chief Executive Officer
agencies, customers, suppliers, contractors required for either the production or and Chief Financial Officer
and external parties that the Group interacts shipment of the Group’s products. The
with, including through its CSR programmes. invasion of Ukraine has also put an increased
Risks relating to government agencies both level of financial stress on the counterparties Risk appetite
in Ukraine and other jurisdictions in which with which Ferrexpo does business in Low
the Group operates throughout the globe Ukraine, and therefore has heightened
include levels of taxation, the repayment of therisk of counterparty failure.
VAT and licences required for Ferrexpo’s Link to strategy
The advent of the global Covid-19 pandemic
operations to operate. In Ukraine, a number 4
in 2020, which has continued into 2021, has
of monopolies exist, including the
also introduced additional risk to Ferrexpo
transmission of electricity and natural gas
### in the form of heightened risk of Change
that is required for the creation of the
counterparty failure, as third parties
Group’s products, as well as the railway
struggled to adapt to the effects of the
network in Ukraine, and this presents the
pandemic. This is a risk facing the Group
Group with a risk should these monopoly
interms of timely payment and/or delivery
companies fail to function correctly.
of goods and services, and Covid-19 is
TheGroup is also exposed to counterparty
alsocovered as a Principal Risk on page 72.
riskthrough its business interactions with
Asnoted on page 54, however, the risks
customers and suppliers of goods and
associated with recent variants of the
services, as these interactions may result
Covid-19 virus appear to be diminishing
infinancial loss for the Group if the
inseverity, compared to the original
counterparty in question fails to fulfil its
variantof this virus.
duties correctly. This risk is heightened by
RISK MITIGATION

| Ferrexpo sells its iron ore products to | further monitoring are required by the | warning of regulatory changes and their |
| --- | --- | --- |
| well-established steel producers that have | Group’s compliance function. All supplier | implications for the Group. The FRMCC |
| sound credit profiles. Ferrexpo’s | contracts must contain the defined set of | enquires into the ownership of potential |
| counterparties are subject to regular and | compliance clauses (including, but not | suppliers deemed to be “high risk”, and |
| thorough review. The results of these | limited to, topics such as anti-bribery, | oversees the management of conflicts of |
| reviews are used to determine appropriate | sanctions, tax compliance and modern | interests below Board level and general |
| levels of exposure and available | slavery). These requirements were | compliance activities (including under the |
| alternatives, in order to reduce the | consolidated into the Business Partners’ | UK Bribery Act 2010, the Modern Slavery |
| potential risk of financial loss. | Code of Conduct in 2019, which is | Act, the Criminal Finances Act, and the EU |
|  | referenced in 95% of all contracts signed | General Data Protection Regulation). |

The Group has developed its supplier base
as of 2021 (98% of contracts with a value
in order to avoid excessive dependence on The Group aims to minimise risk around
in excess of UAH 500,000).

| any supplier, actively encouraging a |  | the timely provision of goods and services |
| --- | --- | --- |
| diversity of supply where reasonable and | The Finance, Risk Management and | through maintaining sufficient cash |
| practical. Companies that would like to | Compliance Committee (“FRMCC”), an | reserves and liquidity, as well as |
| work with Ferrexpo are required to | executive sub-committee of the Board, | maintaining alternative suppliers should |
| undergo an accreditation procedure, | met ten times in 2021 and is charged with | one counterparty fail. |
| where their documents, licences and | ensuring that systems and procedures are |  |

The Board aims to ensure adherence to
financial stability are checked. In 2021, in in place for the Group to comply with laws,
the highest standards of diligence,
line with previous years, Ferrexpo regulations and ethical standards. The
oversight, governance and reporting with
screened and monitored third-party FRMCC is attended by the Group
all charitable donations, with the HSEC
entities for sanctions and other risks, with Compliance Officer and, as necessary, by
Committee required to provide approval
suppliers that pass accreditation able to the local compliance officers from the
for community support expenditures.
participate in tenders. For entities deemed operations, who present regular reports
to be “high risk”, additional checks and and ensure that the FRMCC is given prior
### Ferrexpo plc Annual Report & Accounts 2021 61
STRATEGIC REPORT
## Principal Risks continued
## 2. MARKET RELATED RISKS
### 2.1 Risks relating to the global demand for steel

| The Group is a supplier to the global steel | asignificant impact on the overall steel | Responsibility |
| --- | --- | --- |
| industry, with customers located in several | value chain. One high profile example of | n/a |
| continents around the world. The global | such an event was seen in 2021 with the | (Ferrexpo not large enough to influence |
| steel industry produces steel for a wide | six-day blockage of the Suez Canal by the | global demand) |
| range of end uses and is exposed to a wide | vessel Ever Given in March 2021. |  |

range of factors that may affect each
Steel mill profitability can also influence the
customer’s ability to produce steel and Risk appetite
demand for different grades and forms of
supply end users of steel. Therefore, as part Medium
iron ore, with demand for high grade iron
of the global steel value chain, Ferrexpo is in
ore pellets typically lower at times of lower
turn also exposed to the same risks as
steel prices, when steelmakers typically
steelmakers. The Group does not, however, Link to strategy
move to reduce mill productivity and overall
supply its products to steelmakers in 3 and 5
output. Global demand for steel is also
Russia, and is therefore not exposed to
linked to global productivity and levels of
risks related to recent restrictions in trading
### investment, and therefore during periods of Change
with this group of steelmakers that relate to
reduced economic activity, steel demand
Russia’s invasion of Ukraine in early 2022.
(and therefore steel production) is often
On the input side, steel production requires reduced as a consequence. The steel
raw material inputs such as iron ore and industry is also regionally fragmented, with
coking coal, as well as significant numbers factors relevant for certain geographic or
of employees, all of which represent a political regions, not applicable for other
significant proportion of steelmakers’ cost regions. It is therefore important to have a
bases and therefore have the potential to strong understanding of regional factors
negatively affect the profitability of a steel that may affect specific steel producers
mill. In the event of reduced profitability, more than others.
steel mills often reduce steel output in order
The global steel industry is also under
to preserve the balance sheet of the
significant pressure to decarbonise its
operating company, which in turn reduces
operations, with the global steel industry
demand for iron ore. Steel producers are
responsible for 7% of global carbon
also reliant on the consistent supply of raw
1
emissions . Steelmakers are currently
materials, which requires access to global
seeking technological solutions for
markets, which can often be disrupted by
producing commercial quantities of low
natural events, geopolitical events or
tozero carbon steel, which will require
otherwise. These same distribution
significant investment in both research
networks are required for the transfer of
anddevelopment, as well as likely require
steel products to customers and end users,
significant investment to deploy
and therefore any disruption can have
newtechnologies. 1. Source: IEA.
RISK MITIGATION

| The Group aims to mitigate risks relating | the Group aims to have the ability to serve | Ferrexpo operates in a country whereby |
| --- | --- | --- |
| to the global steel prices and global | a broader range of customers, if required. | the local currency, the Ukrainian hryvnia, |
| demand for steel through having a network | The Group also aims to develop long-term | is a currency that is linked to the |
| of premium customers located in a variety | relationships with customers, whereby | performance of commodity prices, and |
| of geographic regions. Ferrexpo has also | there is a strong level of engagement and | historically the Group has experienced |
| commenced a process to develop a | understanding between both parties. | depreciation in the hryvnia at times of |
| network of additional customers for its | Through the Group selling the majority of | lower commodity prices, which in turn |
| higher grade (67% Fe) direct reduction | its production via long-term contracts, the | reduces the Group’s dollar-denominated |
| pellets, which currently represents | Group aims to secure the stable and | cost base. Movements in the hryvnia- |
| approximately a third of the global pellet | consistent offtake of its production, | dollar exchange rate can, however, be |
| export market, and historically has not | enabling the Group to be able to adapt and | influenced by other factors and may not |
| been a market that Ferrexpo has served. | adjust to meet changing business | necessarily reduce costs at times of low |
| Through direct reduction pellets, as well | conditions, if required, rather than relying | iron ore prices. |
| as the ability to produce and market new | on short-term relationships and spot sales. |  |

products such as high grade concentrate,
### 62 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 3. RISKS RELATED TO REALISED PRICING
### 3.1 Changes in pricing methodology
Pricing formulas for iron ore pellets are Responsibility
governed by a number of factors, including Chief Executive Officer and
the iron ore fines price, a premium for ChiefMarketingOfficer
additional ferrum content (if applicable),
pellet premiums, freight rates and additional
quality premiums and discounts depending Risk appetite
on the type of iron ore pellet or concentrate Medium
supplied and its chemistry. Industry-wide
factors, which are outside of the Group’s
control, can influence the methodology for Link to strategy
pricing iron ore products, in addition to the 1, 3 and 5
various premiums and discounts that are
applied by individual customers and
### Change
individual regions. Premiums or discounts
paid for specific characteristics may change
and adversely impact the Group’s ability
tomarket specific products.
RISK MITIGATION

| The Group aims to price its products | Group aims to be a low cost producer and | away from Europe and towards China, to |
| --- | --- | --- |
| through clear and consistent engagement | therefore cash flow positive throughout the | meet temporary shifts in demand patterns. |
| with customers, with the Group seeking to | commodities cycle. For more information | The Group has since seen global demand |
| develop mutually beneficial long-term | on its position on the cost curve, please | patterns for iron return to historical |
| relationships. Through consistent supply | see the Case Study provided on page 25. | distribution levels in 2021. The Group has |
| and consistent high quality of the Group’s | The Group also has the logistics capability | retained this flexibility to divert sales to |
| products, Ferrexpo aims to maintain | to divert sales to other markets to offset | alternative markets should future shifts |
| strong relationships with its customers. | any regional weakness, as was seen | indemand occur. |

during the initial peak of the global
Ferrexpo endeavours to achieve the
Covid-19 pandemic in 2020, when the
prevailing market price at all times, and the
Group was able to redirect sales volumes
### Ferrexpo plc Annual Report & Accounts 2021 63
STRATEGIC REPORT
## Principal Risks continued
## 3. RISKS RELATED TO REALISED PRICING (CONTINUED)
### 3.2 Lower iron ore prices

| As a single commodity producer, the Group | of iron ore also include the global supply of | Responsibility |
| --- | --- | --- |
| is inherently exposed to performance of the | iron ore, as stable pricing requires that the | n/a |
| iron ore price, in addition to other market | available supply of iron ore broadly matches | (Ferrexpo not large enough to influence |
| prices. The Group is a producer of high | the global demand for iron ore, and any | global demand) |
| grade iron ore products, which are widely | imbalance can result in significant |  |
| considered to be products with an iron | movements in iron ore pricing. There are a |  |
| content in excess of 65%, and this is a | number of large greenfield and brownfield | Risk appetite |
| subset of the wider global trade in iron ore | projects that have the potential to | Medium |
| that is affected by additional factors. The | significantly impact the global price of |  |
| iron ore industry as a whole is primarily | ironore should these projects come |  |
| governed by steel demand and demand for | intoproduction. | Link to strategy |
| iron ore as a consequence. During periods |  | 1, 3 and 5 |

The global demand for high grade iron ore is
of low steel demand, iron ore prices trend
a further subset of the global iron ore trade,
lower as steel mills look to actively reduce
### with the supply of high grade iron ore Change
steel output. The majority of the world’s
typically sourced from iron ore mines in
exported iron ore is traded on the 62% Fe
Northern Brazil, and fluctuations in output
fines index, which in the past five years has
from these particular mines can have a
varied between periods of being less than
direct impact on the prices paid for high
US$50 per tonne to over US$200 per tonne.
grade iron ores. Ferrexpo’s iron ore
Ferrexpo is not sufficiently large enough a
products are priced using the high grade
producer to be able to directly affect the
index (65% Fe) and the Group is therefore
globally quoted price of iron ore, and
impacted by these fluctuations.
therefore, like other companies that produce
and sell iron ore, must accept the prevailing
iron ore price. Factors governing steel
demand are discussed in this section (Risks
relating to global demand for steel, page
62). Factors specifically governing the price
RISK MITIGATION
Ferrexpo is a low to medium cost producer also tends to decline asa result of local factors. Ferrexpo regularly reviews options
relative to the majority of its peers, and is currency devaluation. The Ukrainian to hedge the price of its output; however,
positioned in the lower half of the global hryvnia is a commodity-related currency its current strategy is not to enter into
cost curve of iron ore pellet producers. and historically over the long term it has hedging agreements, due to the relatively
Ferrexpo’s operating costs are partly depreciated during periods of low low liquidity of this market and high cost of
correlated with commodity prices. When commodity prices, although movements of entering into such arrangements. Ferrexpo
the commodities cycle is in a downward the Ukrainian hryvnia against the US dollar has maintained positive profit and cash
phase, Ferrexpo typically receives a lower can also be influenced by short-term generation throughout the iron ore
selling price, but the Group’s cost base political factors, in addition to other pricecycle.
### 64 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 3. RISKS RELATED TO REALISED PRICING
### 3.3 Pellet premiums and pellet supply

| Iron ore pellets are utilised by steel mills to | Further supply of pellets into the global | Responsibility |
| --- | --- | --- |
| improve productivity through their inherent | export market would also have the potential | Chief Executive Officer and |
| characteristics as a pellet and the higher | to reduce pellet premiums and a pellet | ChiefMarketingOfficer |
| grade nature of Ferrexpo’s iron ore pellets. | producer in Brazil, which was offline since |  |
| At times of lower steel mill profitability, steel | 2015, returned to production in late 2020 |  |
| producers are known to reduce demand for | and has now reached its published | Risk appetite |
| higher cost inputs such as iron ore pellets, | nameplate capacity for production. | Medium |

in order to reduce the cost of steel
Recent trends in the global steel industry
production and to protect steel margins.
have led steel producers towards targeting
This has the potential to negatively affect Link to strategy
lower carbon emissions, and iron ore pellets
the pellet premium, and by extension, the 1, 3 and 5
are a method for achieving such a
profitability of Ferrexpo, since the majority
reduction, since iron ore pellets do not
of Ferrexpo’s profit margin has come from
### require sintering prior to conversion into Change
its ability to receive the pellet premium.
steel. If, however, this trend towards an
Risks to the pellet premium also exist in
environmentally friendlier method of steel
replacement of pellets in the blast furnaces
production were to reverse in the future, this
operated by Ferrexpo’s customers with
could also negatively affect demand for iron
alternatives, such as lump ores, and a
ore pellets, and by extension, lower pellet
significant increase in this substitution
premiums. Lower pellet premiums could
would have the potential to reduce
impact the Group’s ability to pay dividends
pelletpremiums.
to shareholders, repay debt amortisation
and could result in lower levels of capital
investment (including sustaining capex).
RISK MITIGATION

| Ferrexpo primarily sells high quality | Ferrexpo also has the ability to produce | the Market Review section on pages 12 to |
| --- | --- | --- |
| pellets, which underpin demand for its | iron ore concentrate should market | 15 for more details. Should, however, the |
| product throughout the commodity cycle. | conditions make this product more | pellet premium fall below the cost of |
| Should the pellet premium decline, | economically viable. Ferrexpo’s pelletising | pelletising material, the Group has the |
| Ferrexpo has historically one of the lowest | costs in 2021 were approximately US$19 | option to halt pelletising operations and |
| pellet conversion costs in the industry | per tonne (2020: US$11 per tonne) and, | produce concentrate instead for a period |
| depending to different periods of | therefore, lower than the pellet premium | of time. |
| commodity prices, which helps the Group | seen in 2021, aiding the Group to deliver |  |
| to remain a competitive producer. | firm margins during the year. Please see |  |

### Ferrexpo plc Annual Report & Accounts 2021 65
STRATEGIC REPORT
## Principal Risks continued
## 3. RISKS RELATED TO REALISED PRICING (CONTINUED)
### 3.4 Seaborne freight rates

| As iron ore is a bulk commodity, seaborne | Ferrexpo’s received price is referenced | Responsibility |
| --- | --- | --- |
| freight rates are an important component of | totransparent freight indices such as | Chief Executive Officer and |
| the cost to deliver product to a customer. | theBaltic Exchange C3 freight index. | ChiefMarketingOfficer |
| An increase in freight rates will reduce the | In2021, the C3 freight index increased |  |
| net price received from a customer, and | toanaverageof US$27 per tonne |  |
| reduce profitability, while a reduction in | (2020:US$15per tonne). | Risk appetite |
| freight rates will increase the net price |  | Low |

Russia’s invasion of Ukraine in early 2022,
received from a customer. Seaborne freight
and the related military activity in the Black
rates, such as the C3 freight index, are
Sea, has resulted in increased freight
published by the Baltic Exchange. The C3 Link to strategy
charges (principally additional insurance
freight index represents the cost for ocean 2, 3 and 5
premiums) for companies looking to
transportation for iron ore from the Brazilian
chartervessels to receive cargoes
port of Tubarão (where the largest seaborne
### atUkrainianports. Change
pellet supplier is based) to Qingdao,
China(with China being the world’s largest
steel producer).
RISK MITIGATION
Ferrexpo understands the need to have its Through the Group’s close proximity to the potentially making such activities
own in-house specialists within the key markets of Europe and the Middle economically advantageous to the Group.
Group’s marketing team that are capable East, the Group has a natural advantage
The additional insurance premiums
of ensuring the Group pays a competitive over alternative suppliers of iron ore
associated with Russia’s invasion of
rate for seaborne freight rates. Through pellets that are located in more distant
Ukraine are expected to be temporary in
effective internal planning procedures and locations, such as Canada and Brazil. This
nature, and a requirement for such
engagement with stakeholders in the reduced distance to certain markets
premiums will likely be removed following
Group’s freight business, the Group is able results in shorter travel times for the Group
the cessation in hostilities. The Group is
to effectively charter vessels at as well as a reduction in the carbon
also reviewing the possibility of shipping
competitive freight rates relative to the emissions associated with the freight for
its products either via (a) Black Sea ports
prevailing index. The Group also has deliveries into these markets. For more
outside of Ukraine, or (b) ports that the
sufficient flexibility in its customer and information, see the Case Study on page
Group could utilise outside of the Black
logistics network to consider differences in 15. The Group may decide to enter into the
Sea. However, it should be noted that
freight rates when budgeting for future forward hedging of its freight related costs
utilising such ports will likely result in
periods, considering freight rates in in light of the market volatility witnessed in
increased freight charges to the Group
broader decisions around allocating 2021, with derivatives trading in freight
relative to the logistics pathway utilised
tonnages to each geographic market into markets more liquid than similar markets
viaPivdennyi.
which the Group sells its products. for iron ore pellets, and therefore
### 66 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 4. OPERATING RISKS
### 4.1 Risks relating to producing and delivering the Group’s iron ore products to customers
Ferrexpo operates three open pit mining Lower volumes, higher costs and financial Responsibility
operations, a large-scale beneficiation plant penalties due to poor quality and late Chief Executive Officer, Chief Operating
and four pelletising lines, which all involve delivery can impact the Group’s cash Officer and Chief Marketing Officer
the processing of significant volumes of generation ability, reducing levels of total
A A
material, and, therefore, have inherent liquidity and impacting capital investment
significant associated risks due to their size levels as well as affecting the Group’s ability Risk appetite
and complexity of operations. to repay debt and pay dividends to Medium
shareholders. Poor pellet quality or late
Russia’s invasion of Ukraine poses
delivery of product can also affect the
numerous operational risks to the Group’s
Group’s ability to perform according to Link to strategy
operations, which are detailed on page 57
customer contracts and its ability to 2, 3 and 5
of this report.
maintain and renew contracts in the future.
In mining, there are inherent risks
### The global steel industry is under increasing Change
associated with open pit mining, including
pressure to adapt its production processes
geotechnical risks, risks related to
to reduce emissions of greenhouse gases,
groundwater and surface water ingress,
and as a result the Group is seeing
risks surrounding mine planning decisions,
increasing market demand for higher grade
and risks related to critical equipment
forms of iron ore. The Group is able to
failure, in addition to other factors.
produce high grade forms of iron ore,

| In the Group’s beneficiation and pelletising | namely iron ore pellets grading 65% Fe |
| --- | --- |
| operations, there are risks associated with | (blast furnace pellets) or 67% Fe (direct |
| critical equipment failure, as well as risks | reduction pellets), but these forms of |
| specific to the potential failure of the | product require additional processing and |
| Group’s tailings dam facilities. Logistics | therefore are produced at an additional |
| risks relate to the business’s reliance on the | cost. In certain circumstances, it may not |
| ease of transport of its iron ore products to | be economically viable to produce higher |
| customers, in addition to the consistent | grade forms of iron ore pellets from specific |
| supply to the Group’s operations of key | lower grade ore types from the Group’s |
| consumables such as fuel for mining and | mines, and therefore it may be necessary to |
| natural gas for pelletising. | adjust mine planning activities and impair |

existing investments in stockpiles of these
particular ore types.
RISK MITIGATION

| The Group aims to continually reinvest its | tailings facility. To mitigate risk in relation | Pivdennyi (formerly known as Yuzhny). The |
| --- | --- | --- |
| profits into its business to expand its | to the Group’s logistics business and | Group also operates a talent management |
| production, improve product quality and | delivery of iron ore products to customers, | and leadership programme to ensure |
| enhance logistics capabilities. Extensive | the Group strives to operate its own | management coverage of business-critical |
| monitoring by in-house planning | equipment and facilities where possible, | roles. This involves the annual assessment |
| departments, in addition to external | and as a result the Group owns a fleet of | of all managers across the Group of |
| certification by third-party consultants, | 2,850 railcars within Ukraine, a fleet of 218 | approximately 350 people, and the results |
| help to mitigate risks around the Group’s | vessels for delivering products to | of this process are presented to the |
| mining, processing, pelletising and | customers via the Danube River, and has a | Operations Management Committee, |
| logistics operations, including the Group’s | 49.9% interest in a berth at the port of | theExecutive Committee and the Board. |

### Ferrexpo plc Annual Report & Accounts 2021 67
STRATEGIC REPORT
## Principal Risks continued
## 4. OPERATING RISKS (CONTINUED)
### 4.2 Risks relating to health and safety

| Russia’s invasion of Ukraine in early 2022 | these activities, can be high if the correct | Responsibility |
| --- | --- | --- |
| has created a significant risk related to the | risk mitigation measures are not enforced. | Chief Executive Officer, Chief Operating |
| health and safety of the Group’s workforce | There are inherent risks with materials | Officer and Chief Marketing Officer |
| in Ukraine, with details of this risk and | handling throughout the Group’s operations |  |
| mitigation measures, presented on page 57. | – from hazardous chemicals, flammable |  |
|  | liquids and gases, and other dangerous | Risk appetite |

The extraction and processing of large
goods. In logistics, the Group oversees the Low
volumes of rock has historically been
transfer of significant volumes of iron ore
associated with hazardous working
pellets loaded onto trains, dry bulk vessels
environments. Hazards in open pit mining
and inland vessels, all of which carry Link to strategy
include hazards relating to drilling and
inherent risks. The Group’s logistics 1, 2, 3, 4 and 5
blasting of rock, the presence of operators
subsidiary, First-DDSG, transports pellets
on and around large pieces of equipment
along the Danube River in all seasons, with
### such as excavators and haul trucks, and the Change
specific safety hazards applicable to river
creation of deep open pit mines with steep
transport throughout the year, including
inclines. In processing, operators are in
operating in freezing conditions and river
close proximity to large pieces of equipment
safety around other vessels.
such as crushers and ball mills, all of which

| carry significant electrical currents, weigh | In addition, the Group and its workforce |
| --- | --- |
| asignificant number of tonnes and are | have faced significant health and safety |
| constantly moving when under operation. | risks relating to the global Covid-19 |
| Maintainers are often required to place | pandemic. Details of the risks relating to this |
| themselves within equipment to access and | are provided on page 72 of the Principal |
| repair equipment, and are often required to | Risks section, with risk mitigation measures |
| use lifting equipment to raise machinery | also provided in the Case Study on page 11. |

weighing several tonnes. The risks to
operators conducting these activities,
orinclose proximity to those conducting
RISK MITIGATION
Risk mitigation in the Group’s approach The Group uses leading and lagging safety register incidents correctly and to promote
tohealth and safety begins with indicators to better understand where an open and understanding culture when it
understanding the risks faced by operators safety risks may exist. An example of a comes to safety.
when entering a place of work. This is leading indicator of safety is the number of
In relation to the safety and wellbeing
achieved through risk assessments for safety audits conducted by the Group’s
measures implemented in response to the
each area and activity in which an operator safety department, which correlates to the
global Covid-19 pandemic, the Group has
is active, aiming to ensure that potential degree of safety improvements made in
sought to protect both its workforce and
risks are understood before work takes each working area, and therefore reducing
its local communities, with details of these
place. Extensive safety training is provided the potential for future incidents to occur.
measures provided on pages 11 and 42 of
to both operators and management, Lagging indicators of safety relate to
this report.

| toprovide the necessary level of | safety incidents that have already |  |
| --- | --- | --- |
| understanding of the risks faced and the | occurred, such as near miss events, and | In 2021, through implementation of the |
| high level of safety standards expected by | the Group monitors these closely to learn | above safety measures, the Group was |
| the Group. Training is provided to both | and improve for the future, to reduce | able to report on a fatality-free year and |
| employees and contractors, since safety | thenumber of these events occurring. | arecord-low full year lost time injury |
| hazards do not distinguish between | Increases in a lagging indicator are often | frequency rate since IPO of 0.41 |
| anindividual’s contract status. | an aspect of encouraging employees to | (2020:0.79). |

### 68 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 4. OPERATING RISKS
### 4.3 Risks relating to operating costs
Ferrexpo’s overall ability to generate cash is and historically over the long term it has Responsibility
predicated on its ability to maintain a low depreciated during periods of low Chief Executive Officer and
cash cost of production across its business, commodity prices, although movements of ChiefFinancialOfficer
including the Group’s mining, processing, the Ukrainian hryvnia against the US dollar
pelletising and logistics businesses. A can also be influenced by short-term
number of factors affect the Group’s ability political factors. Risk appetite
to remain cost effective relative to its iron Low
In 2021, the Group’s C1 cash cost of
ore producing peers, including the
A
production increased by 34% to US$55.8
component of the Group’s cost base that
per tonne (2020: US$41.5 per tonne). See
relates to global commodity prices, such Link to strategy
the Financial Review section (pages 22 to
asfuel, gas, explosives, tyres and steel 2 and 5
25) for a description of the factors impacting
grinding media. The commodity-linked
operating costs.
component of the Group’s cost base has
### Change
historically represented approximately 50% The Group has seen significant inflationary
A

| of the total C1 cash cost of production | . In | pressure relating to energy costs in the |
| --- | --- | --- |
| times of relatively high iron ore prices the |  | second half of 2021 and into 2022, with |
| cost of production tends to increase due to |  | prices for key consumables such as natural |
| commodity cost inflation; however, during |  | gas, electricity and diesel all increasing. |
| periods of low commodity prices the cash |  | SeeCase Study on page 25 for |
| cost is typically reduced. A second |  | moreinformation. |

important driver of C1 cash cost of
The Russian invasion of Ukraine in early
A
production is local currency, which for
2022 has resulted in inflationary cost
Ferrexpo is the Ukrainian hryvnia, and this
pressures on a number of the Group’s key
has historically directly affected
consumables, with the Group conducting
approximately 50% of the Group’s total C1
measures to reduce the risks associated
A
cash cost of production . The Ukrainian
with the conflict, such as increased
hryvnia is a commodity-related currency
stockpiling of key consumables to reduce
the risks around potential supply disruption.
RISK MITIGATION

| Ferrexpo sits in the bottom half of the | Group to offset (to some extent) external | aperiod of time. The Group also has a |
| --- | --- | --- |
| pellet cost curve, and as such maintains a | cost inflation. A number of companies in | Business Improvement Programme aimed |
| degree of competitiveness over its | the Group’s peer group have in the past | at increasing efficiencies and reducing |
| pellet-producing peers in countries such | switched between production of iron ore | costs by 1% to 2% per annum. Ferrexpo |
| as Brazil, Canada and Sweden. Many of | pellets and iron ore concentrate, according | has established several sources of |
| the Group’s costs relate to commodity | to pellet premiums and the profitability of | suppliers for key products as well as |
| prices, which will in turn also impact | producing pellets. Ferrexpo’s pelletising | several supply routes to ensure cost |
| Ferrexpo’s peers to a similar extent, and | costs in 2021 were approximately US$19 | effective supplies of all key consumables. |
| as such, in times of higher commodity | per tonne and therefore lower than the |  |

The Group expects the inflationary cost
prices, the Group should be able to pellet premium seen in 2021 (please see
pressures related to Russia’s invasion of
maintain its cost competitiveness relative the Market Review section on pages 12 to
Ukraine to be temporary in nature and that
to its competitors. 15 for more details). However, should the
the Group will retain the cost advantages
pellet premium fall below the cost of
In 2022, Ferrexpo expects to increase outlined above in the medium term to
pelletising material, the Group has the
production volumes, which will aid remain competitive on costs on a
option to halt pelletising operations and
production costs through the dilution of globalscale.
produce concentrate instead of pellets for
fixed costs, and will potentially enable the
### Ferrexpo plc Annual Report & Accounts 2021 69
STRATEGIC REPORT
## Principal Risks continued
## 4. OPERATING RISKS (CONTINUED)
### 4.4 Risks relating to information technology and cybersecurity
Russia’s invasion of Ukraine in early 2022 cyberattack in May 2021 that shut down Responsibility
has created a significant risk related to 45% of the United States’ East Coast fuel Chief Executive Officer
1

| cybersecurity at the Group’s operations | supply. | Such events appear to be becoming |  |
| --- | --- | --- | --- |
| inUkraine, with details of this risk and | increasingly frequent, with increasing |  |  |
| mitigation measures, presented on page 57. | impact on the entities subjected to such |  | Risk appetite |
|  | attacks. Events such as cyberattacks are |  | Low |

The Group is continually looking to
not necessarily targeted at specific
modernise and digitise its operations, and is
companies or sovereign states, but often
increasingly looking towards information
inflict additional damage to companies and Link to strategy
technology (“IT”) to operate its business
governments not directly connected to the 1, 2 and 3
model. The move towards increasing
original targeted entity, and therefore such
digitalisation presents an increasing
attacks may appear random in nature and
### exposure to parties that may wish to disrupt Change
difficult to predict asaconsequence.
the Group’s operations for financial gain,
competitive advantage over the Group or to Cyberattacks, such as malware and
inflict other negative consequences on the ransomware, are often unreported in the
Group for other reasons. Cybersecurity mainstream media by companies and
threats may take the form of, but not limited governments to avoid the negative publicity
to, the following: malware, ransomware, associated with such events. It is therefore
phishing, denial-of-service attacks, and difficult to ascertain the full extent to which
password attacks. the Group is facing risks relating to
cybersecurity. Published cyberattacks
Cyberattacks have been noted on a global
affecting companies and governments in
scale in recent years, as well as similar
the past have closed or limited a company’s
attacks that have been specifically targeted
ability to produce, have withheld or
against sovereign nations, such as the
disclosed confidential information, and have
NotPetya ransomware first noted in 2017
withheld access to key operational
that is believed to have been targeted at
infrastructure, in addition to other attributes
entities in Ukraine, or the Colonial Pipeline
of such events. 1. Source: Forbes (link). Accessed April 2022.
RISK MITIGATION
Ferrexpo conducts regular reviews of identified. The Group also regularly Ferrexpo’s operations with backup power,
thedifferent information systems and reviews requirements on data protection, with elevated security protocols to
technologies in use across its business, with email security bulletins circulated to ensurethe Group’s continued access to
toensure that information systems and ensure internal users of IT are provided itsdata and IT systems in the event of
technologies are regularly maintained and with up-to-date information on acyberattack.
up-to-date in terms of security protocols. cybersecurity. The Group has also
Further to existing practices and
implemented a dynamic approach to
The Group’s IT department conducts protocols, the Group regularly updates the
anti-malware policies, to ensure an
regular reviews of the general IT landscape software and hardware in use throughout
adaptive approach for new threats as they
and provides regular cyber awareness its business, to remove the Group’s
emerge. Efforts in 2021 have centred
training for employees as well as ad hoc exposure to known weaknesses
around the procurement and installation
notification when new threats are incybersecurity.
ofa dedicated on-site data centre at
### 70 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## 5. RISKS RELATING TO CLIMATE CHANGE

| As a contributor to the global steel value | specifically targeted under carbon reduction | Responsibility |
| --- | --- | --- |
| chain, the Group is aware of the risks posed | regulations, such as a gradual reduction in | Board of Directors and |
| to it by climate change. The risks posed by | carbon credits as part of the EU’s “Fit for | ChiefExecutiveOfficer |
| climate change are diverse in scale and can | 55” initiative to achieve a 55% reduction in |  |

2

| be either local, affecting the Group’s | carbon emissions by 2030 | . As steelmakers |  |
| --- | --- | --- | --- |
| stakeholders in the jurisdictions in which it | around the world face increasing regulation |  | Risk appetite |
| operates, or global whereby there are | to curb emissions, as well as the direct |  | Low |
| impacts to factors such as demand for iron | effects of climate change and changing end |  |  |
| ore pellets. Climate change risks can also | user demand, these changes will filter |  |  |
| be further classified into risks that affect the | through to Ferrexpo as a supplier to these |  | Link to strategy |
| Group’s physical environment – such as | producers, with a portion of these changes |  | 1, 2, 3, 4 and 5 |
| flooding, drought conditions and extremes | likely to be negative. |  |  |

of temperature, or risks could be regulatory
### Ferrexpo also faces acute physical risk as a Change
in nature whereby governments seek to
result of climate change outside of Ukraine
impose restrictions to limit emissions of
in its logistics network, particularly its
carbon dioxide through measures such as
barging operations along the Danube River,
environmental levies or carbon taxes.
which are prone to freezing weather
Climate change risks can also affect the conditions in European winters and both
Group through its suppliers and customers, flooding and low water events in summer.
with suppliers facing the same risks as
Additionally, the Group faces reputational
Ferrexpo, and as a result may not be able to
risk both in Ukraine and across the globe
continue to supply the Group with the same
with stakeholders such as investors,
goods and services as currently provided.
suppliers and customers, if it is not seen
Customers of Ferrexpo, comprising the
tohave strong environmental credentials,
global steel industry, are significantly
ordoes not comply with government
affected businesses by climate change risk
regulation. This particular risk can apply to
given the relatively high proportion of global
the Group’s activities in Ukraine and barging
emissions produced by steelmakers (7% of
operations in Europe, but also perceptions

|  | 1 |  | 1. Source: IEA, 2020 (link). Accessed April 2022. |
| --- | --- | --- | --- |
| total emissions | ). As an example, the EU has |  |  |
|  |  | around the environmental footprint of the | 2. Source: European Commission (link). Accessed April ‘22. |

selected the European steel industry as one
Group’s products. 3. Source: Forbes (link), accessed April 2022.
RISK MITIGATION
3

| The Group has sought to mitigate risks | undertaking an external assurance | ore pellets | and the Group has |
| --- | --- | --- | --- |
| around climate change in a number of | process, whereby an external consultant is | commenced a process to align itself |  |
| areas in 2021. Locally in Ukraine, the | reviewing and providing assurance on the | towards Green Steel by starting to |  |
| Group has implemented a significant | validity of the Group’s calculations for its | produce direct reduction pellets, which |  |
| number of operational projects targeting | carbon footprint. Further details of this | represent a known pathway to Green |  |
| productivity improvements to reduce | project are available on page 34. Looking | Steel. The Group intends to build its |  |
| diesel and natural gas consumption, | forward, the Group is seeking to further | presence in marketing direct reduction |  |
| including construction of a 5MW trial solar | establish its understanding of the role of | pellets in new regions, as well as maintain |  |
| power plant and the Group’s clean power | iron ore pellets in a low carbon future | a dialogue with existing customers as |  |
| purchasing programme. Through various | through its ongoing work with independent | theymodernise their production facilities |  |
| initiatives, the Group has reduced its | climate change consultants Ricardo plc; | andswitch to direct reduction pellets |  |
| carbon footprint per tonne (Scope 1 and | see page 37 for more details. | overtime. |  |

Scope 2 basis) by 30% since the Group’s
The Group understands the need to take The Group’s management believe that
baseline year of 2019. Further to this
action in addressing climate change today, through a multi-layered approach to
progress, in October 2021 the Group
and positioning for the future. For addressing climate change through
announced medium- and long-term
Ferrexpo, the future is Green Steel, which implementing projects today, as well as
carbon reduction targets (see page 36). To
is the production of steel without the implementation of longer-term
further reinforce the Group’s existing
associated carbon emissions. Thefirst projects, the Group will be well positioned
position on climate change and progress
Green Steel was created in Sweden in the for a low carbon future.
in carbon emissions, the Group is
summer of 2021 using direct reduction iron
### Ferrexpo plc Annual Report & Accounts 2021 71
STRATEGIC REPORT
## Principal Risks continued
## 6. RISKS RELATING TO THE GLOBAL COVID-19 PANDEMIC

| In 2021 the world has seen a continuation of | suppliers and customers experiencing | Responsibility |
| --- | --- | --- |
| the disruption caused by the Covid-19 | similar restrictions, resulting in a general | Board of Directors and |
| pandemic, similar in nature to the effects | slowdown in companies’ ability to do | ChiefExecutiveOfficer |
| seen in 2020 but with periodic and regional | business with each other. Governments face |  |
| easing of restrictions followed by increases | the risk of the additional strain on public |  |
| in infection rates and the reintroduction of | services and resources as a result of | Risk appetite |
| restrictive measures. Measures introduced | measures taken to combat the causes and | Low |
| in response to the global Covid-19 | the effects of the pandemic, which are costs |  |
| pandemic have varied between different | that may be passed on to businesses and |  |
| jurisdictions and have also varied in 2021 | individuals in the form of additional taxes | Link to strategy |
| according to an individual’s vaccination | and royalties, as well as cuts to existing | 1, 2, 3, 4 and 5 |
| status, adding an additional dimension to | services. More broadly, the global steel |  |
| Covid-19 restrictions. | value chain relies on a steady transfer of |  |

### Change
goods and services to operate efficiently,
Overall, Covid-19 continues to affect the
and market prices such as iron ore prices
health and wellbeing of individuals, as well
and pellet premiums could be negatively The Russian invasion of Ukraine in early
as continuing to divide and isolate
impacted by a decrease in steel output or a 2022 has also elevated the risk associated
communities as governments and
decrease in the ability of steelmakers to with Covid-19 due to a reduced focus on
businesses seek to find measures to slow
produce steel. The global steel value chain testing for the virus and therefore higher risk
the spread of the virus each time infection
also relies heavily on international travel for of transmission in local communities.
rates increase. Risks relating to the
global businesses to conduct business with
individual continue to be significant – from
each other effectively, and the global travel
the threat to the long-term health of an
industry has been significantly affected by
individual and their families and friends, to
travel restrictions. International travel was
the impact on wellbeing through social
also a frequent requirement for the Group’s
distancing measures. Businesses are at risk
senior leadership team, which is an activity
of seeing significant numbers of employees
that has also been significantly curtailed
and contractors of their own business be 1. Source: www.ourworldindata.org, accessed
during the pandemic.
forced to isolate due to infection, as well as 1February2022.
RISK MITIGATION

| The Group has sought to mitigate the | vaccinations and has provided local | restrictions ease. In the iron ore industry, |
| --- | --- | --- |
| impact of the global Covid-19 pandemic on | authorities with the use of the Group’s | the shift seen during the peak of the |
| its workforce, communities and business | on-site medical facility as a vaccination | pandemic during 2020 was towards China, |
| activities through a variety of measures. | centre. As of January 2022, over 5,900 of | and in 2021, global markets have gradually |
| Inrelation to the Group’s workforce, the | the Group’s employees have had at least | returned to a similar balance of demand |
| Group moved quickly to implement | one dose of a Covid-19 vaccine and 65% | ashas been seen in years prior to 2020. |
| measures in early 2020 as the pandemic | of employees were fully vaccinated, | Whilst the Group is prepared for further |
| commenced and these measures, such | approximately double the rate for the | shifts in iron ore demand, and has |

1

| asmask-wearing, social distancing, | general population of Ukraine | . The | capacity in its logistics network to manage |
| --- | --- | --- | --- |
| staggered shift patterns, Covid-19 testing | Group’s management is also aware of the |  | such events, the Group does not expect |
| and temperature screening, have all been | significant impact that Covid-19 has had |  | asimilar scale of market shift as observed |
| perpetuated into 2021. The Covid-19 virus | on the wellbeing of its employees, and as a |  | in 2020. |
| has affected every community around | result the Group has offered psychological |  |  |

In relation to the Group’s local
theworld and Ferrexpo is acutely aware support services and training to help
communities, the Group’s Covid-19
ofthe impact of Covid-19, having had 14 employees and contractors to cope with
Response Fund continues to work to
employees pass away as a direct result the various forms of stress that have
assist local hospitals and medical
ofCovid-19, or complications related to emerged as a result of the pandemic.
institutions in their work combating the
Covid-19, as of December 2021. The
On a broader scale, the Group has noted a pandemic, with a total approved funding
Group is therefore making every effort to
return in the global balance of steel amount of US$3.5 million. Details of the
prevent the virus causing further harm to
production, and therefore iron ore work conducted through this project are
its workforce and as a result, the Group is
demand, in 2021 as the world returns to a provided in the Case Study on page 11.
encouraging its workforce in Ukraine to
more normal balance of trade as Covid-19
take up the government’s offer of Covid-19
### 72 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Viability Statement
## APPRAISAL OF THE GROUP’S OUTLOOK
## IN A STRESSED SITUATION
## Reviewing the Group’s assessment of
## principalrisks,to consider the long-term
## viabilityofFerrexpo’sbusinessmodel.

| The Board monitors the Group’s risk | Emerging and existing risks are reported on | This review is conducted regularly in order |
| --- | --- | --- |
| management and internal control systems | during these calls, with risk mitigation | to maintain a clear understanding of the |
| on an ongoing basis, and confirms that | procedures discussed, and the results of | risks faced by the business and how |
| during the year it carried out a robust | each meeting being reported to the Group’s | thesefactors are influencing the business. |
| assessment of the principal and emerging | Board of Directors. Risks to Ferrexpo that | Following the start of the war in Ukraine on |
| risks facing the Group, their potential impact | have been identified as a consequence of | 24 February 2022, the Group’s management |
| and the mitigating strategies in place, | the war in Ukraine include risks to the | team has also focused on constantly |
| asdescribed on pages 54 to 72. | health, safety and wellbeing of the Group’s | assessing the risks that may directly, or |
|  | workforce, the Group’s ability to operate its | indirectly, impair the Group’s ability to |
| Time horizon | assets, the supply of key input materials | manage the Ferrexpo business in light of |
|  | required for the production process and | theimpact of the war onthe business and |

The Board has reviewed the long-term
theprovision and availability of logistics operating environment in Ukraine.
prospects of the business, which remain
capacity required for the delivery of the
aligned with Ferrexpo’s life of mine
Group’s products to customers in its Modelling process
assumptions. For the purposes of assessing
keymarkets.

| the Group’s viability, the Board has elected |  | In the normal course of business, the Group |
| --- | --- | --- |
| to look at the Ferrexpo business on a five | For more information, please see the | operates a detailed financial model of its |
| year time horizon, with a particular focus on | Principal Risks disclosed on pages 54 to72 | business. Recently, this work stream has |
| the short term (12-18 month) time horizon in | of this report. | focused on the potential impacts arising |
| light of the current war in Ukraine, and the |  | from the ongoing war in Ukraine, in addition |
| material uncertainties that this poses to the | Business planning process | to the more traditional input factors such |
| Group in terms of its going concern and |  | asthe market factors that influence the |

In response to the Russian invasion of
long-term viability. The Group has price of the Group’s products, and
Ukraine on 24 February 2022, the Group has
historically reviewed the viability of its operational factors that influence the
temporarily revised its approach to its
business model over a five year time period Group’s ability to produce the required
business activities and investments from its
given the long life nature of mining assets, volume and quality of iron ore pellets
Business Model shown on pages 16 to 17.
including the period required to invest demanded by the market, as determined
This approach has been implemented to
insuch assets and taking into account inthe Group’s forward-looking sales plan.
concentrate on the Group’s ability to
thecash flows generated by those assets,
generate cash in the revised market In assessing the inputs into this model, the
as well as the cyclical nature of the
environment, which will enable the Group Group’s management team has assessed
commodities industry. As such, a five year
tosustain its business. As a result, the risks associated with the potential
time period was considered an appropriate
investments are currently focused on disruption of the supply of key
length for the Board’s strategic planning
sustaining capital expenditure, with limited consumables, which includes natural gas,
period, with a heightened focus on
expenditure on growth capital projects, electricity and diesel fuel, in addition to the
additional risks in the coming 12-18 months.
modernisation of existing equipment and supply of key pieces of equipment. The
other development projects. Group’s modelling has also considered the
Factors associated with the war
risks surrounding a further interruption to
inUkraine Prior to the beginning of the war, in order
the Group’s logistics network, in addition
tomaintain a clear strategic direction,
Due to the significance, scale and tothe existing disruption faced through the
theGroup’s management team regularly
unpredictable nature of the war in Ukraine, closure of Ukraine’s Black Sea ports. In
assessed the risks faced by the Group
specific attention has been applied in the addition to the assessed risk associated
against the ability of the Group to
Group’s approach to assessing its viability. with continued production and shipment of
conductbusiness in accordance with
The war in Ukraine, has represented, and the Group’s products, the Group has also
itsBusiness Model.
will continue to represent, a significant risk assessed market factors that represent the
to the Group’s ability to continue its principal factors governing the pricing of
operations in future periods. Following the Group’s iron ore products.
Russian invasion of Ukraine on 24 February
2022, the Group’s executive management
team has held regular meetings since the
outset of this armed conflict in order to
assess the various risks that the business
faces, including daily meetings during the
initial weeks of the war.
### Ferrexpo plc Annual Report & Accounts 2021 73
STRATEGIC REPORT
## Viability Statement continued
Stress testing The Group’s financial modelling indicates In addition to stress testing associated
that a 10% reduction in the Group’s withthe ongoing conflict in Ukraine, the
In determining the viability of the business,
received price in 2022 would, if not additional stress test scenarios performed
the Directors have stress tested the

|  | mitigated, reduce the Group’s Underlying |  | include the following: |
| --- | --- | --- | --- |
| individual risks and combination of risks |  | A |  |
|  | EBITDA | by US$8.4 per tonne. Modelling |  |
| that could materially impact the future |  |  | – Operational incidents that could have |

also indicates that a general production
viability of the Ferrexpo business. At the asignificant impact on production
cost increase of 10% would decrease Group
present time, the risk that the Group is volumes.
A
Underlying EBITDA by US$4.9 per tonne,
primarily exposed to is Russia’s invasion of – A deterioration in the Group’s long-term
whilst a 10% decrease in production
Ukraine in 2022 (see Principal Risk section, cost position on the industry cost curve.
volumes, and an associated 5% increase
pages 54 to 72). In addition, Ferrexpo’s – Operating constraints due to Ukrainian
inproduction costs, would decrease
business model has historically also faced country risk.
A
Underlying EBITDA by US$7.0 per tonne.
risks relating to changes in the iron ore fines
Itshould be noted that the impact of the In respect of mitigating actions in response
price, pellet premiums and cost inflation,
factors discussed above in this paragraph to the conflict in Ukraine, please see page
which are factors that continue to govern
apply for 2022 in isolation. Any impact on 57 for more detail on this topic. In more
the Group’s profitability.

|  | additional years beyond 2022 will depend | general areas, mitigating actions |
| --- | --- | --- |
| The Group’s ability to produce at full | on the underlying sales and production | implemented by the Group may include, |
| capacity in 2022 will be contingent on the | volumes and the level of realised prices and | butare not limited to, a reduction or |
| war in Ukraine, and its impacts on the | production costs in each period. | cancellation of discretionary expenditure |
| Group’s ability to operate its assets in |  | such as dividends, non-essential capital |

As a result of the remaining material
Ukraine, and deliver its products to the investment and repairs and maintenance,
uncertainty outside of the Group’s control,
Group’s customers. orother operating costs, adjusting capital
the Group has also prepared stress tests
allocation, reducing working capital
The Group has adjusted its long-term with more severe adverse changes, such
requirements, altering mining schedules
financial model to reflect the lower sales asthe cessation of production for 3, 6 and
andaccessing additional funding.

| volume caused by the unavailable seaborne | 18 months, which could be caused by |
| --- | --- |
| sales to the Group’s customers, with | adisruption of the supplies for key |
| forecasted production volumes being varied | consumables, equipment and/or a further |
| accordingly. The financial model anticipates | interruption of the Group’s currently |
| that production and sales volumes will | available logistics network, in the event |
| return to normal by 2024. | ofan escalation in the armed conflict |

inUkraine.
### 74 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

| The Directors take comfort in both the | As disclosed in Note 2 Basis of preparation |
| --- | --- |
| Group’s historical cash generation ability, | in the Group’s Consolidated Financial |
| particularly in 2015 and 2016 at a time when | Statements on page 152, although the |
| the iron ore price was trading at a cyclical | Group has managed to continue its |
| low and the Group’s ability to repay its debt | operations since the beginning of the war, |
| facilities, with the early repayment of the | this continues to pose a significant threat to |
| Group’s principal debt facility in June 2021. | the Group’s mining, processing and |
| Since the end of 2020, the Group has | logistics operations within Ukraine. Having |
| moved into a net cash position, and has | assessed the current situation of the war in |
| announced a net cash position of US$117 | Ukraine, all identified available mitigating |
| million as of 31 December 2021. As at the | actions and the results of management’s |
| date of the approval of these Consolidated | assessment of the Group’s going concern |
| Financial Statements, the Group is in net | and long-term viability, a material |
| cash position of approximately US$192 | uncertainty still remains as some of the |
| million and an available cash balance | uncertainties are outside of the Group |
| ofapproximately US$209 million. Inaddition | management’s control as the duration and |
| to the available cash balance, the Group has | the impact of the war cannot be predicted |
| an outstanding receivable balance of | atthis point of time. |

approximately US$156 million from itssales
The Strategic Report was approved by the
in March and April 2022, which areexpected
Board on 21 April 2022 and signed on
to be collected in the comingweeks.
behalf of the Board by:
Based on the assessment performed, the
Lucio Genovese
Directors have a reasonable expectation
Chair
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 Group will continue to have the
ability to operate in Ukraine;
– The Group will continue to be able to
redesign its mining and processing plans
in order to align them to changing
circumstances;
– The Group will continue to be in the
position to secure the supplies of key
consumables and equipment; and
– The Group will continue to be in the
position to use its currently available
logistics network or make use of
alternative options, if needed.
### Ferrexpo plc Annual Report & Accounts 2021 75
CORPORATE GOVERNANCE
## Corporate Governance Report
## CHAIR’S INTRODUCTION
Dear Shareholder Operation of the Board during
Covid-19 and governance framework
Before reflecting on the improvements made
Against the backdrop of the continuing
during 2021, it is important to note the
Covid-19 pandemic, we remained focused
devastating impacts which the Russian
on the health, safety and well-being of our
invasion of Ukraine is having on Ukraine and
people globally, who have continued to
the people, communities and businesses
deliver for the Group and our stakeholders
within the country. Now more than ever
through the testing times over the last
strong governance is essential to help see
couple of years, and ensuring business
Ferrexpo through this very challenging time.
continuity and safeguard our operations,
As you would expect, the Board has been
whilst maintaining good corporate
meeting regularly to discuss the on-going
governance practices and our system of
situation in Ukraine, receiving daily updates
internal control.
from the management team as to the

| Group’s response and scenario planning for | During the year, the Board has continued to |
| --- | --- |
| different eventualities. Protecting the | operate effectively and without disruption |
| Group’s workforce is a key priority, as well | notwithstanding the ongoing challenges |
| as taking steps to protect the business and | presented by the pandemic. The majority of |
| thereby the stakeholders of the business. | Board meetings were held virtually and this |
| This will remain a key priority during 2022 | was an effective way of maintaining good |
| and the Board will continue to focus on | corporate governance, the corporate |
| exercising strong governance during these | agenda, the flow of information across the |

Lucio Genovese
difficult times. Group and delivery of the Group’s strategy.
Chair
I am pleased to present the Corporate We have also ensured new directors’
Governance Report, which sets out an onboarding programmes continued as
overview of the means by which the planned, albeit in a virtual environment. The
Company is directed and controlled, our virtual format of meetings provided the
## Delivering on governance structure and highlights the Board greater opportunities to engage with
governance activities of the Board and its each other, management and employees.
## our promises
principal committees during the course of During 2021, for the second consecutive
## and re-shaping the year. year, the Board site visit to our operations in
Horishni Plavni was cancelled due to the
The Board remains fully committed to
## the Board pandemic and was replaced with a virtual
maintaining good corporate governance
site visit.
practices throughout the Group which

| underpins all of its actions. The structure, | Despite the challenges of remote working |
| --- | --- |
| policies and procedures we have adopted, | we continued to enhance our shareholder |
| which are described in this report, the | and stakeholder engagement and place |
| Directors’ Report and reports from each | their interests at the centre of our |
| ofthe Board committees, reflect our | considerations for key decisions. Our |
| commitment. We recognise the need to | Section 172 Statement set out on pages 50 |
| keep them under review and make changes | to 53 provides further details on how the |
| where necessary to ensure that standards | Board complied throughout the year. |

are maintained and reflect ever-evolving
The Russian invasion to Ukraine has not
best practice. This report also explains how
adversely impacted the operation of the
we have complied with the principles of the
Board or its Committees.
2018 Corporate Governance Code during
the year.
Supporting local communities
The Board’s role includes managing the during Covid-19
risks facing the business. This includes
During the year, in addition to our continued
taking into account the risks associated
support for communities locally, Covid-19
with the country of operation,
special fund in the amount of US$1.0 million
counterparties, operational and financial
(2020: US$2.5 million) was provided to
risks including health, safety, environmental
support the local community in Horishni
and climate change risks, together with
Plavni for the purchase of personal
market volatility, pricing, financing and
protective equipment and equipment for
refinancing exposures. As new risks emerge
local hospitals (see Responsible Business
our approach to evaluating risk appetite is
section of the Strategic Report on pages 32
reassessed. The Board’s role is also to
to 45).
support and challenge management and to
ensure that the way we operate promotes
the long term success of Ferrexpo Plc.
### 76 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Community support activities took place balance to our Board in terms of Key highlights in 2021
largely in Ukraine and donations were made regionalexpertise. andearly2022:
within a Board-approved framework agreed
On 4 August 2021, Nikolay Kladiev was – continued management of Covid-19;
annually at the time of setting the budget;
appointed as Chief Financial Officer in place – Health & Safety and employee wellbeing
they are subject to the internal control and
of Roman Palyvoda who stepped down from – zero fatalities;
approval limits applicable within the
the Acting CFO role to pursue other career – climate change – established inaugural
individual subsidiaries of the Group, which
opportunities. Nikolay joined the Group in carbon reduction targets;
are set by the Board.

|  | 2005 and brings a wealth of experience to | – established dividend policy; |  |
| --- | --- | --- | --- |
| The Board exercises control of the local | the Group CFO role as well as a deep | – improved Board diversity; |  |
| charitable spending via its Health, Safety, | understanding of both our operations and | – appointment of two female independent |  |
| Environment and Community (“HSEC”) | the Ukrainian business environment. |  | Non-executive Directors; |
| Committee, which oversees and directs |  | – appointment of female Senior |  |

On 14 February 2022, Jim North was
these activities and receives reports Independent Director;
appointment as permanent CEO having
detailing the spend. The Audit Committee – appointment of CEO;
successfully transitioned the Group into a
reviewed reporting from the external – appointment of CFO;
new phase of its corporate culture and
auditors in relation to their procedures on – appointment of HSEC Chair;
overall growth ambitions. Jim brings a wealth
HSEC Committee as part of their audit of – appointment of female Independent
of mining experience coupled with excellent
the Group. Non-executive director to Audit and
leadership and an adept ability to refocus the
HSEC Committees;
Group’s strategy, further promote an
Board changes – succession planning at Board and
inclusive leadership model, deliver a clear
management level;
The issue of diversity, both in the message on key topics relevant to
– external Board Evaluation;
boardroom and throughout the entire stakeholders, whilst also continuing to
– strengthen cyber security;
Group, is taken very seriously by the Board deliver strong operational performance
– focus on shareholder and key
as we believe this improves effectiveness, across the Group.
stakeholder engagement;
encourages constructive debate, delivers
On 10 February 2022, the Board elected to – appointment of broker; and
strong performance and enhances the
appoint Fiona MacAulay as Senior – appointment of sponsor.
success of the business. Ensuring that we
Independent Director in place of Vitalii
have a culture which promotes and values
Lisovenko after completing two and half Key priorities for 2022:
diversity, and one which is maintained
years in the role.

| throughout the business, is a continual |  | – supporting our workforce and the |  |
| --- | --- | --- | --- |
| prime focus and is underpinned by our | Additionally, on 10 February 2022 |  | operations as a result of the Russian |
| Equality, Diversity and Inclusion Policy, | Ann-Christin Andersen was appointed as |  | invasion of Ukraine; |
| which sets our objectives. | Chair of the Group’s HSEC Committee and | – continued management of Covid-19; |  |
|  | Natalie Polischuk was appointed as a | – Health & Safety and employee wellbeing; |  |

Further to commitments made last year,
member of both the Audit Committee and – climate change;
weannounced a number of changes to the
HSEC Committee. – commence search for a director
Board during the year. In accordance with
ofcolour;
best practice requirements of the Corporate At the beginning of 2021, there was one
– succession planning at Board and
Governance Code 2018, the Board keeps its female Director on the Board and by the end
diversity at management level;
balance of skills, knowledge, experience, of the year I am delighted that we now have
– continue focus on shareholder and key
independence and diversity under review three female directors, further strengthening
stakeholder engagement; and
which is beneficial in itself in bringing new Board independence and diversity. Female
– continue to strengthen cyber security.
perspectives to the Board. To that end, as representation on the Board is now 38%,
we began the year, I was pleased to which is enthusiastically welcomed by the
I hope you find this report useful and
welcome Ann-Christin Andersen to the entire Board.
informative. I look forward to engaging with
Board on 1 March 2021. Ann-Christin’s
as many of you as possible at our 2022 AGM
digital technologies and business Board performance review
in person and would like to encourage you to
transformation experience provides us with
In line with the 2018 Corporate Governance vote your shares even if you cannot attend in
great breadth of insight, which is particularly
Code, at least every three years the Board person, so that we gain a better
valuable as we transform our business.
performance review is facilitated by an understanding of the views of our
Throughout the year, the Board continued
external third party that interviews the shareholders as a whole.
its search for further Independent Non-
directors and senior management to form an
executive Director candidates, led by the Lucio Genovese
objective opinion on the performance of the
Nominations Committee and supported by Chair
Board and its members. During the year, an
external consultants. Towards the end of the 21 April 2022
externally facilitated effectiveness review of
year, Iwas also pleased Natalie Polischuk
the performance and effectiveness of the
joined the Board on 29 December 2021.
Board, its committees and each of the
Natalie, an economist, brings a combination
directors was undertaken. A report on the
of financial expertise coupled with
process, activities, findings and actions of the
experience of Ukraine and Central and
evaluation can be found on pages 91 to 92.
Eastern Europe markets, providing further
### Ferrexpo plc Annual Report & Accounts 2021 77
CORPORATE GOVERNANCE
## Board of Directors
## AN EXPERIENCED AND BALANCED BOARD

| Raffaele (Lucio) Genovese | Fiona MacAulay | Jim North | Ann-Christin Andersen |
| --- | --- | --- | --- |
| Non-executive Chair | Senior Independent | Chief Executive Officer and | Independent |
|  | Non-executive Director | Executive Director | Non-executive Director |
| Date of appointment | Date of appointment | Date of appointment | Date of appointment |
| 24 August 2020 as Chair | 12 August 2019 | 14 February 2022 | 1 March 2021 |

Chief Executive Officer

| 13 February 2019 as Non- | Current external appointments |  | Current external appointments |
| --- | --- | --- | --- |
| independent Non-executive Director | Currently, she serves as non- | 5 July 2020 | Since 2021, Ann-Christin has served |
|  | executive director of Costain Plc | Executive Director | as non-executive chair of Quantafuel |

Current external appointments

|  | since April 2022; non-executive |  | AS, and since 2020 served as chair |
| --- | --- | --- | --- |
| Currently, he serves as chief |  | 28 May 2020 as |  |
|  | director of Chemring Group plc |  | of the board of Glitre Energi AS |
| executive officer of Nage Capital |  | Acting Chief Executive Officer |  |
|  | since 2020; and non-executive |  | (unlisted), having been appointed |

Management AG, a Swiss based
director of AIM listed IOG Plc since 1 November 2014 as as a director in 2015. She is a
investment and advisory firm,
2018 where she serves as chair. Chief Operating Officer non-executive director of Maersk
since 2004; Nevada Copper Inc
Drilling since 2020 and has been a
since 2016; and as chair of CoTec Previous appointments Current external appointments
non-executive director of Rotork Plc
Holdings, listed on NEX Board of Previously, she was non-executive None.
since 2018.
the TSVX, since 2021. director of AIM listed
Previous appointments

|  | Coro Energy 2017–2022; chief |  | Previous appointments |
| --- | --- | --- | --- |
| Previous appointments |  | Previously, he was Chief Operating |  |
|  | executive officer of Echo Energy |  | Previously, she has combined her |
| Previously, he was non-executive |  | Officer of London Mining PLC, |  |
|  | plc 2017–2018 and a non-executive |  | executive career in the oil and |
| director of Mantos Copper SA, 2015- |  | where he was accountable for |  |
|  | director 2018–2019 and chief |  | gas industry with several board |
| 2022; chair of Firestone Diamonds |  | setting the company’s operational |  |
|  | operating officer of Rockhopper |  | assignments, e.g. non-executive |
| Plc, 2012-2020; an Independent |  | and investment strategy around |  |
|  | Exploration plc, 2013–2017. |  | director for Veidekke ASA. |
| Non-executive Director of Ferrexpo |  | the world. He has wide-ranging |  |
| plc, 2007–2014; independent | Skills, expertise and contribution | operational mining experience at | Skills, expertise and contribution |
| non-executive director of Ferrous | Fiona contributes to Ferrexpo | a senior level with Rio Tinto, BHP | Ann-Christin is an engineer with |
| Resources Limited, 2014–2019; | plc over 35 years’ experience in | Billiton and Mount Isa Mines in | more than 30 years’ experience in |
| senior executive officer, Copper | the upstream oil and gas sector | Africa, South America and Australia | the oil and gas industry. |
| Division, Glencore International, | including key roles in a number of | covering commodities including |  |

Ann-Christin brings wealth
1996–1999 and chief executive leading oil and gas firms across iron ore, coal, base metals
of resource based industrial
officer, CIS Operations, Glencore the large, mid and small cap space and aluminium.
experience in both mature and
International, 1992–1998. including Mobil, BG Group, Amerada
Skills, expertise and contribution emerging markets together with real
Hess, Echo Energy and Rockhopper.

| Skills, expertise and contribution |  | Jim joined the Company in | life experience on how to orchestrate |
| --- | --- | --- | --- |
| Lucio contributes to Ferrexpo | Fiona brings a strong focus on | November 2014 and since then | business transformation. In addition |
| plc over 30 years’ of commercial | health, safety, climate change and | he has successfully managed our | to experience on how to implement |
| experience in the metals and mining | culture with a deep understanding | operations, enhancing operating | a culture of safety in a high-risk |
| industry. He worked at Glencore | of the factors influencing the | efficiency by introducing world-class | industry, she brings knowledge |
| International AG where he held | management for safe, efficient and | operating practices. Over the past | of stepping-up automation to |
| several senior positions including | commercial operations. She has | seven years, Jim has developed the | become smarter, better, faster |
| the CEO of the CIS region. | extensive operational experience | strategic organic growth programme | whilst driving digital transformation |
|  | in emerging energy which enables | to expand and increase production | for business value. |

Lucio brings a deep knowledge
her to bring positive insight on a through incremental brownfield
across the Ferrous and Non-Ferrous Committee membership
broad range of issues to Board and expansions to FPM processing
Mining sector, including in iron Ann-Christin is the Chair of HSEC
Committee discussions. facilities significantly reducing the
ore. He has extensive experience Committee with effect from
capital intensity required.

| of operating in emerging markets, | Committee membership |  | February 2022 and a member of |
| --- | --- | --- | --- |
| specifically in Russia and the CIS | Fiona is the Chair of the | Jim is a capable Executive Director. | the Nominations and Remuneration |
| states. As a previous Board member | Remuneration Committee and | He brings multiple commodity | Committees and Committee of |
| (from 2007 to 2014) and as a Board | a member of the Audit and | experience across the resources | Independent Directors. |
| member of Ferrexpo AG, Lucio has | Nominations Committee and | value chain and extensive |  |
| in-depth knowledge of the Group | Committee of Independent | experience to bear managing |  |
| which is extremely valuable to the | Directors. Fiona was the Chair | the Company. |  |
| Company at a Board level. | of the HSEC Committee until |  |  |

Committee membership
February 2022.
Committee membership Jim is a member of the HSEC
Lucio is the Chair of the Fiona was appointed Senior Committee.
Nominations Committee. Independent Director in
February 2022.
### 78 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
GENDER
### • Male 62.5%
### • Female 37.5%

| Graeme Dacomb | Vitalii Lisovenko | Natalie Polischuk | Kostyantin Zhevago |
| --- | --- | --- | --- |
| Independent | Independent | Independent | Non-independent |
| Non-executive Director | Non-executive Director | Non-executive Director | Non-executive Director |
| Date of appointment | Date of appointment | Date of appointment | Date of appointment |
| 10 June 2019 | 28 November 2016 | 29 December 2021 | 14 June 2007 as Non-executive |

Director

| Current external appointments | Current external appointments | Current external appointments |  |
| --- | --- | --- | --- |
| Currently, he serves as non- | Currently, he serves as a non- | Currently, she serves as non- | 1 November 2008–25 October 2019 |
| executive director of Anglo Pacific | executive adviser to the Minister | executive director of Dobrobut | as Chief Executive Officer |
| Plc since 2019. | of Finance of Ukraine, having | (Ukraine), since 2018. |  |

25 October 2019 as Non-
previously served as an executive
Previous appointments Previous appointments independent Non-executive Director
counsellor to the Minister of Finance.

| Previously, he was an audit partner |  | Previously, she was non-executive |  |
| --- | --- | --- | --- |
|  | He also serves as a non-executive |  | Current external appointments |
| of Ernst & Young LLP for 26 years |  | director and treasurer of Lycée |  |
|  | director of the Supervisory Board |  | None. |
| and a Member of the Financial |  | Français Anne de Kyiv, 2014–2020. |  |

of National Depositary of Ukraine

| Reporting Review Panel from |  |  | Previous appointments |
| --- | --- | --- | --- |
|  | since 2014. | Skills, expertise and contribution |  |
| 2011–2018. |  |  | Kostyantin has substantial |

Natalie brings over 25 years of

|  | Previous appointments |  | management and investment |
| --- | --- | --- | --- |
| Skills, expertise and contribution |  | private equity experience in Eastern |  |
|  | Previously, he was an executive |  | experience gained over a 30-year |
| Graeme contributes to Ferrexpo |  | Europe, having held a number of |  |
|  | director of Ukreximbank (Ukraine), |  | business career in Ukraine. |
| plc over 43 years’ experience of |  | senior roles at private equity funds |  |

2006–2010; an executive director
which he was a partner at Ernst & in the region and having acted as an Skills, expertise and contribution
of Alfa Bank Ukraine, 2010–2014;
Young (“E&Y”) for 26 years where, independent advisor on a number of Kostyantin contributes to Ferrexpo
a non-executive director of
for his last 12 years, he was a lead M&A and due diligence projects plc over 30 years’ substantial
Amsterdam Trade Bank, 2013–2014;
partner in the extractive industry, in Ukraine. management and investment
and a non-executive alternate

| responsible for coordinating the |  |  | experience gained during his |
| --- | --- | --- | --- |
|  | director, Black Sea Trade and | Committee membership |  |
| provision of a full suite of services |  |  | business career in Ukraine. |
|  | Development Bank (Greece) 2014- | Natalie is a member of the Audit |  |

to multinational mining and oil
2019; and since 1994 held various and HSEC Committees from Kostyantin brings significant
and gas clients including Xstrata,
positions in the Finance Ministry of February 2022. experience in areas such as mining
Fresnillo, and BP across a broad
Ukraine. He also was an Associate operations, sales and marketing
range of countries including
Professor of Finance at the Kyiv and government relations, and
emerging markets. In addition
State Economic University. has a detailed understanding of
to audit services, he provided
the Ukrainian business, economic
critical advice for his clients on Skills, expertise and contribution
and political landscape, which is
corporate governance structures, Vitalii contributes to Ferrexpo
very valuable to the Group. He has
risk management, acquisitions, plc over 25 years’ experience in
a deep working knowledge of the
disposals and financial systems government finance. In 2005, he
Group, having previously acted as
and controls. served as the head of the Trade and
Chief Executive Officer for 11 years,
Economic Mission at the Ukrainian
Graeme brings extensive knowledge which he is able to contribute to
Embassy in London. He was an
of the extractive industry and his Board decision-making. Kostyantin
Associate Professor of Finance at
financial expertise gained as lead also has strong relationships with a
the Kyiv State Economic University.
audit partner provides a solid number of key stakeholders of the
foundation for his role as Chair Vitalii brings extensive experience Group, developed during his time
of the Audit Committee. He also in the field of Ukrainian government at Ferrexpo.
brings an invaluable perspective finance together with a deep
Committee membership
and insights from his extensive understanding of geopolitical
None.
international career. developments in Ukraine which is
valuable to the Group.
Committee membership
Graeme is the Chair of the Audit Committee membership
Committee, where he acts as its Vitalii is the Chair of the Committee
Financial Expert and a member of of Independent Directors and a
the Nominations and Remuneration member of the Audit, Nominations
Committees and the Committee of and Remuneration Committees.
Independent Directors. Vitalii was Senior Independent
Director until February 2022.
Non-executive Director designate
for workforce engagement
### Ferrexpo plc Annual Report & Accounts 2021 79
CORPORATE GOVERNANCE
## Executive Committee
## AN EXPERIENCED AND FOCUSED
## MANAGEMENT TEAM
Jim North Nikolay Kladiev Viktor Lotous
Chief Executive Officer and Chief Chief Financial Officer Chief Operating Officer
Operating Officer – combined role and Head of Managing
Board, FPM
For more information see page 78 for details. Nikolay was appointed Group Chief Financial Viktor became Chief Engineer in 1997 and General

| Officer on 4 August 2021. | Director and Chief Operating Officer in April 2007. |
| --- | --- |
| Nikolay Kladiev joined the Group in 2005, and | Skills and experience |
| contributed significantly to the Group’s IPO. Since | He is a graduate of Kryvyi Rih Mining and Ore |
| 2007, Nikolay has served on the Board of FPM as | Institute, and of the Kyiv National Economic |
| CFO. During his 16 years with Ferrexpo, Nikolay | University, specialising in Finance. |

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 the Kyiv National Economic University.

| Greg Nortje | Brett Salt |
| --- | --- |
| Chief Human Resources Officer | Chief Marketing Officer |
| Greg joined Ferrexpo in January 2014. | On 1 July 2020, Brett joined Ferrexpo from Rio |
| He previously held a variety of international | Tinto where, over a 23-year career, he held |
| human resource leadership positions with Anglo | a variety of senior leadership roles in Asia, |
| American and BHP Billiton. | North America, Europe, the Middle East, Africa |

and the former Soviet Union. His commercial
Skills and experience
experience covers sales and marketing, mergers
He has Advanced Management qualifications
and acquisitions, corporate development,
from the University of Stellenbosch Business
finance, shipping and logistics across multiple
School and the Gordon Institute of Business
commodities to include iron ore, coal, copper
Science, a Bachelor of Arts degree and a
and freight.
postgraduate Diploma in Education from the
University of the Witwatersrand. Skills and experience
He holds a Bachelor of Commerce, majoring in
Economics and Commercial Law from Curtin
University of Technology and a diploma in
Investment and Risk Management in Shipping
from the IMD Business School.
### 80 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# 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 2021 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 18: 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 Corporate Governance Code sets out the governance principles and provisions that applied to the Company during 2021. 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 2021 except for Provision 9 and 19. Provision 9 recommends that the Chair be independent on appointment and provision 18 recommends that the Chair should not remain in post beyond nine years from the date of first appointment to 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 Board in August 2020.

## Independent mind set

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 mind set 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 two female Independent Non-executive Directors ensuring compliance with the Hampton-Alexander Review.
- Appointment of permanent CEO.
- Appointment of CFO.
- Appointment of female Senior Independent Director.
- Succession planning at Board and senior management level.
- Climate change - established inaugural carbon reduction targets.
- Return to shareholders - established dividend policy.
- Appointment of Broker.
- Appointment of Sponsor.
- Led a Corporate Governance Road Show with major institutional investors.
- Re-focused the 2021 Board agenda to include Cyber Security, Climate Change and Environmental, Social and Governance matters.
- Improved transparency on the outcome of the 2021 Board Evaluation and a further voluntary commitment for the Company to undertake a further externally facilitated follow up in 2022.

Ferreropo plc Annual Report & Accounts 2021

81
CORPORATE GOVERNANCE

## Corporate Governance Compliance continued

Mr Genovese led the Board through the Covid-19 pandemic ensuring continuity of the Board agenda and meetings together with ongoing corporate initiatives and the establishment of a Covid-19 Response Fund to support our local community in Ukraine and most recently in early 2022 led the Board through the Russian invasion of Ukraine.

The Board believes Mr Genovese is the right person to Chair the Board. To provide continuity of his sound leadership, we request your support to re-elect Mr Genovese at the 2022 AGM.

Further details on the composition of the Board and its Committees are set out on page 84 and further details of the role of the Senior Independent Director are set out on page 87.

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:** **Principle B:** **Principle C:** **Principle D:** **Principle E:** | Section 172 Statement page 50, Chair's Statement page 2, Skills Matrix page 85 Chair's Statement page 2, Purpose, Values and Strategy pages 6 to 7 and pages 16 to 17 Audit Committee Report page 94 Our Stakeholders page 46 Employee Engagement page 40, Non-Financial Information Statement page 45, Whistleblowing Policy page 99  |
| --- | --- | --- |
|  Division of responsibilities | **Principle F:** **Principle G:** **Principle H:** **Principle I:** | Role Descriptions page 87, Board Evaluation page 91 Role Descriptions page 87 Time Commitment page 86, Corporate Governance At a Glance page 83 The Board page 84, Skills Matrix page 85  |
|  Composition, succession, evaluation | **Principle J:** **Principle K:** **Principle L:** | Appointment Process and Succession Planning page 102, Board Diversity Policy page 103 Skills Matrix page 85, Appointment Process and Succession Planning page 102, Board Composition page 84 Board Evaluation page 91  |
|  Audit, risk, internal control | **Principle M:** **Principle N:** **Principle O:** | External Audit page 99, Internal Audit page 99 Audit Committee Report page 94 Internal Control and Risk Management page 98, Risk Management page 54, Principal Risks page 56  |
|  Remuneration | **Principle P:** **Principle Q:** **Principle R:** | Remuneration policy page 110 Procedure for developing policy on remuneration, page 106 Directors should exercise independent judgement when authorising remuneration outcomes page 118  |

### Disclosure Guidance and Transparency Rules

By virtue of the information included in this Corporate Governance Report and the Directors' Report, we comply with the corporate governance statement requirements of the FCA's Disclosure Guidance and Transparency Rules.

82

Ferreropo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Corporate Governance Report
## At a glance
SHAREHOLDERS
BOARD
AUDIT REMUNERATION NOMINATIONS COMMITTEE OF H E ALT H,S A FE T Y, CHIEF
COMMITTEE COMMITTEE COMMITTEE INDEPENDENT ENVIRONMENT EXECUTIVEOFFICER
DIRECTORS ANDCOMMUNITY ANDEXECUTIVE
1

|  |  |  |  | (“CID”) | (“HSEC”) COMMITTEE | COMMITTEE |
| --- | --- | --- | --- | --- | --- | --- |
| Responsibilities | Responsibilities |  | Responsibilities | Responsibilities | Responsibilities | Responsibilities |
| include: | include: |  | include: | include: | include: | include: |
| – Monitoring integrity | – Reviewing and |  | – Considering and | – Ensuring | – Formulating and | – Execution of |
| of financial |  | approving all | approving the | compliance with | monitoring the | Board-approved |
| statements. |  | aspects of | knowledge, skills | related party | implementation of | strategies. |
| – Reviewing internal |  | remuneration for | and experience mix | transaction rules | the Group’s policy | – Delegated authority |
| control and risk |  | Executive Directors | required for the | and the | on issues relating | levels for senior |
| management |  | and members of | Board to best | Relationship | to health and | management. |
| systems. |  | the Executive | deliver the | Agreement. | safety, environment | – Development and |
| – Relationship with |  | Committee. | Company’s | – Authorising (if | and community as | implementation of |
| external auditor. | – Aligning |  | objectives. | appropriate) related | they affect | Group policies. |
|  |  | remuneration | – Identifying and | party transactions | operations. | – All material matters |
|  |  | policy and | nominating (for | on behalf of the | – Specific focus on | not reserved for the |
|  |  | practices to | Board approval) | Board. | safety and climate | entire Board. |
|  |  | support strategy. | candidates to fill | – Conflicts of interest | change impacts. |  |
|  | – Engaging with |  | Board vacancies, | procedure under |  |  |
|  |  | shareholders to | having due regard | the Companies |  |  |
|  |  | receive feedback | to the need to | Act2006. |  |  |
|  |  | on remuneration | satisfy the Board’s |  |  |  |
|  |  | policy and | skills requirements. |  |  |  |

outcomes.

| For more | For more | For more | For more | For more | For more |
| --- | --- | --- | --- | --- | --- |
| information: | information: | information: | information: | information: | information: |
| Audit Committee | Directors’ | Nominations | See page 87 | responsible | See page 80 |
| Report | Remuneration | Committee |  | business section |  |
| see page 94 | Report | Report |  | see page 30 |  |
|  | see page 106 | see page 100 |  |  |  |

1. The Finance, Risk Management and Compliance Committee, Investment Committee and the Executive Related Party Matters Committee all report to the Executive Committee.
Controlling shareholder – Relationship Agreement
The Company’s majority shareholder is Fevamotinico S.a.r.l., which owns 50.3% of the issued share capital of Ferrexpo plc. Fevamotinico
S.a.r.l. is wholly owned by The Minco Trust. The Minco Trust is a discretionary trust that has three beneficiaries, consisting of Kostyantin
Zhevago and two other members of his family. Mr Zhevago is therefore considered a controlling shareholder of the Company. In
accordance with the UK Listing Rules, Mr Zhevago, The Minco Trust and Fevamotinico S.a.r.l. have entered into a Relationship Agreement
with the Company (the “Relationship Agreement”) to ensure that the Group is capable of carrying on its business independently, that
transactions and arrangements between the Group, Fevamotinico S.a.r.l., The Minco Trust and Mr Zhevago (and each of their associates)
are at arm’s length and on normal commercial terms, and that at all times a majority of the Directors of the Company shall be independent
of Fevamotinico S.a.r.l., The Minco Trust and Mr Zhevago. Under the Relationship Agreement, Mr Zhevago is entitled to appoint himself
asa Director or another person as his representative Director, in each case in a non-executive capacity. The Relationship Agreement
terminates if, inter alia, the shareholding of Mr Zhevago and his associates in the Company falls below 24.9%.
Statement of Compliance with UK Listing Rules, Rule 9.8.4 (14)
– Ferrexpo has complied with the independence provisions contained in UK Listing Rule 9.2.2ADR(1) during 2021.
– 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 2021.
– 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 2021.
### Ferrexpo plc Annual Report & Accounts 2021 83
CORPORATE GOVERNANCE
## Corporate Governance Report continued
The Board
The Board is responsible for setting the Group’s objectives and policies, providing effective leadership within the framework of prudent and
effective controls required for a public company. The Board has a formal schedule setting out the matters requiring Board approval and
specifically reserved to it for decision. These include:
– approving the Group strategy and budget;
– annual and long-term capital expenditure plans;
– approving contracts for more than a certain monetary amount;
– monitoring financial performance and critical business issues;
– approval of major projects and contract awards;
– approval of key policies and procedures including for dividends, treasury, charitable donations and corporate social responsibility;
– approval of procedures for the prevention of fraud and bribery; and
– through the CID, monitoring and authorising related party transactions.
Certain aspects of the Board’s responsibilities have been delegated to the Committees shown in the chart on page 83 to ensure
compliance with the Companies Act 2006, FCA Listing Rules and Disclosure Guidance and Transparency Rules and the Corporate
Governance Code. The terms of reference for each of the Audit Committee, Nominations Committee, Remuneration Committee and HSEC
Committee are available on the Company’s website at www.ferrexpo.com/about-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 2021, the Board (excluding the Chair) comprised one Executive Director, one Non-independent Non-executive Director,
and five Independent Non-executive Directors who are considered by the Board to be independent in accordance with the Corporate
Governance Code. This structure ensures that the Executive Director is subject to appropriate independent and constructive challenge
bythe Non-executive Directors, and that no single Director can dominate or unduly influence decision-making.
Composition of the Board and Committees as of 31 December 2021 is presented in the table below:
Board member Role Audit Remuneration Nominations CID HSEC 1
R L Genovese Non-executive Chair ••
V Lisovenko Senior Independent Non-executive Director • • • ••
J North Acting Chief Executive Officer •
G Dacomb Independent Non-executive Director •• • • •
F MacAulay Independent Non-executive Director • •• • •
AC Andersen Independent Non-executive Director • • • ••
N Polischuk Independent Non-executive Director
K Zhevago Non-independent Non-executive Director
1. The HSEC Committee also includes some members of senior management.
• Committee member.
•• Committee Chair.
The Board considers that it is of a sufficient size to ensure that the requirements of the business are met without placing undue reliance on
any one Director.
Biographical details of the Directors at the date of this report are set out on pages 78 and 79.
### 84 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## BOARD DIVERSITY, TENURE AND BALANCE
BOARD BOARD DIVERSITY
BALANCE – GENDER
## 2021 2021
Independent 5 Female 3
Non-independent 1 Male 5
Chair 1
Executive 1
BOARD DIVERSITY BOARD DIVERSITY BOARD
– AGE – ETHNIC GROUP TENURE
## 2021 2021 2021

| Age: 40-49 2 | White 8 | 0-5 years 6 |
| --- | --- | --- |
| Age: 50-59 5 | Mixed/Multiple | 9 years + 2 |
| Age: 60+ 1 | Ethnic Group 0 |  |

Skills matrix
% of Board
Expertise 100% members
Mining, Global Resource Industry 56%

|  | Business leadership and strategy |  | 66% |
| --- | --- | --- | --- |
|  | Corporate governance |  | 66% |
|  | ESG/Sustainability |  | 56% |
|  | Financial, Audit & Risk |  | 72% |
|  | CIS Geographical experience |  | 78% |
|  | Government and international relations |  | 53% |
|  | HSEC |  | 69% |
|  | Human capital management/ Remuneration |  | 72% |
|  | Investor relations management |  | 75% |
|  | Risk management |  | 84% |
|      |  | Ferrexpo plc Annual Report & Accounts 2021 | 85 |
|      |  |  |  |
|   |  |  |  |


CORPORATE GOVERNANCE

# Corporate Governance Report continued

## 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 2021.

All of the Non-executive Directors (with the exception of Natalie Polischuk, who was appointed as a Non-executive Director of the Company on 29 December 2021) 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 2021 is shown in the table below.

## Non-executive Director external appointments during 2021

During 2021, Ms Andersen was appointed as Chair of Quantafuel AS, a company listed on Euronext Growth. Additionally, in relation to Ms Andersen's existing Non-executive Directorship of Argeo AS, during the year Argeo AS became a publicly listed company on Euronext Growth. Also during 2021, Mr Genovese was appointed as Chair of Coltec Holdings Corp, a company listed on the NEX Board of the TSVX. These appointments were considered a significant appointment for Ms Andersen and Mr Genovese for the purposes of the Corporate Governance Code, and, in advance of the appointment, both Ms Andersen and Mr Genovese sought the prior approval of the Board. As part of approving these additional appointments the Board considered a range of factors, including the existing appointments of Ms Andersen and Mr Genovese, the time commitment expected in the role as a Ferrexpo director and Chair respectively, attendance records at Ferrexpo Board and committee meetings, institutional investor guidance on number of board roles in respect of overboarding and the additional time commitments from the new roles. The Board was satisfied having regard to these matters that the additional roles would not adversely impact the ability of Ms Andersen or Mr Genovese to perform their existing roles on the Ferrexpo Board and its committees.

## Board and Committee meeting attendance in 2021

|  Director | Board |   | Audit |   | Remuneration |   | Nominations |   | CIC |   | HSBC  |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |  Scheduled | Ad hoc | Scheduled | Scheduled | Ad hoc | Scheduled | Ad hoc | Scheduled | Ad hoc | Scheduled | Ad hoc | Scheduled  |
|  AC Andersen^{1} | 3/4 | 11/11 |  | 2/2 |  | 3/3 | 1/1 | 1/3 | 8/1 | 2/2 | 1/2 |   |
|  G Dacomb^{2} | 5/5 | 13/13 | 5/5 | 4/4 | 2/2 | 2/2 | 1/1 | 5/5 | 6/7 |  |  |   |
|  R L Genovese | 5/5 | 13/13 |  |  |  | 5/5 | 1/1 |  |  |  |  |   |
|  V Lisovenko | 5/5 | 13/13 | 5/5 | 4/4 | 2/2 | 5/5 | 1/1 | 5/5 | 7/7 |  |  |   |
|  F MacAulay | 5/5 | 13/13 | 5/5 | 4/4 | 2/2 | 5/5 | 1/1 | 5/5 | 7/7 | 4/4 | 2/2 |   |
|  J North | 5/5 | 13/13 |  |  |  |  |  |  |  | 4/4 | 1/2 |   |
|  N Polischuk^{3} | 0/0 | 0/0 |  |  |  |  |  |  |  |  |  |   |
|  K Zhevago | 4/5 | 12/13 |  |  |  |  |  |  |  |  |  |   |

1. Ms Andersen was appointed to the Board on 1 March 2021 and Board Committees on 16 May 2021.
2. Mr Dacomb was appointed to Nominations Committee on 16 May 2021.
3. Ms Polischuk was appointed to the Board on 29 December 2021.

During the year, there were a number of ad hoc Board and Committee meetings which dealt with (amongst other things) Covid-19 response, Board appointments and the declaration of dividends.

86

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 106.
Role Description
Chair 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 78. There has been no increase in those commitments during
the reporting period.
CEO 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 The Senior Independent Director, in conjunction with the other Independent Non-executive Directors, assists in
Independent communications and meetings with shareholders and other stakeholders concerning corporate governance matters.
Director TheSenior Independent Director also chairs the Committee of Independent Directors. At least once a year, the Senior
Independent Director meets the Non-executive Directors, without the Chair present, to evaluate the Chair’s performance.
TheSenior Independent Director is also available to discuss with shareholders any issues that the Chair has been unable
toresolve to shareholders’ satisfaction.
Non-executive The Non-executive Directors provide an independent and objective viewpoint to Board discussions and bring experience
Directors 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 106); and monitor
executive succession planning (for Board succession planning, see the Nominations Committee Report on page 102).
Fromtime to time, where delegated by the Board, individual Non-executive Directors may take on additional functions
inareas in which they have particular knowledge or expertise.
Company The Company Secretary is responsible for ensuring that Board procedures are followed and that applicable rules and
Secretary 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.
Executive The Executive Committee is a key decision-making body of the Group, responsible for managing and taking all material
Committee decisions relating to the Group, apart from those set out in the Schedule of Matters Reserved for the Board. It has delegated
responsibility from the Board for the execution of Board-approved strategies for the Group, for ensuring that appropriate
levels of authority are delegated to senior management, for the review of organisational structures and for the development
and implementation of Group policies. The Executive Committee meets regularly during the year.
Committee of The CID is composed of the Senior Independent Director and three other Independent Non-executive Directors. The CID
Independent considers and, if appropriate, authorises on behalf of the Board, related party transactions and otherwise ensures
Directors compliance with the related party transaction rules and the Relationship Agreement entered into between Fevamotinico
(“CID”) 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.
Mr Zhevago and his role
Given the expected time commitment of Mr Zhevago’s role, which continues to be broader than that of other Non-executive Directors,
theCompany has entered into a consultancy arrangement with Mr Zhevago. Further details can be found in the Remuneration Report
onpage124.
### Ferrexpo plc Annual Report & Accounts 2021 87
CORPORATE GOVERNANCE
## Corporate Governance Report continued
## BOARD LEADERSHIP

| Before setting out the Board’s activities in | market conditions, growth projects, | operations, including a proposal to |  |
| --- | --- | --- | --- |
| 2021, it is important to note that since the | implementation of diversity and inclusion | transition the existing mining fleet to an |  |
| Russian invasion of Ukraine, the Board has | policies and updates on the position in | electrified mining fleet in the medium term. |  |
| continued to meet regularly to discuss the | Ukraine. The Chief Financial Officer’s report | This proposal once implemented would |  |
| on-going situation in Ukraine, the execution | covers financial performance as compared | result in a material reduction in CO | 2 |
| of our business continuity plans, planning | to budget, financial forecasts and cash flow | emissions for the Group. |  |
| for different eventualities and adjustments to | position. The Chair will report on |  |  |

For further details, see page 36 of the
the corporate calendar. The Board receives developments relating to investor and
Strategic Report.
daily updates from the management team as stakeholder engagement (including
to the Group’s response and scenario shareholder feedback), relevant corporate
Financial position and early repayment
planning for different eventualities. governance matters and Board refreshment
ofdebt facility
Protecting the Group’s workforce is a key and succession planning.
The Board continuously reviews the
priority, as well as taking steps to protect the
The following sets out an overview of the financial position of the Group, including
business and thereby the stakeholders of
key areas of focus for the Board during performance against targets, balance sheet
the business. This will remain a key priority
theyear. strength and liquidity. During the year, the
for the Board during 2022.
Board decided to make an early repayment
Covid-19 in full and cancel its Pre-Export Finance
Board activity in 2021

|  | The impact of Covid-19 was a key area of | Facility in order to minimise funding costs |
| --- | --- | --- |
| Five scheduled Board meetings were held | focus during the year, with the Board | and ensure efficient use of liquidity. |
| in2021 (supplemented by other ad hoc | undertaking regular reviews of the Group’s |  |

The Company’s Preliminary and Interim
meetings, telephone or video conferences response to the pandemic. The Board
results and Annual Report were scrutinised
and written resolutions as required from received updates from the Chief Executive
and approved by the Board.
time to time). In line with Covid-19 safety Officer and Chair of the HSEC Committee
guidance, the majority of Board meetings on the Group’s response to the pandemic,
Cyber security strategy
were held remotely during the year by video including safety measures put in place at
In light of the growing risks facing all
conference, with management team the mine sites and other locations to protect
businesses in relation to cyber security, the
members and other Group personnel joining the Group’s workforce and support
Board received a detailed presentation from
to discuss matters as appropriate. The provided to members of the workforce
the Group’s Head of Information Technology
Board intends to hold its scheduled affected by Covid-19 and their families.
outlining the Group’s procedures and
meetings in person during 2022 provided it TheBoard also reviewed expenditure
controls in relation to cyber security. This
is safe to do so. bytheGroup’s Covid-19 support fund,
included an overview of the steps which the
andapproved additional funding for the
The Board’s programme of meetings allows Group plans to take to further improve its
support fund.
key areas of focus to be established and protections relating to cyber security and
reviewed on a regular basis. A review of More information can be found throughout procurement of additional IT infrastructure
theBoard forward agenda was undertaken this Annual Report and Accounts. to maintain access to our data in the event
early in the year to align key focus areas of a cyber attack.
with strategy. Climate change and decarbonisation
targets Stakeholders and workforce engagement
At each scheduled Board meeting, the
Climate change has been a standing agenda Stakeholder considerations and culture
Directors receive a report from each of the
item at all scheduled Board meetings and arean important part of the Board’s
Chair, the Chief Executive Officer and the
meetings of the HSEC Committee discussions and decision-making. The
Chief Financial Officer and will review and
throughout the year. information on pages 46 to 49 provides a
approve the minutes from previous Board
review of stakeholder engagement activities
meetings and note Board Committee During the year, the Board reviewed the
during the year and explains how the Board
minutes. There is also an oral report from Group’s position in relation to climate
considers stakeholders in decision-making.

| the Chair of each Board Committee, | change, including the risks and |  |
| --- | --- | --- |
| providing an overview of the matters | opportunities which climate change may | During the year, the Board appointed |
| discussed at the Committee meetings | present to the Group, see page 71 Principal | Mr Lisovenko as the designated Non- |
| whichare held before the scheduled | Risks. The Board also approved a | executive Director to lead workforce |
| Boardmeetings. The Board may also | commitment for the Group to achieve net | engagement. Mr Lisovenko attended and |
| receive a report from the Chief Marketing | zero carbon emissions from its operations | led the 2021 workforce town hall meeting |
| Officer relating to updates on the | by the year 2050, and an initial commitment | held in September 2021 and provided an |
| Group’smarketing strategy, product | to achieve a minimum of a 30% reduction in | update to the Board, together with |
| development and relationships with | combined Scope 1 and 2 emissions by | recommendations for encouraging further |
| theGroup’scustomers. | 2030, against the Group’s baseline year of | active engagement with the workforce. |

2019 emissions.

| The Chief Executive Officer’s report will |  | The Board also considered the results of the |
| --- | --- | --- |
| include matters relating to production and | The Board also considered various | second Employee Engagement Survey, |
| operations, safety measures and | proposals aimed at reducing the carbon | which was undertaken in November 2020. |
| performance against targets, iron ore | emissions resulting from the Group’s | This included a comparison of the survey |

### 88 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## BOARD LEADERSHIP (CONTINUED)
results as between employees and executive Directors. The process for these management and operational levels
managers, focusing on areas of disparity of appointments was led by the Nominations including a specific focus on diversity
opinion between employees and managers, Committee, with the Board involved in among the talent pipeline to develop future
and considerations for the lower reviewing the candidates recommended by female leaders across the Group.
participation rate as compared to the the Nominations Committee and ultimately
For further details see page 102 of the
previous survey. The Board discussed the approving the appointment of Ms Andersen
Nominations Committee Report.
feedback from the survey with the Chief and Ms Polischuk.
Executive Officer and the Chief Human
For further details see page 100 of the Production capacity and efficiencies
Resources Officer, including plans for
Nominations Committee Report. The Board regularly reviews proposals for
further engagement by functional heads
capital expenditure related to the increase
with their teams to better understand the
Governance and risk of production capacity and efficiencies.
results of the survey and to develop joint
Following on from the governance During the year, the Board considered and
action points focusing on areas of strength
improvement work carried out in 2020, approved capital expenditures relating to
and areas for improvement.

|  | during the year the Board carried out an | the concentrator expansion and upgrading |
| --- | --- | --- |
| For further details, see page 46 of the | annual review of the terms of reference of | of pellet line 4 at FPM. |
| Strategic Report. | each Board Committee. Updates to the |  |

For further details see page 24 of the
terms of reference were incorporated to
Strategic Report.
Dividends and new shareholder reflect current best practice.
returns policy At the end of some Board meetings, the
During the year, the Board also reviewed
The Board regularly considers proposed Chair and Non-Executive Directors also met
and approved revised delegated authorities
shareholder dividends, taking into account without the Executive Director being
for senior management and made updates
the financial performance and liquidity present, and the Senior Independent
to its Inside Information and Disclosure
position of the Group. As a result of the Director held discussions with the Non-
Policy, Share Dealing Policy and Director
Group’s strong financial performance, the Executive Directors without the Executive
Conflicts Authorisation Policy to reflect
Group paid out dividends during the year Director or the Chair being present.
updates in laws and regulations post Brexit
totalling US$619 million. Given the
and current best practice. Other matters discussed were:
uncertainties arising from the Covid-19
pandemic, ahead of approving and paying At each of its scheduled meetings the Board – Oral reports from the Chair of Board
these dividends, the Board would meet to also considers any updates to the principal Committee meetings held before the
consider the Company’s liquidity position and emerging risks of the Group. Board meeting;
and financial commitments (including – diversity and inclusion;
related to development capital expenditure). Human Rights Policy and Modern – internal succession planning –
Slavery Act Statement Talentreview;
During the year, the Board also considered
During the year, the Board approved a new – succession planning for Non-executive
and approved a new Shareholder Returns
Human Rights Policy, taking into account Director recruitment and appointments;
Policy, following feedback from some
relevant international standards. The Board – review of agenda and approval of
market participants that they expected the
also reviewed and approved the Group’s minutes from previous Board meeting
Group to have a formal dividend policy. As
Modern Slavery Act Statement for the year and note Board Committee minutes;
part of this, the Board benchmarked the
ended 31 December 2020 (a copy of which – interactions with auditors;
proposed policy against dividend policies of
is available at www.ferrexpo.com). – Chief Executive Officer’s report including
peer companies and considered the most
production and operations, iron ore
appropriate financial metrics for the Group.
Executive appointments and market conditions, and updates on
The Board also sought input from the
succession planning Covid-19 and the position in Ukraine;
Group’s financial advisers on the design of
Nikolay Kladiev was appointed as Chief – Growth projects: Wave 1 expansion;
the new policy.

|  | Financial Officer on 4 August 2021. The | – Chief Financial Officer’s report including |  |
| --- | --- | --- | --- |
| For further details, see page 52 of the | process for identifying and selecting a new |  | status vs. budget, forecasts, cash flow |
| Strategic Report. | Chief Financial Officer was led by the |  | position, and funding update; |
|  | Nominations Committee with support from | – related party matters (including |  |
| Board balance and independence | the Chief Human Resources Officer. The |  | Directors’ interests/conflicts); |
| Ensuring the appropriate balance of skills, | Board was involved in reviewing the work | – investor relations report (including |  |
| independence and diversity on the Board | carried out by the Nominations Committee, |  | shareholder feedback); |
| remains a key priority of the Group. | approving the appointment of Nikolay | – strategy, business plan and budget; |  |
|  | Kladiev following a recommendation to that | – formal risk review; |  |

During the year, the Board was focused on
effect from the Nominations Committee and – compliance matters;
improving the level of independent non-
ensuring an orderly handover process was – HSEC Committee matters, including
executive director representation on the
in place. health and safety, carbon reduction and
Board, in line with previous commitments
community spending; and
made by the Chair. This led to the The Chief Human Resources Officer
– Board refreshment, succession planning,
appointment of Ann-Christin Andersen in presented to members of the Nominations
Director independence and Committee
March 2021 and Natalia Polischuk in Committee to review the talent audit and
composition.
December 2021, as Independent Non- succession plans across senior,
### Ferrexpo plc Annual Report & Accounts 2021 89
CORPORATE GOVERNANCE
## Corporate Governance Report continued
## BOARD LEADERSHIP (CONTINUED)
Matters reviewed as required included: Board virtual site visit and The actions from the Strategy Day were
Strategy Day collated and disseminated for execution
– the Group’s continued response to the
during the year.

|  | Covid-19 pandemic and actions taken to | Due to travel restrictions imposed by the |  |
| --- | --- | --- | --- |
|  | protect the Group and its workforce; | Covid-19 pandemic, the Board was unable | The Board is supported by the Executive |
| – review of half-year or annual results, |  | to conduct the planned visit of the Group’s | Committee, which meets approximately |
|  | going concern and viability, dividend | operations in Horishni Plavni, Ukraine. The | monthly. All information submitted to the |
|  | policy and recommendations, investor | alternative arrangement was a Board virtual | Board by management is reviewed and |
|  | presentation; | site visit and Strategy Day. | approved by the Executive Committee prior |
| – geopolitical matters; |  |  | to submission. |

The Board received a progress update on
– external evaluation of the performance of
Actions taken from 2020 and achievements The Board virtual site visit and Strategy Day
the Board, Chair, Directors and Company
during the year. This set the foundations was preceded by a Carbon Reduction
Secretary;
for‘where we are now’ and ‘where we Strategy discussion including data
– review of the AGM statement, and proxy
aregoing’. collection, validation and benchmarking
agency comments and
and the carbon reduction journey.
recommendations; The General Managers FPM, FYM and FBM
– annual review of bank relationships with used drones to record video footage for
Post AGM engagement

|  | the Group within and outside Ukraine; | each mine including footage inside the |  |
| --- | --- | --- | --- |
| – annual review of the Treasury Policy; |  | processing plant. The Board received | During the year, we consulted with |
| – approval of the Code of Conduct; |  | presentations from executive management | shareholders in person and in writing on a |
| – appointment of a new Financial Advisor |  | on operations, safety, strategy and tailings | number of important corporate governance |
|  | and Broker; | storage facility. | issues, three of which following significant |
| – appointment of a new Sponsor; and |  |  | votes against Resolutions 9, 10 and 12 at |

All matters discussed aligned with the
– the CSR budget. the 2021 AGM (re-election of Lucio
Ferrexpo strategic pillars: Health & Safety,
Genovese, Vitalii Lisovenko and Kostyantin
During 2021, the Board also held sessions Financial Strength, Technology & Innovation,
Zhevago) and one following significant votes
at which the relevant executive heads of Product Quality, Growth and Licence
against Resolution 1 at the 2021 General
department led detailed presentations on tooperate.
Meeting (re-election of Vitalii Lisovenko).
operations, finance, HR and management
Health, safety and environment included Based on the feedback received, the Board
succession planning, sales and marketing,
Covid-19 response, HSE performance, understands that the votes against arose as
and communications.
business improvement, tailings storage a result of concerns over corporate
facility status, audits and ecology. An in governance. Actions taken in response
depth overview of plant development included:
(beneficiation and pelletising) and project
– enhanced shareholder engagement with
execution was illustrated by the use of
a Corporate Governance road show
drones. The Autonomous Haulage System
during the year;
update covered decarbonisation in
– the appointment of Fiona MacAulay
mining,electricification autonomy, rail
asSenior Independent Director;
modernisation, digitalisation and enterprise
– increased diversity on the Board;
resource planning. Marketing and product
– increased independence by the
development was a key update for the
appointment of a further Independent
Board together with growth and expansion
Non-executive Director; and
plans supported by revenue and capital
– enhanced procedures and internal
modelling. Quality management systems
controls as part of the process of
and analysis together with technology and
improving the overall corporate
innovation including business improvement
governance framework.
initiatives were also provided. Licence to
operate, included carbon reduction, people
development, productivity and culture.
### 90 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# BOARD EVALUATION

# Board performance evaluation

Under the 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 2020 internal Board performance

The Board and its Committees consider their effectiveness regularly and the outcome and findings from the 2020 internal review were progressed throughout the year with the following actions taken:

# BOARD EVALUATION CYCLE

![img-8.jpeg](img-8.jpeg)

► 2018: Internal
► 2020: Internal
► 2021: External

Action to be taken

Actions taken

|  **Improve Board diversity** | Two female Non-executive Directors appointed during 2021. Female representation increased from 17% in 2020 to 38% in 2021.  |
| --- | --- |
|  **Improve frequency of site visits to better understand operations** | This could not be facilitated due to Covid-19 travel restrictions. This was replaced by a virtual site visit with drone video footage and enhanced reporting from management.  |
|  **Allocate additional time for growth projects** | Additional time allocated to growth projects facilitated breadth and depth of presentation, discussion and deep dives into specific areas such as mining fleet replacement.  |
|  **Reviewing past performance and influencing future performance** | Reviews of past performance was better reflected in the Board papers in the context of the potential impact on future performance.  |
|  **Chair and Senior Independent Director to bolster shareholder engagement** | A Corporate Governance road show was carried out by the Chair and Company Secretary during 2021 to address specific areas raised by some shareholders with feedback provided to the Board at the next Board meeting.  |
|  **More time to be allocated to Remuneration Committee** | More time was allocated to enable sufficient time for the construction of a transparent framework for incentives and rewards.  |

# 2021 External Board performance

In line with recognised best practice, an external evaluator was engaged to conduct the 2021 Board evaluation. Three different providers were reviewed prior to confirming the appointment of Clare Chalmers Ltd. They have a strong track record of conducting board evaluations for FTSE350 companies and their distinctive review approach based on providing their own evidenced observations of the Board. Intangulated with those of Board Members and attendees, was one of the key considerations which informed this decision. Clare Chalmers Ltd has no other connection with the Company and this is the first time they have provided Board Evaluation services to the Company. Initial meetings with the Chair and Company Secretary were used to agree the purpose, scope and timing of the evaluation. This facilitated the key themes for the Board performance review. The thematic evaluation focus areas included:

- Board composition, succession, development, leadership and dynamics;
- Board oversight: Strategy, performance, risk, people & culture;
- Stakeholders and decision making;
- Board efficiency including secretarial support;
- Leadership and succession decision making;
- Board planning; and
- The effectiveness of Board Committees.

Ferrisopo plc Annual Report & Accounts 2021

91
CORPORATE GOVERNANCE
## Corporate Governance Report continued
## BOARD EVALUATION (CONTINUED)
Information gathering, interviews and meeting observation:
– Held a scoping meeting with the Chair and Company Secretary 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.
PREPARATION
– Individual interviews were scheduled with the Chair, all the Non-executive Directors, the Interim CEO,
theCompany Secretary, Chief Financial Officer, Chief Human Resources Officer, Remuneration Advisor and
External Audit Partner.
– One-to-one interviews were conducted with six of the seven Directors appointed (at this point in time seven
directors were appointed) including the Chair, the Senior Independent Director, three further Independent
FORMAL
Non-executive Directors, the Controlling Shareholder and the Interim CEO. The Company Secretary, Chief
INTERVIEWS
Financial Officer, Chief Human Resources Officer, Remuneration Advisor and External Audit Partner were also
interviewed.
– Observed a Board and Board Committee meetings to observe the Board dynamics and interaction with
BOARD management and the Auditors.
OBSERVATION
– Key findings and recommendations were shared with the Chair and Company Secretary, and a draft report
wasprepared for review.
REPORTING – The final report was circulated to the full Board, with a presentation from Clare Chalmers Ltd at the next
Boardmeeting to deliver the findings at which discussion was held and the outcomes and recommended
actions agreed.
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 Interim CEO and Company Secretary to obtain their views on the
Chair’s performance.
Feedback and report findings
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 2022:
Key areas for focus in 2022
Area Actions to be taken
Succession Planning – Succession planning within the business and senior management including diversity.
Balanced skill-set – Ensure Non-executive Directors continue to bring the right skill set and to balance the
workload of the Board Committees.
Director Training – Upskill the Board on all ESG matters.
Workforce engagement – Explore ways to enhance workforce engagement and bring findings into the Boardroom.
Board efficiency and processes – Continue to improve Board reporting particularly management report writing with externally
facilitated training among all report writers.
Corporate resourcing – Ensure bolstered resourcing for Secretariat and Internal Audit functions.
Additionally, the Board suggested and agreed a follow-up session with Clare Chalmers Ltd late in 2022 to undertake a light review
ofprogress made during 2022 and with a view to recommend further actions for the following year in 2023.
### 92 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## BOARD TRAINING AND DEVELOPMENT
Training and professional Induction
development
Following appointment, all Directors are
The Chair is responsible for agreeing advised of their duties, responsibilities and
training and development requirements with liabilities as a director of a public listed
each Director to ensure they have the company. In addition, an appropriate
necessary skills and knowledge to continue induction programme is provided to each
to contribute effectively to the Board’s Director upon appointment, taking into
discussions. All Directors receive updates consideration the individual qualifications,
given to the Board as a whole on changes experience and knowledge of the Director.
and proposed changes in laws and
Induction training includes meeting senior
regulations affecting the Group, as and
executives of the Executive Committee, a
when necessary. The Board had a
detailed and structured site visit (or
combined training session with its legal
alternative arrangements, where required as
adviser Herbert Smith Freehills and Broker
a result of the Covid-19 pandemic), meeting
Liberum. This training covered key areas
the Company Secretary, necessary training
such as directors’ duties, market
on corporate governance aspects, and
announcements, and listed company
receiving various key Company
obligations which are of particular relevance
documentation and reports.
to Ferrexpo.
Ms Andersen and Ms Polischuk, who were
Usually, site visits are held for the whole
appointed during the year, followed a
Board annually, so as to ensure that all
tailored induction programme covering a
Directors are familiar with the Group’s
range of key areas of the business. They
operations, and Directors may also visit the
met with the Company Secretary, who
operations of the Group independently to
provided a Board Induction pack containing
the extent they feel this is necessary. Due to
Company and Board information to assist
Covid-19, the physical Board site visit was
with building an understanding of the nature
cancelled and replaced with a virtual site
and structure of the Group, its business and
visit as set out on page 90. In addition,
markets. The Board Induction pack also
training may be provided by the Group’s
included information to help facilitate a
advisers in respect of specific areas of
thorough understanding of the role of a
interest to the Board, including general
Director, the framework which the Board
economic and market conditions,
operates, Group Policies and Procedures,
developments in corporate governance
constitutional documents and regulatory
regulations and best practice and any other
codes and guidelines. Ms Andersen visited
matters as agreed by the Chair.
site operations in September 2021 and met
All Directors may take independent with the three Mining General Directors,
professional advice at the expense of the senior and operational management teams
Company in the furtherance of their duties. to provide an insight into the operational
side of the business.
Ferrexpo recently 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.
Ms MacAulay acted as Buddy to
Ms Polischuk.
### Ferrexpo plc Annual Report & Accounts 2021 93
CORPORATE GOVERNANCE
## Audit Committee Report
Dear Shareholder, conflict in Ukraine, which, as at the date of
the approval of these Consolidated Financial
On behalf of the Board, I am pleased to
Statements, is still ongoing. Although the
present the Audit Committee Report for the
Group has managed to continue its
financial year ending 31 December 2021. The
operations, the war continues to pose a
aim of this report is to provide shareholders
significant threat to the Group’s mining,
insight into key areas that had been
processing and logistics operations within
considered, how the Committee has
Ukraine and represents a material
discharged its responsibilities and lastly
uncertainty in terms of the Group’s ability
provide assurance on the integrity of the
tocontinue as a going concern.
2021 Annual Report and Accounts.
The Covid-19 pandemic has continued to
The Committee agenda focuses on audit,
have an impact across the Group which
compliance and risk management within the
resulted in remote working during various
Group, working closely with finance, external
periods in 2021 for corporate functions in our
audit, internal audit and management. During
global offices. The Committee throughout
the year, the Committee has robustly
the year has continued to utilise video
assessed the principal and emerging risks
technology to maintain regular dialogue with
facing the business. The Committee
management throughout the year and to
throughout the year took into account the
ensure processes and controls were being
regular financial and internal audit reports
managed effectively to provide timely and
made available to the Board, as well as
accurate financial information. Through the
discussing issues with management and the
use of appropriate technology by both the
Graeme Dacomb
external auditors at intervals throughout
auditors and Ferrexpo, the review
Chair of the Audit Committee
theyear.
procedures in July 2021 were successfully

|  | A critical area of focus for the Committee | performed remotely. As the Covid-19 |
| --- | --- | --- |
|  | since the year end, has been the | situation improved towards the year-end, our |
|  | consideration of the preparation of the | external auditor MHA MacIntyre Hudson was |
| Independently | consolidated accounts on the going concern | able to complete its annual audit procedures |
|  | basis. On 24 February 2022, Russia began its | for the preliminary and year-end audits partly |

## monitoring the integrity
invasion into Ukraine using direct military in person at the Group’s different locations
force and this has led to an intense armed for the audit of the consolidated accounts.
## of financial information
## and internal control
ACTIVITY DURING 2021
Key activities of the Audit Committee during 2021 are set out below.

|  | February | March |
| --- | --- | --- |
|  | – Considered assumptions used for the going | – 2020 year-end review. |
|  | concern and long-term viability assessment and | – Reviewed significant risks disclosed in the Annual |
|  | impairment testing. | Report and Accounts for 2020. |
|  | – Received an update on the progress of the 2020 | – Assessed FRC’s Letter to Audit Committee |
|  | audit and analysed further work required. | Chairs and recommended areas of focus. |
|  | – Considered the draft Annual Report and | – Reviewed and discussed the status of key areas |
|  | Accounts for 2020. | of focus and audit matters and disclosure |
|  | – Reviewed the questionnaire to be used to assess | provisions. |
|  | the external auditor’s performance. | – Reviewed auditor’s responsibilities statement. |
| MEMBERSHIP AND ATTENDANCE | – Reviewed compliance report including | – Reviewed auditor’s independence statement. |
|  | whistleblowing cases. | – Considered the draft of the auditor’s opinion. |
|  | – Reviewed the Group’s risk matrix and register. | – Final review of the Annual Report and Accounts |

Scheduled meetings

|  |  | – Reviewed an update on the Directors’ Interests | for 2020. |
| --- | --- | --- | --- |
|  | Eligible | list and transactions with Related Parties. | – Considered the going concern and viability |
| Committee member | to attend Attended |  |  |
|  |  | – Considered the resourcing for Internal Audit. | statement. |
|  |  | – Considered FRC recommendation to extend | – Reviewed the disclosures around FC Vorskla |

Graeme Dacomb 5 5
reporting deadline. matters.
Vitalii Lisovenko 5 5 – Reviewed principal risks and uncertainties.
– Reviewed the Audit Committee Report.
Fiona MacAulay 5 5 – Reviewed draft letters of representation.
– 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.
– Held private meeting with the auditors.
### 94 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
MHA MacIntyre Hudson continues to provide Role of the Committee provide the information necessary for
robust challenges to management and shareholders to assess the Group’s
The Committee’s objectives and
provides independent judgement to the position, performance, business model
responsibilities are set out in its terms of
Committee regarding specific financial and strategy.
reference which are available to view online.
reporting and the control environment.
The Committee’s main responsibilities are: Committee membership and
During the year, the Committee considered
attendance
the status of the proposed regulatory change – Monitoring the integrity of the annual and
of the BEIS Consultation on ‘Restoring trust interim financial statements and the As at the year end, the Committee
in audit and corporate governance: accompanying reports to shareholders. comprised three Independent Non-
proposals on reforms’. The Committee – Making recommendations to the Board executive Directors:
reviewed the future potential impacts this concerning the approval of the annual
– Graeme Dacomb (Chair of the
could have on the Committee in order and interim financial statements.
Committee);
tostayon top of developments and – Reviewing and monitoring the adequacy
– Vitalii Lisovenko; and
planaccordingly. and effectiveness of the Group’s risk
– Fiona MacAulay.
management and internal control
TCFD disclosure requirements were a focus
mechanisms. (Details of the principal Since the year end, Natalie Polischuk has
for the Committee and Ricardo plc had been
risks are contained on pages 56 to 72. joined the Committee. In addition to the five
appointed to help enhance the Group’s
– Approving the terms of reference of the meetings held in 2021, the Audit Committee
existing climate change scenario reporting
internal audit function and assessing its has met twice to date in 2022. All members of
and review the role of Ferrexpo iron ore
effectiveness. the Committee are considered to possess
pellets within the circular economy. Results
– Approving the internal audit plan and appropriate knowledge and skills relevant to
of Ricardo’s analysis are expected to not
receiving regular reports from the the activities of the Group, and Graeme
only enhance the Group’s carbon reduction
Group’s head of internal audit. Dacomb has recent and relevant financial
targets, but also additionally develop climate
– Overseeing the Group’s relations with the experience, including accounting and
change reporting in 2022.
external auditor, including an assessment auditing, due to his career as an audit
Detailed below is further information on the of their independence, effectiveness partner with Ernst & Young LLP.
role, structure, key activities of the andobjectivity.
In addition to its members, other individuals
Committee and significant judgements it has – Overseeing completion of the Group’s
and external advisers, and the Chair of the
considered in 2021. I hope this additional going concern and viability assessment
Board, may be invited to attend meetings of
information about the Committee and its and statements thereon.
the Committee at the request of the
activities is insightful and based on this – Reviewing and monitoring the Group’s
Committee Chair. Regular attendees at
shareholders can be assured of the work whistleblowing procedures and the
meetings include the Chief Financial Officer,
undertaken by the Committee in 2021. Group’s systems and controls for the
Group Financial Controller, Company
prevention of bribery and corruption.

| Graeme Dacomb |  | Secretary and audit partners of our external |
| --- | --- | --- |
| Chair of the Audit Committee | During the year ended 31 December 2021, | auditor MHA MacIntyre Hudson. The |
|  | the Committee has ensured that it has had | Committee has an opportunity to meet with |
|  | oversight of all these areas listed. The Board | the external auditors at the end of its |
|  | also asked the Committee to advise it as to | scheduled meetings, without the Executive |
|  | whether the Annual Report and Accounts | Director or management present. |

are fair, balanced and understandable and
ACTIVITY DURING 2021
Key activities of the Audit Committee during 2021 are set out below.

| May | July | December |
| --- | --- | --- |
| – Received an update on FC Vorskla related | – Presentation and review of half-year accounts. | – Received a report on the outcome of the 2020 |
| matters. | – Going concern assessment, including Covid-19 | Internal Audit plan and progress update on 2021. |
| – Reviewed auditors 2020 performance (Statutory | related reporting and considerations. | – Reviewed the preliminary Internal Audit plan |
| Audit Service Order) – analysis of scores. | – Auditor’s Review Report to the Audit Committee. | for2022. |
| – Reviewed 2021 audit planning, key dates, | – Reviewed a compliance report, including | – Considered a risk analysis of the Internal |
| preliminary audit plan. | whistleblowing cases. | Auditplan. |
| – Reviewed an update on 2020 recommendations | – Reviewed the Group’s risk matrix and register. | – Considered a report from the external auditors on |
| from Internal Audit. | – Reviewed the Directors’ Interests list and | progress of the preliminary audit for 2021. |
| – Received an update on proposed Audit Reform | transactions with Related Parties. | – Considered the Group’s work plan for the 2021 |
| and considered whether to submit a response to | – Received an update on IT Security audit. | year end. |
| BEIS consultation. | – Reviewed the Audit Committee Terms | – Reviewed an external audit planning report. |
| – Reviewed a compliance report including | ofReference. | – Received an update on the planned process for |
| whistleblowing cases. | – Held private meeting with the auditors. | the viability and going concern assessment. |
| – Reviewed the Group’s risk matrix and register. |  | – Considered the TCFD disclosure requirements. |
| – Reviewed an update on Directors’ Interests list |  | – Received an update on BEPS 2.0. |
| and transactions with Related Parties. |  | – Reviewed a compliance report including |
| – Reviewed the Audit Committee 2021 |  | whistleblowing cases. |
| Forwardplanner. |  | – Reviewed the Directors’ Interests list and |

transactions with Related Parties.
– Reviewed the Group’s risk matrix and register.
### Ferrexpo plc Annual Report & Accounts 2021 95
CORPORATE GOVERNANCE

# Audit Committee Report continued

## Significant issues and judgements

The significant issues and judgements considered by the Committee in respect of the 2021 Annual Report and Accounts are set out below:

Judgements/actions taken

### Consideration of the impact of the Russian invasion of Ukraine on the Group's going concern and viability assessment

Ukraine is currently at war with Russia. On 24 February 2022, Russia commenced an invasion of Ukraine using significant and widespread military force. To date, the invasion of Ukraine has resulted in the temporary occupation of southeastern territory within the sovereign nation of Ukraine, loss of life for thousands of citizens of Ukraine and damage to infrastructure within Ukraine. The situation in Ukraine remains uncertain and unpredictable.

To date, the Group has managed to continue production although the Group has curtailed some non-core activities. Shipments continue via rail and barge to Europe, but seaborne exports via the port of Pivdennyi have been temporarily suspended. The Group relies on key consumables, such as (but not limited to) diesel, natural gas and electricity plus spare parts and equipment required for its mining and processing operation to produce the Group's products.

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 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 identified uncertainties are outside of the Group management's control, with the duration and the impact of the war unable to be predicted at this point of time.

As at the date of the approval of these Consolidated Financial Statements, the Group is in a net cash position of approximately US$192 million with an available cash balance of approximately US$209 million. In addition to the available cash balance, the Group has an outstanding receivable balance of approximately US$156 million from its sales in March and April 2022, which are expected to be collected in the coming weeks.

While, to date, the Group has successfully managed to procure all its key consumables, such as natural gas, electricity and diesel fuel, the risk of a potential disruption to the required supplies remains. Similarly, a further interruption to the availability of the Group's logistics network to its European customers via rail and barge – these have historically represented approximately 50% of the Group's sales – may result in a significant decline in the Group's operating cash flows.

In addition, 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 Principal Risks section on page 57 for further information.

Considering the current situation of the war in Ukraine, all identified available mitigating actions 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, many of the mitigating actions are outside of Group management's control, which 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 102 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 page 73 for further information.

### Covid-19 related considerations for the Group's going concern and viability assessment

The global Covid-19 pandemic had a continued impact on the world during 2021, although affecting economies, communities, governments, businesses and individuals on a lower scale than in 2020. The Group could rely on the measures implemented in 2020 at its main operations in Ukraine to ensure iron ore pellet production was not severely affected by, and continues to be unaffected by, the Covid-19 pandemic as of the date of approval of this Annual Report and Accounts. The Group continued to benefit from high demand for its products, mainly on the Chinese market, and prices increasing to record levels in the first half of 2021. As a result, the Group was highly cash generative in 2021 and closed the year in a net cash position of US$117 million, after debt repayments totalling US$221 million, on a net basis, and dividend payments totalling US$619 million. As the Group successfully navigated through the Covid-19 pandemic in 2020, there are no specific Covid-19 related critical judgements and estimates to be considered in assessing the Group's going concern and viability statements and the Group expects to be able to rely on the experience gained (e.g. redirection of sales to other markets) and to be able to react again to any adverse changes on the global pellet market. Covid-19 related disclosures have been made in the Group's Principal Risks section on page 72 providing further information on key actions that management has taken.

96

Ferreago plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Judgement/section/taken

# Taxation: tax legislation in Ukraine (Note 11 to the Consolidated Financial Statements)

Having considered the background of ongoing court proceedings in respect of a claim made in Ukraine in respect of a tax audit with a focus on the Group's cross-border transactions, the Committee shares management's confidence that Ferrexpo will continue to successfully defend its methodology applied to determine the prices between its subsidiaries in the courts in Ukraine. The court hearings and tax audits commenced earlier in 2020 were put on hold due to a Covid-19 related quarantine imposed in Ukraine and resumed again in November 2021. Several hearings have been held since then, without a court decision made. The next hearing was scheduled for 28 February 2022, but did not take place due to the Russian invasion into Ukraine on 24 February 2022. Considering the current situation in Ukraine, it is unknown if and when the next hearing will take place.

# Inventories: low-grade and weathered ore (Note 17 to the Consolidated Financial Statements)

It was the Group's intention to ramp up the processing of the stockpiled low-grade ore once additional processing capabilities, resulting from the compilation of Section 9, became available. Whilst the additional processing capacities were commissioned in the second half of 2020, operational difficulties were experienced such that, during the financial year 2021, the new facility did not deliver the expected and required output. Because of this and also a high of the additional customer demand for high quality iron ore pellets together with the high price environment for iron ore pellets, management decided during 2021 to postpone the processing of the low-grade ore in order to maximise the financial benefits of the prevailing market conditions.

Following the approval of the Wave 1 growth 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. Because of the recent focus on the decarbonisation challenges facing the global steel industry, in the second half of 2021 there has been a significant increase in the demand for high quality products, such as direct reduction pellets, which cannot be achieved by feeding low-grade ore into the Group's current processing facilities. As a consequence, management is exploring a further expansion of its processing capabilities to be in the position to process the low-grade ore using a facility built for this specific purpose. International Accounting Standard (IAS) 2 requires the stockpiled low-grade ore inventory to be valued at the lower of cost or net realisable value. Further to that, IAS 2 also requires that only facts relating to the inventories and the operating environment at the time of the valuation are to be considered in determining net realisable value. As at the date of the approval of the Consolidated Financial Statements, it cannot be reliably predicted when the additional processing capacity will be available. Whilst the stockpiled ore is still seen as an asset for the Group, (and additional low-grade ore will continue to be mined and stockpiled in the future), the changed circumstances has resulted in the calculation of the net realisable value of the existing stockpiled low-grade ore reducing to nil. As a consequence, there has been a full impairment of US$231 million of the stockpiled low-grade ore.

It is possible that some or all of this impairment loss might be reversed in the future, once changed facts and circumstances are able to be considered in the valuation of this asset. For example, the Group's intention to accelerate the current engineering studies exploring the option of a new processing facility for the specific purpose of processing low-grade ore. Depending upon the outcome of the engineering studies, the Group may move the project forward and once a full technical feasibility study and financial budgets are completed and the Board has formally approved detailed plans relating to the construction and operation of this possible new facility, it could then be considered in the net realisable value test.

# Commitments, contingencies and legal disputes (Note 30 to the Consolidated Financial Statements)

In the course of doing business in Ukraine, the Group is subject to various legal actions and claims, which require a significant level of judgement by the management. Further to that, there is a risk that the independence of the judicial system and its immunity from economic and political influences in Ukraine is not given, so that the Ukrainian legislation might be inconsistently applied to resolve the same or similar disputes. Further information on the Ukraine country risk are provided in the Principal Risks section on pages 59 to 60.

The Group is involved in court proceedings in relation to a share dispute initiated by former shareholders of PJSC Ferrexpo Poltava Mining ("FPM"). Back in 2005, former shareholders brought proceedings in the Ukrainian courts seeking to invalidate the share sale and purchase agreement pursuant to which a 40.19% stake in FPM was sold to nominee companies that were previously ultimately controlled by Kostyamin Zhevago, amongst other parties. After a long period of litigation, all old claims were fully dismissed in 2015. In early 2021, Ferrexpo AG ("FAG"), the parent company of FPM, became aware that former shareholders of FPM filed again a claim to invalidate the share sale and purchase agreement concluded in 2002 pursuant to which a 40.19% stake in FPM was sold similarly to the previous claims made back in 2005. Following a decision in favour of FAG by the first instance, the opposing parties filed their appeals. The case is currently being heard by the appeal court and several court hearings have been held without a court decision made.

In October 2021, Ferrexpo Yerelstvo Mining LLC ("FYM") received two ecological claims from the State Ecological Inspection following an inspection carried out in September 2021. One of the claims was related to an allegation of violation of rules regarding removal of soil on a particular land plot and the other claim was related to an allegation of absence of documents for disposal of waste on a particular land plot. The claims totalled UAH786 million (US$28,144 thousand at the exchange prevailing as at 31 December 2021). The claims are currently being heard in the court. Based on legal advice obtained, it is management's view that FYM has compelling arguments to defend its position in the court and, as a consequence, no associated liabilities have been recognised as at 31 December 2021.

In February 2022, FPM and FYM received letters from the Office of Prosecutor General notifying about ongoing investigation on potential underpayment of iron ore royalty payments during the years 2018 to 2021. The amount of underpayment is not specified in the letters and, as part of the investigation, the Office of Prosecutor General requested documents related to iron ore royalty payments and invited four representatives of the Group's subsidiaries to interrogation as witnesses.

In addition to the above-mentioned investigation, FPM received a tax audit report, which claims the underpayment of iron ore royalty payments during the period starting from April 2017 to June 2021 in the amount approximately UAH1,042,000 thousand (US$38,199 thousand at the exchange rate prevailing as at 31 December 2021). The Group is preparing its objections to the claims made in the tax audit report and it is expected that this case will be heard by the courts in Ukraine. Based on legal advice obtained, it is management's view that FPM has compelling arguments to defend its position in the court and, as a consequence, no associated liabilities have been recognised in relation to the claim made as at 31 December 2021.

The Board, acting through the Committee of Independent Directors (the "CIO"), conducted during the financial year 2020 a review in connection with the Group's sponsorship arrangements with FC Vorskla and concluded its enquiry in March 2021. See Note 30 Commitments, contingencies and legal disputes in the 2020 Annual Report and Accounts for detailed information. In the event that any of the payments made by the Group to FC Vorskla were not fully used for the benefit of the football club, or there was any non-compliance with legal, regulatory or other requirements, liabilities (including fines and penalties) may accrue to the Group. At the current time, the existence, timing or quantum of potential future liabilities, if any, cannot be determined and measured reliably and, as a consequence, no associated liabilities have been recognised in relation to these matters in the Consolidated Statement of Financial Position as of 31 December 2021 similarly to the position as of 31 December 2020.

Ferrexpo plc Annual Report & Accounts 2021

97
CORPORATE GOVERNANCE
## Audit Committee Report continued
Internal control and risk Key elements of the internal control and risk – Clearly defined information and financial
management management system include: reporting systems, including regular
forecasts and an annual budgeting
The Board has overall responsibility for the – The Group has in place a series of policies,
process with reporting against key
Company’s system of internal control, which practices and controls in relation to the
financial and operational milestones.
includes risk management, and monitoring financial reporting and consolidation
Investment appraisal underpinned by the
and reviewing its effectiveness. The system process, which are designed to address
budgetary process, where capital
of internal control is designed to identify, key financial reporting risks, including risks
expenditure limits are applied to
evaluate and manage significant risks arising from changes in the business or
delegated authority limits.
associated with the achievement of the accounting standards and to provide
– The Investment Committee (an executive
Company’s objectives, and to meet the assurance of the completeness and
sub-committee) meets as required in
Company’s particular needs and the risks to accuracy of the content of the
order to consider and approve capital
which it is exposed, rather than eliminate risk AnnualReport.
expenditures within limits delegated by
altogether. Consequently, it can only provide – Regular review of risk and identification
the Executive Committee and the Board.
reasonable, and not absolute, assurance of key risks at the Executive Committee
The Investment Committee met 12 times
against material misstatement or loss. which are reviewed by the Audit
in 2021.
Committee and by the Board.
The day-to-day responsibility for managing – A budgetary process and authorisation
– The FRMCC, an executive sub-
risk and the maintenance of the Company’s levels to regulate capital expenditure. For
committee, is charged, on behalf of the
system of internal control is collectively expenditure beyond specified levels,
Executive Committee or Audit
assumed by the Executive Committee. Key detailed written proposals are submitted
Committee, as appropriate, with ensuring
risk and control issues are reviewed to the Investment Committee and
that, inter alia, systems and procedures
regularly by the Executive Committee, Executive Committee and then, if
are in place to comply with laws,
Finance, FRMCC, HSEC Committee and necessary, to the Board for approval.
regulations and ethical standards. The
Audit Committee. On behalf of the Board, – Clearly defined treasury policy (details of
Group Compliance Officer attends
the Executive Committee and FRMCC have which are given in Note 27 Financial
FRMCC meetings, and, as necessary,
established a process for identifying, instruments to the Consolidated
local compliance officers from the
evaluating and managing the significant Financial Statements on pages 184 to
Group’s operations, attend and present
risks faced by the Company. This process 191), which is monitored and applied in
regular reports to ensure that the
was followed throughout 2021 and up to the accordance with pre-set limits for
FRMCC is given prior warning of
date of approval of this Annual Report and investment and management of the
regulatory changes and their
Accounts. The Group has also adopted a Group’s liquid resources, including
implications. The FRMCC enquires into
risk-based approach in establishing the aseparate treasury function.
the ownership of potential suppliers
Company’s system of internal control and – Internal audit by our in-house audit team
deemed to be “high risk”, and oversees
inreviewing its effectiveness. To assist based in Ukraine (see below), which
the management of conflicts of interests
inmanaging key internal risks, it has monitors, tests and improves internal
below Board level and general
established a number of Company-wide controls operating within the Group at all
compliance activities (including under
procedures, policies and standards and has levels and reports directly to the Chair of
the UK Bribery Act, the Modern Slavery
set up a framework for reporting matters the Audit Committee, and to the CFO for
Act, the Criminal Finances Act, and the
ofsignificance. line management purposes.
EU General Data Protection Regulation).
– A standard accounting manual is used by
The FRMCC also reviews financial
Internal controls – general the finance teams throughout the Group,
information, management accounts,
The Board, with assistance from the Audit which ensures that information is
taxation, cash management, risk
Committee, regularly reviews the policies gathered and presented in a consistent
including counterparty risk, risk register
and procedures making up the internal way that facilitates the production of the
and third party risks. The FRMCC met 10
control and risk management system, and Consolidated Financial Statements.
times in 2021.
any significant matters reported by the – A framework of transaction and entity-
– Clearly defined organisational and
Executive Committee. The risk register is level controls to prevent and detect
reporting structure and limits of authority
considered at every scheduled Board and material error and loss.
for transaction and investment decisions,
Audit Committee meeting, with specific risks – Anti-fraud measures through an internal
including any with related parties.
discussed in detail as and when required. security department operating in the
– Clearly defined processes for the review
Company’s key operating subsidiaries.
The Board has delegated its responsibility and approval of related party listings and
– A whistleblowing policy is in place under
for reviewing the effectiveness of the transactions and appropriate review and
which staff may in confidence, via an
internal control and risk management approval from the CID and its delegated
independent, secure website, raise
system to the Audit Committee. In making management sub-committee the Executive
concerns about financial or other
its assessment, the Audit Committee Related Party Matters Committee
impropriety, which are followed up
considers the reporting provided to it during (“ERPMC”). Additional procedures are in
byInternal Audit and reported on to
the year in relation to internal control place locally to ensure the completeness
theBoard.
systems and procedures, including the risk and arm’s length nature of related party
matrix and register, and may request more transactions with related parties under
detailed investigations into specific areas common control, such as background
ofconcern if appropriate. checks and tender processes. The ERPMC
met 12 times in 2021.
### 98 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The Audit Committee and the Board various headings: the robustness of the Audit Committee (who are routinely notified
continued to review ongoing litigation audit, the quality of delivery, the calibre of of all non-audit services).
affecting the Company throughout the year the audit team and value added advice. The
Fees for audit-related and non-audit related
(see Note 30 Commitments, contingencies results of the survey indicated that, overall,
services performed by the external auditors
and legal disputes to the Consolidated the external auditor’s performance was
during 2021 are shown in Note 7 Operating
Financial Statements on pages 193 to 194, considered very good by the respondees.
expenses to the Consolidated Financial
and received regular update reports and Certain areas for improvement were noted
Statements on page 158. For 2021, MHA
presentations from legal counsel. but none impacted on the effectiveness of
MacIntyre Hudson did not perform any
the audit. The outcome of the 2021 review in
Full details of the Group’s policy on credit, non-audit services.
respect of the 2020 Annual Report and
liquidity and market risks and associated
Accounts was discussed with the relevant
uncertainties are set out in Note 27 Financial reporting
partners of MHA MacIntyre Hudson.
Financial instruments to the Consolidated
The Board has asked the Audit Committee
Financial Statements on pages 184 to 191. The MHA MacIntyre Hudson audit for the
to advise whether it considers the 2021
See also the Principal Risks section of the 2019 financial year was reviewed by the
Annual Report and Accounts, taken as a
Strategic Report from page 56. FRC’s Audit Quality Review team who
whole, to be fair, balanced and
issued their Inspection Report in September
understandable and that it provides the
Internal audit 2021. The Committee reviewed the key
information necessary for shareholders to
findings of the Inspection Report and
The internal audit function has a Group- assess the Company’s position,
discussed them with MHA MacIntyre
wide remit, and the Head of Internal Audit performance, business model and strategy.
Hudson, including the steps undertaken
(who has mining experience) reports directly
toaddress the findings. In providing its advice, the Committee noted
to the Chair of the Audit Committee and to
that the factual content of the Annual Report
the CFO. The auditors also provide to the Audit
and Accounts has been carefully checked
Committee information about policies and
The Committee reviews at least annually the internally, and that the document has been
processes for maintaining independence and
effectiveness of the internal audit function reviewed by senior management in order to
monitoring compliance with relevant current
by assessing outcomes against plan ensure consistency and overall balance. The
requirements, including those regarding the
targets, and is satisfied, following its 2021 Committee has also conducted its own
rotation of audit partners and staff, the level
assessment, with the rigour of the internal detailed review of the disclosures in the
of fees that the Company pays in proportion
audits and with management’s response to Annual Report and Accounts, taking into
to the overall fee income of the firm. The
the audit findings and recommendations. account its own knowledge of Ferrexpo’s
Committee concluded that the auditors are
The resources of internal audit are also strategy and performance, the consistency
providing the required quality in relation to
monitored to ensure appropriate expertise between different sections of the report, the
the audit and that they have constructively
and experience. An Internal Audit plan for accessibility of the structure and narrative
challenged management where appropriate.
2022 was approved by the Audit Committee of the report, and the use of key
in December 2021. Taking into account the review of performance indicators.
independence and performance of the
The Internal Audit plan for 2021, approved The Committee is satisfied that, taken as a
external auditor, the Audit Committee has
bythe Audit Committee, focused on the whole, the 2021 Annual Report and
recommended to the Board the
operational risks relating to sales and Accounts is fair, balanced and
reappointment of MHA MacIntyre Hudson.
marketing, FYM Procurement process, FPM understandable and that it provides the
Resolutions reappointing MHA MacIntyre
Inventory management, Group Compliance information necessary for shareholders to
Hudson as external auditor and authorising
audit, DP-Ferrotrans and Health & Safety risk assess the Company’s position,
the Directors to set the Auditor’s
register review. The Committee received a performance, business model and strategy,
remuneration will be proposed at the
report from the Head of Internal Audit twice and has advised the Board accordingly.
2022AGM.
during the year, and reviewed the progress of
The Committee has also advised the Board
the Internal Audit plan with the external The Company has complied with the
on the process which has been undertaken
auditors and the Head of Internal Audit. The Statutory Audit Services Order issued by the
in the year to support the longer-term
reports include the Head of Internal Audit’s UK Competition and Markets Authority for
Viability Statement required under the
assessment of the operation and the financial year ended 31 December 2021.
Corporate Governance Code. The Viability
effectiveness of relevant elements of the
The Committee meets at least once a year Statement is set out in the Strategic Report
Company’s internal control systems, and
with the external Auditors without any on page 73 and a statement setting out the
formed part of the Committee’s ongoing
representation from management Board’s assessment of the Company as a
monitoring and assessment of such systems.
beingpresent. going concern is contained in the Directors’
Report on page 131 and Note 2 Basis of
External audit

|  | Non-audit services | preparation to the Consolidated Financial |
| --- | --- | --- |
| Auditor independence and assessment | The Audit Committee operates policies in | Statements on page 152. |
| of audit process effectiveness | respect of the provision of non-audit |  |
| The Audit Committee and the Board place | services and the employment of former | Whistleblowing policy |
| great emphasis on the independence and | employees of the auditors. These policies |  |

In accordance with the Corporate
objectivity of the Company’s external ensure that the external auditors are
Governance Code, the Board is responsible
auditors when performing their role in the restricted to providing only those services
for reviewing the Company’s whistleblowing
Company’s reporting to shareholders. which do not compromise their
arrangements, and receives regular reports
independence under applicable guidance
The effectiveness of the audit process and from the Audit Committee and the Head of
and the FRC’s Ethical Standards. The policy
the overall performance, independence and Internal Audit which detail any new
on the provision of non-audit services
objectivity of the external auditors are whistleblowing incidents and, where
prohibits the use of the auditors for the
reviewed annually at the end of the annual appropriate, steps taken to investigate such
provision of transaction or payroll
reporting cycle by the Audit Committee, incidents.
accounting, outsourcing of internal audit
taking into account the views of
and valuation of material financial statement Graeme Dacomb
management. This review is undertaken
amounts. Any assignment that is proposed Chair of the Audit Committee
through a structured questionnaire,
to be given to the auditors above a value of 21 April 2022
assessing the auditor’s performance under
US$20,000 must first be approved by the
### Ferrexpo plc Annual Report & Accounts 2021 99
CORPORATE GOVERNANCE
## Nominations Committee Report
Dear Shareholder The Committee also agreed to undertake an
externally facilitated Board performance
I am pleased to present the Nominations
evaluation for the year to 31December2021
Committee Report for 2021 and provide a
(for further information see the Board’s
summary of the work that the Committee
Performance Evaluation on page 91).
completed in 2021. The role of the
TheCompany will conduct an internal
Nominations Committee is to assist the
performance evaluation in 2022.
Board in regularly reviewing its composition

| and those of its Committees, to lead the | In 2021, the Committee continued its |
| --- | --- |
| process for Board appointments, and | ongoing work to strengthen the overall |
| ensure effective succession planning for the | governance agenda of the Board and |
| Board and senior management. All of these | ensure that the Board maintains an |
| activities were undertaken in the year, some | appropriate mix of skills and experience. |
| of which are described in more detail in this | Insupport of this objective the Committee |
| report. The Committee’s terms of reference | undertook a detailed review of the Board’s |
| are available to view online on the | skills and experience matrix used to inform |
| Company’s website (www.ferrexpo.com). | recruitment and training for the Board. |

Asaresult of this review, the matrix was
In 2021, the Committee was formally
expanded to incorporate additional areas
convened five times (2020: five). In addition,
ofstrategic focus for the Group such as
one informal meeting was also held.
Environmental, Social, and Governance
Attheformal meetings of the Committee,
(“ESG”) and Digitalisation. All Directors
itconsidered:
conducted a self-evaluation against the
Lucio Genovese
– the composition and refreshment of revised matrix to inform individual
Chair of the Nominations Committee
theBoard; development plans which will be progressed
– developing a skills and experience matrix over the next two years to enhance the
for directors to ensure Board overall skill set of the Board.
effectiveness;
The Committee is chaired by Lucio Recruitment was also continued in the year
– conducting a training needs analysis for
Genovese. The Committee consists to address identified Board knowledge and
the current Board;
of four Independent Non-executive experience gaps and to improve the balance
– reviewing and making recommendations
Directors and, by invitation, is also between independent and non-independent
as to the composition of the Board and
attended by the Chief Executive directors on the Board. Following a robust
its Committees in order to maintain a
Officer and the Chief Human process, the Committee recommended the
diverse Board with the appropriate mix of
Resources Officer. appointment of Ann-Christin Andersen with
skills, experience, independence and
effect from 1March2021 and Natalie
knowledge;
Polischuk with effect from 29December
– the criteria for Non-executive and
2021. We were delighted that Ms Andersen
Executive Director appointments;
and Ms Polischuk agreed to join the Board
– reviewing and making recommendations
as they both bring a wealth of experience
as to the composition and diversity of the
that has further enhanced the knowledge
Executive Committee and direct reports
and skills of the Board as a whole. Their
to Executive Committee members;
appointments in 2021 mean that the Board
– the engagement of executive search
is now comprised of five Independent
agencies to assist with Board
Non-executive Directors, which exceeds the
appointments;
requirement of the Corporate Governance
– deciding upon a shortlist of candidates
Code to ensure that at least half of the
for interview. Committee members
Board (excluding the Chair) are independent
interviewed shortlisted candidates and
Non-executive Directors.
made recommendations to the Board;
MEMBERSHIP AND ATTENDANCE – formalising search processes and The Board places great importance on
making recommendations to the Board creating a workplace culture in which all
Scheduled meetings

|  |  | for the appointments of Ann-Christin | contributions are valued, different |
| --- | --- | --- | --- |
|  | Eligible | Andersen and Natalie Polischuk as | perspectives are embraced, and biases are |
| Committee member | to attend Attended |  |  |
|  |  | Independent Non-executive Directors, | acknowledged and mitigated. This |
| Lucio Genovese 5 5 |  | and Nikolay Kladiev as Chief Financial | commitment is set out in the Company’s |
|  |  | Officer; | Equality, Diversity and Inclusion policy |

1
Ann-Christin Andersen 3 3
– approving actions to be taken in 2021 which was approved by the Board in 2019.
2
Graeme Dacomb 2 2 insupport of the achievement of the While the composition of the Board now
Group’s diversity and inclusion goals; exceeds the gender diversity target set by
Vitalii Lisovenko 5 5
and the Hampton-Alexander Review, the Board
Fiona MacAulay 5 5 is mindful of the need to enhance diversity
– reviewing the results of the Group’s
annual talent review and succession and foster inclusion below the Board.
1. Appointed on 18 May 2021. plans for business-critical roles.
2. Appointed on 19 May 2021.
### 100 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

| The Committee, therefore, undertook a | During the year, the Committee also |
| --- | --- |
| review of the composition of the Executive | reviewed the progress made towards the |
| Committee as well as direct reports to | Group’s target of at least 25% of managerial |
| Executive Committee members. It was | roles to be held by women by 2030. |
| noted that the Executive Committee had | Although the overall number of women in |
| decreased from six in 2020 to five members | the workforce remained static at 29.2% |
| in 2021, all of whom are male, while out of | (2020: 29.2%), the number of women in |
| 43 direct reports, the number of females | leadership positions advanced to 20.1% |
| had risen from seven (2020: 17.9%) to nine | (2020: 18.2%). The Committee is pleased to |
| (2021: 20.9%) but which remains below the | report this trend and believes that the |
| Hampton Alexander Review’s | enhanced gender balance will serve to be |
| recommendation of one third women in | an important component in achieving the |
| leadership. As a result of this review, | Group’s strategic priorities. |

succession plans to address both identified
Aligned with the goals of the Parker Review,
gender diversity imbalances as well as
the Committee is committed to ensuring
deliver sustainable talent pipelines for
that the Board’s composition reflects the
succession to senior leadership roles have
Group’s employee base and the
been put in place. The execution of these
communities where the Group operates.
plans will remain a focus for the Committee
The Committee has, therefore,
to eliminate gender imbalances below
commissioned an external search
theBoard.
consultancy to conduct research into how

| The Committee also participated in the | comparable organisations are responding to |
| --- | --- |
| process to find a Chief Financial Officer for | the Parker Review. The outcome of this |
| the Group. Following interviews by the | study will be considered over the course of |
| Committee with potential internal and | 2022 which, it is anticipated, will enable the |
| external candidates, the Committee | Board to chart a course to ensure a |
| recommended the promotion and | sustainable, diverse and ethnically |
| appointment of Nikolay Kladiev as Chief | representative Board. The findings are also |
| Financial Officer leading to his appointment | expected to assist with advancing our |
| taking effect on 4 August 2021. This | ethnic and cultural diversity efforts below |
| promotion is a great reflection of the | the Board to reflect the demographic |
| Company’s commitment to internal | composition of communities surrounding |
| progression and is explained further | the Group’s operations. The outcome of this |
| inthisreport. | project will be reported in 2022. |
| The Group has formal policies in place to | As at 31 December 2021, the Committee |
| promote equality of opportunity across the | was composed of four Independent |
| whole organisation, regardless of gender, | Non-executive Directors, Ann-Christin |
| ethnicity, religion, disability, age or sexual | Andersen, Graeme Dacomb, Vitalii |
| orientation. In working towards greater | Lisovenko and Fiona MacAulay and I would |
| diversity, Fiona MacAulay and Ann-Christin | like to thank the Committee for all their work |
| Andersen represented the Board at the | during the year. |

launch of the second Fe_munity women in
Lucio Genovese
leadership programme at the Group’s
Chair of the Nominations Committee
operations in Ukraine. The programme
21 April 2022
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. They also took the
opportunity to engage with alumni from the
first programme held in 2020 and visited a
local school that receives support from the
Group’s CSR programme.
### Ferrexpo plc Annual Report & Accounts 2021 101
CORPORATE GOVERNANCE
## Nominations Committee Report continued
Membership and meetings The review included consideration of the Following this robust recruitment process
succession timeline for the progressive two additional Independent Non-executive
The Nominations Committee is chaired by
refreshment of the Board and changes Directors were formally recommended by
Lucio Genovese and its other members are
required to reflect core areas of strategic the Committee to the Board for appointment
Vitalii Lisovenko, Fiona MacAulay, Graeme
focus to inform the skills and experience as independent Non-executive Directors.
Dacomb and Ann-Christin Andersen.
profile for appointments to the Board (for This resulted in the appointment of
TheCommittee is required by its terms of
further information see the Board’s skills Ann-Christin Andersen with effect from
reference to meet at least once a year and
matrix on page 85). All Non-executive 1March2021 and Natalie Polischuk with
met on five scheduled occasions in 2021. An
Directors completed a self-assessment effect from 29December 2021. These
informal meeting also took place to progress
against the matrix to inform individual appointments mean that the Board is now
the refreshment of the Board. All meetings
development plans that will be progressed comprised of five Independent Non-
were held using videoconferencing due to
in 2022 and beyond. It is anticipated that executive Directors, which exceeds the
travel restrictions as a result of the Covid-19
each Non-executive Director will receive requirement of the Corporate Governance
pandemic. All Non-executive Directors have
training appropriate to their level of Code to ensure that at least half of the
a standing invitation to attend all Committee
experience and knowledge which would Board (excluding the Chair) are independent
meetings, with the consent of the Committee
consist of a combination of tailored training Non-executive Directors. Additionally, the
Chair. In practice, most Directors generally
together with individual briefings with composition of the Board now also exceeds
attend all meetings. Discussions at the
Executive Committee members and their the gender diversity target set by the
meetings covered the responsibilities
teams to provide information about the Hampton-Alexander Review. The roles of
outlined earlier, with particular focus on
Group’s business, culture and values, allDirectors are summarised on page 87.
Non-executive and Executive succession
andother relevant information to assist
planning and recruitment. The Committee also participated in the
Non-executive Directors in effectively
process to find a permanent Chief Financial
performing their duties. In addition,
Succession planning and Officer (“CFO”) for the Group. This search
Non-executive Directors are expected to
recruitment was supported by Korn Ferry who are
spend time at theGroup’s operations to
accredited under the UK Government’s
The Nominations Committee is responsible engage with management and members
enhanced code of conduct for executive
for the composition, structure and size ofthe workforce.
search firms and also subscribe to the
ofthe Board and its Committees, the
The review also identified further Voluntary Code of Conduct on diversity
appointment of Directors and executive
opportunities to increase Board diversity bestpractice. Following a detailed search
management, and for ensuring effective
and knowledge and experience gaps to process which included consideration of
succession planning for the Board and other
beaddressed through recruitment. The both internal and external candidates,
business critical roles to fulfil the leadership
Nominations Committee appointed two theCommittee interviewed all shortlisted
needs of the organisation. The Committee
search firms, Caldwell and Partners, and candidates and recommended the internal
also plays a vital role in ensuring that we
Boyden International (Kyiv), to support the promotion of Nikolay Kladiev and
continue to adhere to the high standards of
recruitment of two additional Non-executive appointment as CFO. This appointment
corporate governance that our stakeholders
Directors. Both firms had previously worked underscores the Company’s robust talent
rightly expect. It, therefore, works to ensure
with the Company to conduct other management process which identifies
that the Board has the right members
searches and, therefore, already possessed individuals with high potential for inclusion
bothnow and in the future to deliver the
insight into the Company’s values, culture in succession plans for business critical
Company’s strategy and ensure its long-
and strategy. The firms have no other roles. This includes taking development
term success. The Committee plans ahead
connection with the Company. Prior to the actions to close identified knowledge and
for future recruitment to make sure that the
search commencing, the Nominations skill gaps over the short to medium term.
Board continues to have the diversity, skills
Committee agreed the knowledge and
and experience it needs.
experience it considered necessary for the

| During 2021, the Committee oversaw a | roles and the skills mix required to enhance |
| --- | --- |
| review of the skills and experience matrix | the balance of skills on the Board. Lists of |
| that informs development planning and | potential candidates were then identified by |
| recruitment processes for Non-executive | the two search firms and discussed with |
| Directors. | Committee members to agree shortlists to |

be interviewed. In each case, the initial
shortlisted candidates were interviewed
bymembers of the Committee and,
subsequently by all members of the Board.
### 102 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Election and re-election The Board shares ownership with the However, should recruitment need to be
Executive Committee of the Diversity Policy progressed, the Board will seek to ensure
As in previous years and in accordance
and progress updates are presented to the that a broad range of diverse candidates are
withthe Corporate Governance Code,
Board for review every six months to assess taken into account when drawing up
alldirectors will stand for re-election by
progress against the targets and enable shortlists of candidates for appointment to
shareholders at the Company’s AGM
adjustments to be made to the programme the Board, and the Board will only engage
scheduled for June 2022. Natalie Polischuk,
where necessary. executive search consultants who have
who joined the Board in December 2021,
signed up to the Voluntary Code of Conduct
will stand for election by shareholders at the In support of the Group’s Diversity and
for executive search firms. The final decision
same meeting. The range of skills and Inclusion goals, Fiona MacAulay and
to make appointments to the Board are,
experience offered by the current Board is Ann-Christin Andersen represented the
however, made on merit against objective
mentioned in this report and set out on Board at the launch of the second
criteria, so as to ensure that the strongest
pages 78 to 79 and 85. The Committee and Fe_munity women in leadership programme
possible candidate for the role is recruited.
the Board consider the performance of each held at the Group’s operations in Ukraine
However, the Committee will continue to
of the Directors standing for election and (for further details on the Fe_munity
ensure that the Diversity Policy is
re-election to be fully satisfactory and that programme see page 41). This internal
considered when conducting all searches
they have demonstrated on-going programme, which is run with the support of
for Board positions, and will take account of
commitment to their respective roles. The external consultants, seeks to accelerate
the recommendations of the Hampton-
Board, therefore, strongly supports the the development of our senior female
Alexander and Parker reviews regarding
election and re-election of all Directors and managers and to support them as they
gender balance and ethnic diversity
recommends that shareholders vote in navigate the challenges and gender biases
onboards.

| favour of the relevant resolutions at the | that might hinder their career progression in |  |
| --- | --- | --- |
| Annual General Meeting. | the workplace and within broader society. | The Committee is committed to ensuring |
|  | They also took the opportunity to engage | that the Company’s composition is |
| Board diversity policy | with alumni from the first programme held in | congruent with the goals of the Parker |
|  | 2020 and visited a local school that receives | Review and is reflective of the Group’s |

The Board places great importance on
support from the Group’s CSR programme employee base and the communities where
having an inclusive and diverse Board and
for a maths and science class that provides the Group operates. The Committee has,
workforce and recognises the important
the opportunity for students to apply for therefore, commissioned Wilbury Stratton,
leadership role that the Board needs to play
abursary to study Science, Technology, an external search and research
in creating an environment in which all
Engineering and Mathematics (“STEM”) consultancy, to conduct research into how
contributions are valued, different
subjects at selected universities and on comparable organisations are responding to
perspectives are embraced, and biases are
graduation be offered employment with the Parker Review. The outcome of this
acknowledged and mitigated. In support of
theGroup. study will be considered over the course of
this goal, the Board agreed a Diversity,
2022 which, it is anticipated, will enable the
Equity and Inclusion policy (“Diversity The Nominations Committee places high
Board to formulate an approach that will
Policy”) in 2019 which is kept under review importance on having a diverse and
ensure a sustainable, diverse and ethnically
by the Nominations Committee. The inclusive Board and workforce and to this
representative Board. The findings are also
Diversity Policy aims to promote equality of end, the Committee reviews and approves
expected to assist with advancing our
opportunity across the whole organisation, succession plans each year for business
ethnic and cultural diversity efforts below
regardless of gender, ethnicity, religion, critical roles, including reviewing succession
the Board to reflect the demographic
disability, age or sexual orientation as well plans for the Board. Following a review
composition of communities surrounding
as address gender diversity imbalances conducted in 2021 which also took account
the Group’s operations. The outcome of this
inthe workforce while also delivering of the targets of the Hampton-Alexander
project will be reported in 2022. The
sustainable talent pipelines for succession and Parker reviews, the Committee was
Committee notes that the Group’s
to senior leadership roles. satisfied that the present composition of the
operations and majority of its workforce are
Board, following the appointment of two
primarily based in Ukraine, which is
Independent Non-executive Directors in the
reflected in the composition of the Board
year, provides an appropriate mix of skills,
and senior management which reflects the
experience, diversity and perspectives on
broader societal aspects of Ukraine.
the Board.
### Ferrexpo plc Annual Report & Accounts 2021 103
CORPORATE GOVERNANCE

# Nominations Committee Report continued

## Board diversity policy update

|  Board objective | Progress in 2021  |
| --- | --- |
|  **Foster a diverse and inclusive workplace culture aligned with the Company's Values, Purpose and Strategy** | - Diversity workforce survey conducted highlighting a higher level of diversity and inclusion awareness, including an understanding of LGBTQ+ across survey participants; scores ahead of all other Ukrainian companies. - Upgrading of facilities and access points at operations to enable accommodation of people with disabilities. - Board-sponsored second Fe_munity women in leadership programme to foster the advancement of women into senior leadership roles hosted by Fiona MacAulay and Ann-Christin Andersen. - Integrated mining operating model executed. - Assessment of workforce technical skills in the plant and training conducted to ensure workforce capability supports business requirements. - 'Gender stations' to increase diversity awareness among community included in annual family day.  |
|  **Increase Board gender diversity and women in management below the Board** | - Board skills matrix reviewed, including diversity requirements and communicated to recruitment partners; only firms adhering to the Voluntary Code of Conduct on diversity best practice used. - The Committee's search for two Non-executive Directors resulted in the appointment of Ann-Christin Andersen on 1 March 2021 and Natalie Polischuk on 29 December 2021. This increased the Board's gender diversity to 38%. - Initiatives progressed in 2021 advanced women in leadership to 20.1% (2020: 18.2%); target for 2022 (toward target of 25% by 2030) set at 20.7% by end of 2022. - Total female representation as percentage of the workforce currently at 29.2% (2020: 29.2%). - 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 launched in 2021.  |
|  **Monitor diversity programme outcomes and make adjustments to ensure overall objectives are met** | New and repeat activities planned for 2022, subject to the cessation of the war in Ukraine, will include: - Workforce Diversity and Inclusion education. - Unconscious bias training for middle and senior management. - STEM ambassador visits to local schools and colleges. - 'STEM streamers' competition run online with students from local schools. - Selection of bursary award school leavers. - Roll-out of flexible and remote working policy for mothers of small children; and 'bring a daughter to work' days. - Guinness Book of Records HeforShe commitment signing.  |

104

Ferrego plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Workforce diversity Further to the gains noted above, the Group
also received external recognition for
Ferrexpo’s policy is to employ a diverse
fostering diversity and inclusion within its
workforce and thought is given to recruit as
workforce. In November 2021, the Group
widely as possible, taking into account,
won the top award for Diversity and
amongst other things, gender, race, social
Inclusion at the HR Pro Awards in Kyiv.
background, education and disability. In
Theaward was judged by a panel of
2019, the Board set a diversity target of
30representatives from leading companies
25% women in leadership to be achieved by
inUkraine and recognises those that are
2030. Achieving this target remains a
raising the level of professional practices
challenge in view of there being a very
indiversity and inclusion.
limited number of female applicants for

| technical jobs in the Resources sector | The Group also placed fourth out of 50 |
| --- | --- |
| historically while the Group’s workforce is | participant companies in a survey, |
| set to grow due to the Group’s organic | conducted under the auspices of the United |
| growth plans. | Nations Population Fund in Ukraine, of |

companies providing ‘family-friendly’
During the year, the Committee reviewed the
policies, for example by offering male and
progress made towards the Group’s target
female employees equal parental benefits.
and although the overall number of women
in the workforce remained static at 29.2%
Disability
(2020: 29.2%), the number of women in

| leadership positions advanced to 20.1% | Ferrexpo is proud to employ registered |
| --- | --- |
| (2020: 18.2%). The Committee was gratified | disabled staff representing more than 4% of |
| with this result and in order to sustain this | our Ukrainian workforce. This helps us to |
| upward trend in 2022 and beyond, the | reflect the diversity in wider society as well |
| Committee approved diversity and inclusion | as deliver on our legal obligations. |

actions for execution in 2022.
The Corporate Governance Report was
Gender diversity targets were included in approved by the Board on 21 April 2022.
the Executive Business Scorecard for the
Lucio Genovese
first time in 2021 to provide additional focus
Chair of the Nominations Committee
and attention on the achievement of this
21 April 2022
strategic imperative. A diversity target has
again been included in the scorecard for
2022 of 20.7%. This target represents the
appointment of an additional three women
in leadership positions by the end of 2022.
To test the effectiveness of the Group’s
diversity and inclusion activities, the Group
ran its first anonymous survey in early 2021
on diversity and inclusion topics, receiving
feedback from over 630 employees based
at the Group’s operating entities in Ukraine.
The survey is the first study by the Group
into topics such as gender identification,
sexual orientation, nationality and other
forms of diversity, as well as raising forms of
discrimination that have been encountered
by employees. The survey was devised and
administered by Biasless which is an
external independent Diversity and Inclusion
consultancy based in Kyiv. The Committee
reviewed the results and was pleased to
note that the Group scored ahead on all
topics in the survey in comparison with all
other participating companies covering
across section of sectors in Ukraine.
### Ferrexpo plc Annual Report & Accounts 2021 105
CORPORATE GOVERNANCE
## Remuneration Report
A statement to shareholders from Our approach to remuneration
the Chair of the Remuneration
2 The Committee strives to align the
Committee
interests of the executives with

| As Chair of the Remuneration Committee, | shareholders, and the Board keeps under |
| --- | --- |
| Iam pleased to present the Directors’ | review the structure and level of |
| Remuneration Report for the year ended | remuneration afforded through share- |
| 31 December 2021. | based incentives in relation to variable |

and fixed pay. It is the policy of the Board
The Directors’ remuneration policy was
to align executive and shareholder
presented to shareholders at the 2021 AGM
interests by linking a substantial
and we were pleased to receive support
proportion of executive remuneration to
from over 98% of our shareholders.
performance, basing short term rewards
This report is split into the following on a balanced portfolio of financial,
sections: operational, ESG and strategic
performance measures with long term
1. the Statement from the Chair of the
rewards earned subject to creating above
Remuneration Committee –
average long-term total shareholder
summarising the decisions taken by
returns and, since 2021, achieving the
theCommittee;
Company’s decarbonisation metrics.
2. an “At a glance” overview of
Our policy is purposefully weighted
remuneration;
towards short term performance
Fiona MacAulay
3. the Directors’ remuneration policy measures given the Company’s focus on
Chair of the Remuneration Committee
approved by shareholders at the operational excellence and the fact that
2021AGM; Ferrexpo does not control the price of
The Committee is chaired by Fiona
iron ore which is dictated by market
MacAulay. The Committee consists 4. the Annual Report on Remuneration,
conditions. As a result, setting
ofthree independent Non-executive setting out how we have paid Directors in
performance targets that align to the
Directors as required by the Code 2021 and how we intend to operate the
factors directly within the control of the
and is also attended by the Chair policy in 2022.
executive team is considered appropriate.
ofthe Board and, by invitation,
theChiefExecutive Officer, the We ensure that remuneration packages
ChiefHuman Resources Officer, and are competitive through assessing
a representative from KornFerry, the remuneration packages against the
Committee’s independentadviser. relevant market comparables to ensure
that Ferrexpo can attract, motivate and
Main objective
retain talented executives. We achieve
To establish and maintain on behalf alignment with shareholders both through
ofthe Board a policy on executive the performance targets we set, but also
remuneration to deliver the
2. This report has been prepared by the Remuneration Committee (the “Committee”) on behalf of the Board in accordance
Company’s strategy and value
with the requirements of the Listing Rules of the UK Listing Authority, Schedule 8 of the Large and Medium-sized
forshareholders; toagree, monitor
Companies and Groups (Accounts and Reports) Regulations 2008 (as amended in 2013, 2018 and 2019) and the UK
andreport on the remuneration of Corporate Governance Code. The elements subject to audit are highlighted throughout.
Directors and senior executives and to
review wider workforce remuneration
and other policies in accordance KEY ACTIVITIES OF THE COMMITTEE IN 2021
withthe 2018 GovernanceCode.
The Committee’s key activities during the 2021 financial year were:
MEMBERSHIP AND ATTENDANCE
Scheduled meetings February March
Eligible
– Engaging with shareholders and advisory bodies – Approving the final design of the 2021
Committee member to attend Attended
in relation to the 2021 remuneration policy and its remuneration policy and its application for 2021.
proposed operation during 2021. – Reviewing market pay benchmarking data for the
Fiona MacAulay 4 4

|  | – Reviewing shareholder feedback in relation to the | members of the Executive Committee. |
| --- | --- | --- |
| Graeme Dacomb 4 4 | 2021 remuneration policy and its operation. | – Determining the size of 2021 long-term incentive |
|  | – Determining the 2020 bonus outturn. | awards and the performance targets. |
| Vitalii Lisovenko 4 4 | – Determining vesting of the 2018 long-term | – Approving awards under the Company’s |
|  | incentive awards. | shareplans. |

Ann-Christin Andersen1 2 2
– Setting 2021 annual bonus targets. – Signing off the 2020 Remuneration Report.
– Reviewing 2021 LTIP TSR peer group
1. Ms Andersen was appointed to the Board on 1 March constituents.
2021, and became a member of the Committee from
18 May 2021.
### 106 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

| through a combination of partial deferral of | The Group benefited from strong prices for | payment having had regard to the broader |
| --- | --- | --- |
| annual bonus into shares, annual awards | iron ore products in H1 2021 when prices | stakeholder experience. |
| under a performance share plan and market | achieved record levels of above US$260 per |  |

With regard to the 2019 LTIP, as in prior
consistent share ownership guidelines. tonne for 65% Fe fines CFR China in May
years, our three-year total shareholder
Thisapproach applies across the executive before a steady decline from H2 2021. This
return performance was measured relative
leadership team and has resulted in a robust enabled the Group to realise a profit after
to the performance of a bespoke Index of
link between pay and performance to date. tax of US$871 million and an EBITDA of
comparable Iron Ore and Composite
US$1,439 million for 2021. The positive
Miners. Ferrexpo’s TSR performance over
Performance and reward in 2021 effect of high prices on the Group’s financial
the period was 12.9% p.a., which resulted
performance was slightly offset by higher
As detailed in the Strategic Report, 2021 in100% of the award vesting.
A
C1 cash production costs primarily as a
was a year of operational progress and
result of increased input prices, mainly for The Committee considered the
strong financial performance. This
gas, diesel and electricity, and stronger than remuneration earned in relation to 2021 to
performance was delivered against the
expected local currency and inflation. be appropriate in the context of outstanding
challenging backdrop of the Covid-19
Company performance in the year and
pandemic which rightly remained a priority The strong cash generation in 2021 enabled
continued progress against our medium-
in the year as we focussed on maintaining further investment into the Group’s capital
term strategy of expanding production in a
and developing further measures across our growth projects totalling US$361 million
cost effective manner while recognising the
operations to keep our people safe and and, together with the Group’s solid balance
duty to shareholders, employees and
wellwhile maintaining safe and reliable sheet, distributions to shareholders of
broader stakeholders to protect the
operations, and further supported the US$619 million in respect of 2021. In
continuity of the business and contribute
communities surrounding our operations. December 2021, the Group announced a
toeconomic recovery.

| Full year iron ore pellet production was | further interim dividend of 6.6 US cents |  |
| --- | --- | --- |
| 11.2million tonnes which was in line with | payable in January 2022. This aligns | With remuneration outcomes aligned across |
| our 2020 performance in terms of total | distribution to shareholders with the | the executive leadership of the Group and |
| output. This was a strong operating result | Group’s shareholder distributions policy | after considering wider stakeholder |
| considering that our investment in 2021 to | announced in November 2021 that targets | experience through the year (for example, |
| expand future production necessitated the | distributions to shareholders of 30% of free | noting the impact of the above performance |
| operation of only three of our four pellet | cash flow. | on our shareholders), the Committee was |
| lines for a period of the year during upgrade |  | comfortable with remuneration outcomes |

In the context of the robust operational,
work. In line with our strategy, we also with the policy operating as intended and
financial and strategic performance detailed
continued to produce higher grade iron ore sodid not use discretion.
above, the CEO achieved a bonus at 67.1%
with 100% of pellet production being
of the maximum (100.7% of salary) for the
comprised of grade 65% Fe or above,
year under review. Full details of the
including an increase in our 67% Fe pellet
financial targets and actual performance
production by 27% with this grade of iron
against them are set out on pages 120 and
ore totalling 4% of the total production. At
121 along with details of the non-financial
the same time, we have now registered a
targets and the level of performance
30% decline in our combined Scope 1 and
achieved. This payment was consistent with
Scope 2 emissions per tonne against our
the wider discretionary bonus awards and
baseline year 2019.
the Committee was comfortable with the
KEY ACTIVITIES OF THE COMMITTEE IN 2021
The Committee’s key activities during the 2021 financial year were:

| July | December | Key activities of the Committee in 2022 |
| --- | --- | --- |
| – Consideration of AGM feedback. | – Considering performance to date against 2021 | Subject to the cessation of the war in Ukraine, the |
| – Approving any proposed salary increases for | annual bonus targets. | Committee’s anticipated key activities in 2022 are to: |
| Executive Committee members in line with the | – Reviewing shareholder advisory body updates | – consider AGM feedback; |
| wider workforce increases. | for2022. | – confirm the 2021 remuneration policy continues |
| – Reviewing market developments and institutional | – Overseeing the review and amendment of the | tosupport the Company’s strategy; |
| investor issues raised during the 2021 | annual bonus plan rules to conform with the | – consider the evolution of performance conditions |
| AGMseason. | Company’s remuneration policy. | inline with the business strategy; |
| – Considering the treatment of share awards for | – Approving the 2022 Remuneration | – monitor senior management remuneration in line |
| departing executives. | Committeeplanner. | withthe Code; and |
| – Reviewing the Committee’s Terms of Reference. |  | – ensure remuneration decisions are taken in the |

context of the wider stakeholder experience through
the period.
### Ferrexpo plc Annual Report & Accounts 2021 107
CORPORATE GOVERNANCE
## Remuneration Report continued

| Implementation of the remuneration | There are no other material changes to the | The Committee also noted feedback from |
| --- | --- | --- |
| policy in 2022 | application of the remuneration policy for | employees, elicited through the Company- |
|  | 2022 with the main points to note being: | wide annual Employee Engagement Survey. |

The current war in Ukraine creates
The survey tested a range of employee
significant uncertainty and may necessitate – The annual bonus opportunity will be
engagement elements including the
that the Company adapt its approach to unchanged at 150% of salary for the
effectiveness of remuneration and benefits
remuneration in 2022. At the start of the CEO. Performance will continue to be
policies and the understanding of the
invasion, the Company took steps to ensure measured against a balanced scorecard
alignment between executive remuneration
that employees in Ukraine could access of structured financial, operational and
and wider company pay policy.

| their salaries despite disruption to banking |  | ESG targets (60% of the total bonus) and |  |
| --- | --- | --- | --- |
| systems and increased overtime payments |  | tailored strategic targets (40% of the | As in prior years, while policies are |
| to compensate for changes in shift rosters |  | bonus). 25% of any bonus earned is | understood and are generally considered to |
| resulting from employees being called up |  | deferred into shares for two years. | be working effectively, work remains |
| for military service together with providing | – The long-term incentive award for 2022 |  | ongoing to improve the alignment between |
| financial assistance to employees needing |  | to the CEO is expected to equate to circa | remuneration with individual performance |
| to relocate themselves and their families |  | 45% of salary which is consistent on a | outcomes, particularly within some of our |
| away from areas of intense fighting, |  | percentage of salary basis with his 2021 | operations. The progress made to date in |
| especially from Kyiv and surrounding areas. |  | award which comprised 87,800 shares. | these areas will be progressed further in |
|  |  | Performance will continue to be | 2022 with this being a key focus in 2022 by |

It is expected that the economic
measured based on Ferrexpo’s relative the Chief Human Resources Officer, subject
consequences will not only be acutely felt
total shareholder return compared to the cessation of the war in Ukraine. The
by employees in Ukraine but also by
against the performance of an index Chief Human Resources Officer will also
employees in other locations as soaring
derived from a group of iron ore and work with the designated Employee
energy prices and higher inflation in food
composite miners (75% of the award) Engagement Non-executive Director, Vitalii
markets and other commodities impact
and 25% based on sustainability targets Lisovenko, to further develop a formal
households worldwide. It will therefore be
which are equally split between carbon process through which two-way feedback
necessary for the Company’s remuneration
reduction targets and higher grade iron can be effected in relation to the operation
practices to remain fluid in order to respond
ore production targets with higher grade of the Company’s remuneration policies.
sensitively to shifting circumstances,
iron ore pellets improving the
especially considering the humanitarian Fiona MacAulay
productivity of blast furnaces such that
crisis unfolding in Ukraine. Chair of the Remuneration Committee
their carbon footprint is reduced by 40%
21 April 2022
In 2022, the general approach to senior for every tonne of sinter fines replaced
executive salaries will be to undertake a (Source: CRU).
review against the relevant market data
Further details of the performance
where the executive is located with effect
conditions and targets for 2022 are set out
from 1 July. The factors considered as part
on pages 122 and 123.
of the review process include the role itself,
any changes to that role in addition to the
Consideration of shareholders and
performance in post. The typical rate of
employees
increase awarded across the workforce is

| also considered. With regards to the role of | We consulted with shareholders in 2021 in |
| --- | --- |
| the CEO, Mr North was permanently | relation to the new remuneration policy and |
| appointed to the position on 14 February | were pleased to receive over 98% support |
| 2022 and his base salary was increased by | for that resolution and over 97% support for |
| US$100,000. This increase was equivalent | the remuneration report resolution at the |
| to the “acting up” allowance that Mr North | same AGM. |

received while serving as Acting CEO since
May 2020.His salary will be subject to
review with effect from 1 July 2022.
### 108 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
payment/accrual
performance period
holding period
## AT A GLANCE (NOT SUBJECT TO AUDIT)
Element Operation Time-horizon
2021 2022 2023 2024 2025
Salary: – Annual review by Committee
– Increases typically in line with wider
To attract and retain talent by ensuring
workforce
base salaries are competitive in the
market in which the individual is
employed
Pension & benefits: – Aligned with pension and benefits
offered to local workforce
To provide market competitive benefits
Short-Term Incentive Plan (“STIP”): – Maximum opportunity of 150% of salary
– Target opportunity of 75% of salary
To focus management on delivery of
– Performance measures based on a
annual business priorities which tie into
scorecard of financial, operational and
the long-term strategic objectives of the
common strategic objectives
business
– Safety underpin
– 25% of bonus deferred into shares for
two years
Long-Term Incentive Plan (“LTIP”): – Policy maximum of 200% of salary
– Performance based primarily on relative
To motivate participants to deliver
TSR (75% weighting) in conjunction with
appropriate longer-term returns to
production (12.5% weighting) and carbon
shareholders by encouraging them to
emissions (12.5% weighting)
see themselves not just as managers,
– Performance measured over three
but as part-owners of the business
yearswith two-year post vesting
holdingperiod
Share ownership guideline: – Executive Directors required to build
andmaintain a shareholding of 200%
To provide alignment of interests
ofsalary 200% of salary
between Executive Directors and
– Applies for two years post-cessation
shareholders
ofemployment
BUSINESS SCORECARD (60% OF BONUS) TOTAL SHAREHOLDER RETURN
90%

|  |  | — Ferrexpo |
| --- | --- | --- |
|  |  | — 2021 LTIP Index |
| 80% |  | — FTSE 250 Index |
|  |  | — FTSE All-Share Index |
| 60% | 200 |  |

40%
300
Ferrexpo
20% 100
LTIP
0%

| Group | Safety – | Diversity Carbon |  | FPM Full | FPM Total | FTSE | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| EBITDA | LTIFR |  | reduction | cash costs | movement |  |  |  |
|  |  |  |  | (C1) | costs |  |  | 0 |

All-Share
31 Dec 31 Dec 31 Dec 31 Dec
2018 2019 2020 2021
Bonus payment (% of salary)
### Ferrexpo plc Annual Report & Accounts 2021 109
CORPORATE GOVERNANCE
## 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 Executive Directors. 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.
Committee
The terms of reference for the Committee were updated during the year to comply with changes made to the UK Corporate Governance
Code. The revised terms of reference were approved by the Board and its duties include the determination of the policy for the
remuneration of the Chair of the Board, Executive Directors, the members of the Executive Committee, and the Company Secretary as well
as their specific remuneration packages, including pension rights and, where applicable, any compensation payments. In determining such
policy, the Committee is expected to take into account all factors which it deems necessary to ensure that members of the senior executive
management of the Group are provided with appropriate incentives to encourage strong performance and are, in a fair and responsible
manner, rewarded for their individual contributions to the success of the Group.
The composition of the Committee and its terms of reference comply with the provisions of the Corporate Governance Code and are
available for inspection on the Group’s website at www.ferrexpo.com.
Key principles of the remuneration policy
Ferrexpo’s remuneration policy is designed to help attract, motivate and retain talented executives to help drive the future growth and
performance of the business. The policy aims to:
– align executive and shareholder interests;
– link an appropriate proportion of remuneration to performance;
– reward based on a balanced portfolio of performance measures (e.g. Total Shareholder Return (“TSR”) relative to sector peers, annual
business priorities, financial and operational targets and individual performance); and
– provide rewards that are competitive in the relevant markets to help attract, motivate and retain talented executives.
In determining the Company’s remuneration policy, the Committee takes into account the particular business context of the Group, the
industry segment, the geography of its operations, the relevant talent market for each executive, the location of the executive and
remuneration in that local market and best practice guidelines set by institutional shareholder bodies. The Committee will continue to give
full consideration to the principles set out in the UK Corporate Governance Code in relation to Directors’ remuneration and to the guidance
of investor relations bodies.
From the policy review undertaken, the Committee is satisfied that the remuneration policy and its application takes due account of the six
factors listed in the UK Corporate Governance Code:
– Clarity – our policy is well understood by our management team and has been clearly articulated to our shareholders. A key part of our
Chief Human Resources Officer’s role is engaging with our wider employee base on all our people matters (including remuneration) and
we monitor the effectiveness of this process through the feedback received. The Board is comfortable that our remuneration policy is
clearly understood by our employees.
– 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 115 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 36 and 123.
### 110 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 salaries are reviewed annually, with | Base salary increases are applied | Business and, where |
| --- | --- | --- | --- |
|  | reference to the individual’s role, experience and | in line with the outcome of the | relevant for current |
| Base salary | performance; business performance; salary | review, which will not exceed 5% | Executive Directors, |
| To attract and retain talent | levels for equivalent posts at relevant | p.a. (or, if higher, the applicable | individual performance |
| by ensuring base salaries | comparators; cost of living and inflation; and | inflation rate) on an annualised | are considerations in |
| are competitive in the | therange of salary increases applying across | basis over the period over which | setting base salary. |
| market in which the | theGroup. | this policy applies. Increases |  |
| individual is employed. |  | 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 Executive Directors will, as appropriate, be Executive Directors will receive a Not performance
To provide retirement offered membership of a scheme which complies pension that is aligned with the related.
benefits. with relevant legislation (where necessary, typical (i.e. most common)
additional pension entitlements will be provided) practice for employees in the
or cash in lieu of pension. location that the executive
isbased.
For information, pension for UK-based

| employees is currently set at 5% of salary with | The employer contribution will |
| --- | --- |
| pension for Swiss-based employees set at 10% | normally be limited to a |
| of salary. Whilst pension in Dubai is not typically | percentage of base salary. |
| provided, a statutory lump sum gratuity is | Associated benefits and variable |
| accrued each year and will be payable on | pay will only be included where |
| termination in line with the relevant legislation. | there is a statutory requirement to |

do so.
The employer contribution will be
limited to 10% of salary or higher
subject to compliance with local
statutory requirements to reflect
actual practice in the Company.
Benefits Benefits are paid to comply with local statutory Benefits’ values vary by role and Not performance
Competitive in the market requirements and as applicable to attract or eligibility and costs are reviewed related.
inwhich the individual retain executives of a suitable calibre. They periodically. Increases to the
isemployed. include life insurance and medical insurance. existing benefits will not normally
Where appropriate, additional benefits may be exceed applicable inflation.
offered, including, but not limited to, Increases above this level may be
accommodation allowances, travel, enhanced applied, where appropriate, to
sick pay, relocation/expatriate relocation reflect changes in role, scope,
benefits, tax and legal advice. location and responsibility.
### Ferrexpo plc Annual Report & Accounts 2021 111
CORPORATE GOVERNANCE
## Remuneration Report continued
Purpose and link to strategy Operation Opportunity Performance metrics

| Variable pay | Targets are set at the start of the year against | Maximum opportunity of 150% | Performance related. |
| --- | --- | --- | --- |
|  | which performance is measured. The Committee | ofsalary. |  |
| Short-term Incentive Plan | determines the extent to which these have been |  | Performance measures |
| (“STIP”) | achieved. The Committee can exercise discretion | The target opportunity is 50% | can include financial, |
| To focus management on | to adjust the formulaic outcome or amount of | ofmaximum and the threshold | non-financial and |
| delivery of annual business | bonus payable, taking into account such factors | opportunity is one-third | personal achievement |
| priorities which tie into the | as it determines to be relevant, including factors | ofmaximum. | criteria measured over |
| long-term strategic | outside of management control or where it |  | one financial year. |
| objectives of the business, | believes the outcome is not truly reflective of |  |  |
| which include, but are not | individual performance or in line with overall |  | The Committee has |
| limited to, developing the | Company performance. |  | discretion to make |
| reserve base, increasing |  |  | changes in future years |
| production, reducing costs, | Normally paid as a mixture of cash and deferred |  | to reflect the evolving |
| reducing the risk profile of | shares with the cash portion paid following the |  | nature of the strategic |
| the business, expanding | publication of the audited results. The deferred |  | imperatives that may be |
| the customer portfolio, and | share portion will normally be a minimum of 25% |  | facing the Company. |
| expanding geographically. | 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.
### 112 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Purpose and link to strategy Operation Opportunity Performance metrics

| Long-term Incentive Plan | The LTIP framework was approved by | The LTIP provides for annual | The Committee reviews |
| --- | --- | --- | --- |
| (“LTIP”) | shareholders at the 2018 AGM. To the extent that | awards of performance shares, | the LTIP performance |
| To motivate participants | an LTIP award vests, this will include the | options or cash up to an | conditions, in advance |
| todeliver appropriate | applicable dividends on the shares earned during | aggregate limit of 200% of salary | of granting each |
| longer-term returns to | the vesting period. Subsequent dividends on | in normal circumstances. This | LTIPcycle. |
| shareholders by | shares held by participants are paid in shares. | limit may be exceeded in |  |
| encouraging them to see |  | exceptional circumstances but | Relative TSR will be the |
| themselves not just as | Vesting of LTIP awards is subject to performance | will not exceed 300% of salary. | primary performance |
| managers, but as part- | measured over a period of at least three years. In | The threshold opportunity is 20% | measure. Other |
| owners of the business. | addition, for any shares to vest, the Committee | of maximum. | performance measures |
|  | must be satisfied that the outcome is a fair |  | may, however, be used |
|  | reflection of Ferrexpo’s underlying business |  | in combination with |
|  | performance. |  | relative TSR. |

For LTIP awards from 2018 onwards a two-year
holding period applies to shares vesting under
th e LTI P.
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.

| Share ownership | The Company operates a shareholding | Executive Directors are required to | Not performance related. |
| --- | --- | --- | --- |
| guideline | requirement which is subject to periodic review. | build and maintain a shareholding |  |
| To provide alignment of |  | to the value of at least 200% |  |
| interests between | As a minimum, Executive Directors are expected | ofsalary. |  |
| Executive Directors | to retain all of the post-tax shares vesting under |  |  |
| andshareholders. | the LTIP and shares deferred under the annual | The lower of 200% of salary and |  |
|  | bonus (from 2022 on an after tax basis) until the | the value of shares held on |  |
|  | shareholding requirement is met. | cessation must be held for two |  |

years post cessation.
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 2021 113
CORPORATE GOVERNANCE
## Remuneration Report continued
Rationale for performance measures
The STIP is based on performance categories that are key to delivering on our long-term strategy. Performance measures are set at the
beginning of the financial year to reflect business priorities and other corporate objectives, and can include financial, non-financial and
personal achievement criteria.
Performance targets are set at such a level as to be stretching but achievable, with regard to the particular strategic priorities and
economic environment in a given performance period. The STIP target is set with reference to the annual budget approved by the Board.
Where appropriate, the Committee sets a performance zone (threshold to stretch) around the target, which it considers provides an
appropriate degree of “stretch” challenge and an incentive to outperform. The Committee believes that using multiple targets for the
purposes of the STIP provides for a balanced assessment of performance over the year.
For the LTIP, the Committee believes that relative TSR is the most objective external measure of the Company’s success over the longer
term. Relative TSR helps align the interests of Executive Directors with shareholders by incentivising share price growth and, in the
Committee’s view, provides an objective measure of long-term success. The Committee has discretion to review the comparator index if
any of the constituent companies are affected by corporate events such as mergers and acquisitions. The Committee also reviews the
constituents and their weightings prior to the start of each LTIP cycle in order to ensure that they remain appropriate. Details of the
comparator group will be set out in Part B of the Remuneration Report for the year immediately following the year in which the grant is
made. Part of the LTIP will normally also include other performance metrics (e.g. production or sustainability metrics) for a minority of the
award to ensure that the long-term targets are appropriately balanced in light of the Company’s strategic objectives.
Remuneration of senior executives below the Board
The policy and practice with regard to the remuneration of senior executives below the Board is broadly aligned with that of the
ExecutiveDirectors.
Senior executives participate in the LTIP with the same performance measures applied as for the 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
Fees Annual fee for the Chair. Changes to Non-executive Not performance
Director fees are applied in line related.
To attract and retain talent Annual base fee for Non-executive Directors. with the outcome of the review
by ensuring fees are market Additional fees are paid to the Senior undertaken by the Chair and
competitive and reflect the Independent Director and the Chairs of the Executive Directors.
time commitment required Committees and/or in relation to the Non- Additional remuneration may be
of Non-executive Directors executive Director who will be a representative provided in connection with
in different roles. ofemployees as well as for representation on fulfilling the Company’s business
subsidiary Boards, where appropriate, to reflect (e.g. any expenses incurred
additional responsibility. fulfilling Company business may
be reimbursed including any
Fees are reviewed from time to time, taking into associated tax).
account the time commitment, responsibilities
and fees paid by comparable companies, and The maximum aggregate fees,
also taking into consideration geography and per annum, for all Non-executive
riskprofile. Directors allowed by the
Company’s Articles of
Association is £5,000,000.
### 114 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 Base salary, pension No STIP (0% of salary) No LTIP vesting (0% of maximum)
and benefits as
applicable for 2022
1
financial year
On-target On-target STIP (75% of salary) On-target vesting of LTIP (40% of maximum)
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
Maximum, assuming 50% Maximum STIP (150% of salary) As for Maximum, but modelling the impact
share price growth ofa50% increase to share price
1. Benefits have been included at US$196,948 based on the annualised benefit provision to Executive Director.
CEO US$ (‘000)
1,156100%

|  | 51% 32% 17% |  | 2,259 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 25% 32% |  |  | 43% | 4,513 |  |
|  | 21% 26% |  |  | 35% 18% |  | 5,472 |
| 0 |  | 1,000 2,000 3,000 4,000 5,000 6,000 |  |  |  |  |

Minimum
Target
Maximum
Maximum
with 50%
share price
### growth Ferrexpo plc Annual Report & Accounts 2021 115
Fixed Pay STIP LTIP LTIP value with 50% share price growth
CORPORATE GOVERNANCE
## Remuneration Report continued
Remuneration policy for new appointments
The Committee’s approach to setting remuneration for new Executive Directors is to ensure that the Company’s pay arrangements are in
the best interests of Ferrexpo and its shareholders. To do this, the Company takes into account internal pay levels, the external market,
location of the executive and remuneration received at the previous employer. The Committee reserves discretion to offer appropriate
benefit arrangements, which may include the continuation of benefits received in a previous role. Variable pay awards (excluding any
potential “buy-out” awards, described below) for a newly appointed Executive Director will be as described in the policy table, subject to
the same maximum opportunities. Different performance measures may be set initially for the STIP and LTIP awards, taking into account
the responsibilities of the individual, and the point in the financial year at which he or she joined, and subject to the rules of the plan. The
rationale will be clearly explained in each case.
In addition, the Committee may make an award in respect of a new appointment to “buy out” existing incentive awards forfeited on leaving
a previous employer. In such cases, the compensatory award would typically be on a like-for-like basis with similar time to vesting,
performance measures and likelihood of the targets being met. The fair value of the buy-out award would not be greater than the awards
being replaced. To facilitate such a buy-out, the Committee may grant a bespoke award under the Listing Rules exemption available for
thispurpose.
In cases of appointing a new Executive Director by way of internal promotion, the Group will honour any contractual commitments made
prior to his or her promotion to Executive Director.
In every case, the Board will pay both the appropriate, but also the necessary, rate of pay to attract an executive who in the view of the
Board will contribute to shareholder value.
The approach to setting Non-executive Director fees on appointment is in line with the approach taken for the fee review set out in the Non-
executive Director policy table earlier in this report and will also take into account fee levels for existing Non-executive Directors.
Details of Executive Director’s service contract
The Executive Director is employed under a contract of employment with Ferrexpo Middle East FZE, a Group company (the “employer”).
The Committee sets notice periods for the Executive Directors at six months, which reduces the likelihood of having to pay excessive
compensation in the event of poor performance.
The principal terms of the Executive Director’s service contract 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 six months’ notice to be given
by the employer or not less than six months’ notice to be given by Mr North and has no special provisions in the event of a change
ofcontrol.
Notice period
Executive Director Position Date of contract From employer From employee
J North CEO 30 September 2015 6 months 6 months
Under his service contract, the Executive Director is entitled to 25 working days’ paid holiday per year plus public holidays and other forms
of leave in accordance with applicable legislation. The Executive Director’s service contract contains a provision exercisable at the option
of the employer to pay an amount on early termination of employment equal to the respective notice period. If the employer elects to make
such a payment (which in practice it will do if the speed and certainty afforded by this provision are thought to be in the best interests of
shareholders), the Executive Director will be entitled under his contract to receive all components of his base salary, and accrued but
untaken holiday where applicable and required under law for the extent of the notice period. In addition to the contractual rights to a
payment on loss of office, any employee, including the Executive Directors, may have additional statutory and/or common law rights to
certain additional payments, for example, in a redundancy situation. Under UAE law, upon loss of office the Executive Director is entitled
toa one-way economy class ticket to his country of origin and the service gratuity payment referred to on page 111.
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).
### 116 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

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 10$^{th}$ the Company adopted the practice of annual re-election of all Non-executive Directors. The key terms of current letters of appointment are as follows:

|  Non-executive Director | Position | Date of first appointment | Date of election/re-election  |
| --- | --- | --- | --- |
|  L Genovese | Chair | 10 February 1019 | 1019 AGM  |
|  AC Andersen | Non-executive Director | 1 March 1011 | 1011 AGM  |
|  G Daconto | Non-executive Director | 10 June 1019 | 1019 AGM  |
|  V Lisovenko | Non-executive Director | 18 November 1016 | 1016 AGM  |
|  F MacAulay | Non-executive Director | 10 August 1019 | 1019 AGM  |
|  N Polischuk | Non-executive Director | 19 December 1011 | 1011 AGM  |
|  K Zhevago | Non-executive Director | 1 December 1010 | 1010 AGM  |

#### Employee context

In making remuneration decisions, the Committee also considers the pay and employment conditions throughout the Group. Prior to the annual pay review and throughout the year, the Committee receives reports from the CEO setting out the circumstances surrounding, and potential changes to, broader employee pay. The CEO consults as appropriate with key employees and the relevant professionals throughout the Group. This forms part of the basis for determining changes in Executive Director and senior executive remuneration which also takes into consideration factors detailed earlier in this report.

#### Consideration of shareholder views

The Committee takes into consideration views expressed by shareholders regarding remuneration, either at the AGM, or by correspondence, or at one-to-one or Group meetings and shareholder events or otherwise by considering these views at the relevant Committee meetings which are subsequently reported to and considered by the Board as a whole. The Committee takes shareholder feedback into careful consideration when reviewing remuneration and regularly reviews the Directors' remuneration policy in the context of key institutional shareholder guidelines and best practice. It is the Committee's policy to consult with major shareholders prior to making any major changes to its executive remuneration structure.

Ferrrepo plc Annual Report & Accounts 2011

117
CORPORATE GOVERNANCE
## Remuneration Report continued
## PART B: ANNUAL REPORT ON REMUNERATION (AUDI T ED)
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 2021
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 from 18 May 2021.
The Committee met on four scheduled occasions in 2021, and had two further informal meetings to discuss proposed changes to the
Company’s remuneration policy which was put to a vote by shareholders at the 2021 AGM. Attendance at meetings by individual members
is detailed in the Corporate Governance Report on page 86. A summary of the topics discussed at meetings in 2021 is set out in the Chair’s
Introductory Statement on pages 106 to 107.
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.
Advisers
Following a competitive tender, the Committee appointed Korn Ferry in October 2019 to provide advice to the Committee. Korn Ferry is
amember of the Remuneration Consultants Group and adheres to its code of conduct.
Korn Ferry’s fees for services provided to the Committee in 2021 totalled £92,600 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 advisers periodically and is satisfied that advice received is independent and
objective and that the advisers did not have any connections with Ferrexpo which may impair their independence.
The CEO and the CHRO provide guidance to the Committee on remuneration packages of senior executives employed by the Group
(butnot in respect of their own remuneration).
Single total figure of remuneration – audited
The table below sets out in a single figure for each currency of payment the total remuneration received by Mr North for the year ending
31 December 2021 and the prior year.

|  |  |  |  |  |  |  |  |  |  |  |  |  | Total fixed |  | Total variable |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  | Total |  | remuneration |  | remuneration |  |
| Salary | 1 | Benefits | 2 | STIP | 3 | LTIP | 4 | Pension | 5 | (single figure) |  | 6 | (single figure) | 6 | (single figure) | 6 |

Executive Directors
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
7
J North (2020) US$567,180 US$6,459 US$573,656 – – US$1,147,295 US$573,639 US$573,656
The figures have been calculated as follows:
1. Base salary: amount earned for the year.
2. Benefits: the taxable value of benefits received in the year (accommodation allowance/provision and healthcare).
3. STIP: this is the total bonus earned on performance during the year. Further details are provided on pages 120 to 121.
4. LTIP: the market value of shares that vested on performance to 31 December of the relevant year (2021: 100% vested and 2020: 0% vested). The market value is based on the three-month
average share price to 31 December 2021 of 300.96 pence; the impact of share price appreciation on the value of the LTIP is reflected in the LTIP Award Vesting table on page 122.
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$111,234 was accrued towards the
statutorygratuity.
6. Average exchange rates: 2021 – £1=US$1.3757; 2020 – £1=US$1.2843.
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 2020 is in respect of the period as Acting CEO i.e. from 28 May to 31 December 2020 and for the full financial year for 2021.
### 118 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
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 2021 and the prior year.
All figures shown in currency of payment, US$000
2021 2020
Fees Benefits Pension Total Fees Benefits Pension Total
Non-executive Directors
1
L Genovese (Chair) 500 – – 500 282 – – 282
V Lisovenko (Senior Independent
Director)2 190 – – 190 190 – – 190
138
F MacAulay (Senior Independent Director)2 175 – – 175 138 – –
3
AC Andersen 113 – – 113 – – – –
G Dacomb 155 – – 155 120 – – 120
4

| N Polischuk |  |  | – – – – – – – – |  |  |
| --- | --- | --- | --- | --- | --- |
|  | 5 |  |  | 6 |  |
| K Zhevago |  | 135 – – 135 |  |  | 240 – – 240 |

1. Mr Genovese retired from the Ferrexpo plc Board on 1 August 2014 and was subsequently re-appointed on 12 February 2019. He was appointed Chair on 25 August 2020.
2. Mr 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 Andersen was appointed to the Board from 1 March 2021.
4. Ms Polischuk was appointed to the Board on 29 December 2021 but did not receive any fees from the Company during the reporting period.
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).
6. 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 current time commitment of the role and will be kept under review. Mr Zhevago does not receive any wider Company benefits in connection with
his role.
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. As explained in the Committee Chair’s
Introductory Statement, Mr North is eligible for a base salary review with effect from 1 July 2022.
On being appointed to the position of CEO on 14 February 2022, Mr North’s anuual 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.
Base salary at:
Executive Director Position 1 January 2022 1 January 20211
J North CEO US$959,050 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$111,234 was accrued towards the statutory gratuity.
Mr North is eligible for other benefits whilst he is an Executive Director as set out in the Executive Director remuneration policy earlier in the
report. This includes an allowance toward the cost of accommodation, schooling for his dependent children and use of a car in Dubai up to
a maximum of US$200,000 p.a. In 2021, Mr North utilised US$185,589 of the allowance.
### Ferrexpo plc Annual Report & Accounts 2021 119
CORPORATE GOVERNANCE
## Remuneration Report continued
2021 STIP outcome – audited
The Company, as a single product producer of iron ore pellets with a focused customer portfolio, sets its performance targets to ensure
that the Directors and senior executives are motivated to enhance shareholder value both in the short term and over the longer term.
Key performance targets based on the budget and the Company’s key strategic priorities for 2021 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.
The targets and performance against these for 2021 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. No payment is made under the STIP if performance is below threshold.
In 2021, the threshold performance equated to a bonus potential of 50% of salary, on-target performance a bonus potential of 75% of
salary (reduced from 100% of salary for 2021) and stretch performance a bonus potential of 150% of salary.
The level of achievement against each of the targets for 2021, as determined by the Committee for Mr North as CEO, is summarised below.
Business scorecard (60% of STIP)
Bonus

|  |  |  |  |  |  |  |  |  | Max | awarded |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Weighting |  | Threshold |  | Target | Stretch | Scorecard | as a % |  | as a % |
| KPI Measure/target |  | % |  | 50% | 75% | 150% | outcome Assessment | of salary |  | of salary |

Financial Group EBITDA (US$, million) 15.0% 1,252 1,316 1,381 1,360 Above target 22.5% 15.7%
ESG LTIFR <WA Mines trailing 5yr
average (%) 5.0% -25.0 -30.0 -35.0 -74.0 Stretch achieved 7.5% 7.5%
Diversity Ratio (% Women
inleadership (grade 10+)) 7.5% 18.4% 19.0% 19.6% 19.7% Stretch achieved 11.25% 11.25%
Carbon reduction (reduction
from2020 avg as a base) 7.5% 1.0% 3.0% 5.0% 16.0% Stretch achieved 11.25% 11.25%
Operational Production from own ore
(GPL+Y) M tonnes 15.0% 11,300 12,183 12,483 11,220 Below threshold 22.5% 0.0%
Full Cash Costs reported
(C1 costs GPL+Y) US$/tonne 10.0% 62.4 61.1 59.4 66.4 Below threshold 15.0% 0.0%
Total 60.0% 90.0% 45.7%
Scorecard outcome 45.7%
In determining the outcome for the Business scorecard, the Committee reflected that 2021 had once again been an unprecedented year of
global pandemic. In response, management took appropriate steps to protect the workforce and maintain business continuity. In respect of
financial targets, it was noted that the Company had benefitted from higher iron ore pellet prices but that these had been partly offset by
higher primary energy supply costs, in particular, oil and electricity, which had resulted in higher C1 costs which had served to have a
negative effect on the scorecard’s EBITDA, and Operational results. Significant positive progress was however made in respect of ESG
targets, including exceeding safety, diversity and carbon reduction targets but mining volumes had not been achieved. The Committee
took into account that this was largely due to the consolidation of mining activities. However, this lower than threshold result had also
impacted target pellet production which was consequently below threshold. Although lower than budget, the Committee considered that
production volumes were notable given the context of the pandemic and in light of planned maintenance downtime to effect necessary
plant upgrades. Reflecting on the impact of these items on the overall scorecard outcome, the Committee did not adjust the overall result
and confirmed an outcome of 45.7% (max 90%) for all participants.
### 120 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Strategic objectives (40% of STIP)
Bonus

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Max | awarded |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | Threshold |  |  |  | Target |  |  | Stretch |  |  |  | as a % |  | as a % |
| Objective Weighting |  |  |  | 50% |  |  | 75% |  |  | 150% Outcome Assessment |  |  |  | of salary |  | of salary |
| Decarbonisation | 10.0% Strategy in |  |  |  |  | Strategy |  |  | In execution |  | Stretch Targets |  |  | 15.0% 15.0% |  |  |
| strategy |  | development |  |  | developed and |  |  |  | and market |  |  | communicated |  |  |  |  |
|  |  |  |  |  | approved by the |  |  | communication |  |  |  |  | to the market |  |  |  |
|  |  |  |  |  |  |  | Board |  | underway |  |  |  |  |  |  |  |
| Optimise Group | 10.0% Implementation |  |  |  | Plan for group |  |  | Implementation |  |  | Stretch Optimisation |  |  | 15.0% 15.0% |  |  |
| Functions |  | of Operational |  |  | optimisation and |  |  |  | underway |  |  |  | in execution |  |  |  |
|  |  | One Ferrexpo |  |  | implementation |  |  |  |  |  |  |  | and cultural |  |  |  |
|  |  |  | Planned |  |  | of Cultural |  |  |  |  |  |  | programs run |  |  |  |
|  |  | Objectives |  |  | Development |  |  |  |  |  |  |  |  |  |  |  |

Programme

| Effective management | 5.0% Covid-19 |  |  |  |  |  | Effective |  | Business | Stretch Business |  |  |  | 7.5% 7.5% |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| of Covid-19 pandemic |  |  | Response |  | Management of |  |  |  | Continuity |  |  |  | continuity |  |
|  |  |  | Developed |  |  |  | Pandemic |  | maintained |  |  |  | maintained |  |
| Project Development 10.0% Implementation |  |  |  |  | 5 year plan for |  |  |  | Target and | Stretch Wave 1 |  |  |  | 15.0% 15.0% |
|  |  |  | of planned |  | implementation |  |  | ahead of plan |  |  |  | growth plan in |  |  |
|  |  |  | activities for |  |  |  | of growth |  |  |  | advanced stage of |  |  |  |
|  |  |  |  | 2021 |  |  | activities |  |  |  |  |  | execution |  |
| Conduct underground | 5.0% Outline Strategy |  |  |  |  | Underground |  | JV partnership |  | Threshold Drilling contract in |  |  |  | 7.5% 2.5% |
| mine feasibility study |  | and commence |  |  |  |  | strategy | discussions/ |  |  |  | execution and |  |  |
|  |  |  |  | drilling | presented to the |  |  |  | evaluation |  | nearing completion |  |  |  |
|  |  |  | (in-house or |  | Board, including |  |  | commenced |  |  |  |  |  |  |
|  |  |  | contractor) |  |  | potential JV |  |  |  |  |  |  |  |  |

partnership
options leading
to enhanced
discussion with
directors
Total 40.0% 60.0% 55.0%
Total STIP (Composite result of business scorecard and personal objectives achievement) 150.0% 100.7%
Outcome as a percentage of salary 100.7%
The Committee considered Mr North’s personal performance against his personal targets during 2021 as shown above and confirmed that
the CEO had achieved all but one of his personal targets at stretch. It was evident that from the overall performance of the Group in the
year that actions taken to address the Covid-19 pandemic, in particular, had ensured business continuity in what was a very difficult
operating environment. This was largely due to the leadership and strong personal performance of the CEO and the Committee was
comfortable with the payment of a bonus at 45% of salary in respect of his personal objectives and did not use negative discretion.
In light of the performance delivered against the targets set both from the business scorecard and from his personal strategic objectives,
the Committee determined that a bonus of 67.1% of the maximum (100.7% of salary) was earned by the CEO. In determining the final bonus
amount was appropriate, the Committee had regard to the wider stakeholder experience during the year, including the returns generated
for shareholders and the bonus awards made across the executive leadership team which were calculated on the same basis.
### Ferrexpo plc Annual Report & Accounts 2021 121
CORPORATE GOVERNANCE
## Remuneration Report continued
STIP framework for 2022
The CEO’s 2022 STIP opportunity will remain at 150% of salary for maximum performance, calculated as a percentage of salary earned
during the year. A balanced scorecard of financial, operational, ESG and strategic targets will again operate. Due to commercial sensitivity,
details of performance targets will be disclosed retrospectively and in certain instances may be aggregated.
25% of any bonus earned, net of any tax, will be required to be deferred into shares for two years. Alternatively, the Committee may
determine that 25% of any bonus earned is deferred into a share award which vests after two years.
KPI Weighting
Financial
Underlying cash EBITDA 15.0%
ESG
Safety
Diversity
Carbon reduction 15.0%
Operational
Production
A
C1 cost management
Total mining movement cost 22.5%
Sales and Marketing
Freight costs 7.5%
Strategic
Organisational growth
Organisational optimisation
Pandemic management
Decarbonisation execution 40.0%
Total 100.0%
LTIP award vesting – audited
The performance period for the 2019 LTIP awards ended on 31 December 2021. The 2019 LTIP rewarded TSR outperformance of a tailored
comparator group. Under the 2019 LTIP, 20% of the maximum award vests for TSR performance in line with the index, with full vesting for
TSR outperformance of 8% p.a.
Ferrexpo’s TSR performance relative to the weighted index was assessed by Korn Ferry. From 1 January 2019 to 31 December 2021,
Ferrexpo’s TSR outperformance was 12.9% p.a. resulting in 100% of the 2019 LTIP awards vesting.
Mr North was granted the 2019 LTIP award in respect of his role as Chief Operating Officer. Details of the number of shares vesting are set
out in the table below.

|  |  |  |  |  |  | Value awarded |  |  |  | Number of |  | Value vesting |  | Share price at |  |  | Value based |  |  | Impact of |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Number of |  | Award share |  |  | based on grant |  |  | Vesting |  | shares |  | based on |  | date of |  | on vesting |  |  | share price |
| Date of grant |  | shares |  | price | 1 |  | price | percentage |  |  | vesting |  | grant price |  | vesting | 2 |  | price | 3 | appreciation |

J North 25.4.19 85,000 268.9p £228,565 100% 85,000 £228,565 300.96p £255,813 11.9%
1. Based on the average share price over the three-month period preceding the start of the performance period.
2. Based on the on the three month average share price to 31 December 2021 of 300.96 pence.
3. Excludes value of share purchase of 40,693 shares in lieu of dividends throughout 2021.
LTIP granted in 2021 – audited
Mr North was granted a 2021 LTIP award in respect of 87,800 shares, which had a face value of 39% of salary.

|  |  |  | Vesting for minimum |  |  |  | End of |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Face value |  |  | performance | performance |  |
| Executive Director Date of grant Number of shares Face value | 1 | (% of salary) | 1 | (% of maximum) |  |  | period |

J North 25.3.21 87,800 £275,692 39% 20% 31.12.23
1. Based on the average share price over the three-month period preceding the start of the performance period and an average exchange rate of £1=US$1.3757.
### 122 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The LTIP award will vest to the extent that the performance conditions set out below are met with performance measured over the period to
31 December 2023. A two-year holding period will apply to any shares that vest. Clawback provisions also apply to the award.

|  |  |  | Threshold target |  | Maximum target |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Performance condition Weighting |  |  |  | (20% vests) |  | (100% vests) |  |
|  | 1 |  |  |  |  |  | Straight line vesting |
| TSR |  | 75% Index Index + 8% p.a. |  |  |  |  |  |

takes place between
Production of 67% Fe pellets2 12.5% 3% over period 7% over period performance points
Carbon emissions reduction 12.5% 3% p.a. 5% p.a.
1. TSR is measured against an index of iron ore and diversified miners. The constituents of the index for the recent awards are summarised in the table below.
2. Subject to the cessation of the war in Ukraine and the re-opening of export port facilities enabling delivery to DR-pellet customers.
2019 2020 2021
Focused iron ore miners Weighting 60% 60% 60%
Cleveland-Cliffs   
Fortescue Metals   
Kumba Iron Ore   
Mount Gibson   
Mineral Resources1 – – 
Global diversified miners Weighting 40% 40% 40%
1
Anglo American – – 
BHP   
Rio Tinto   
Vale   
Glencore   
1. The Committee reviewed the constituents of the comparator index in 2021 and included Mineral Resources in the Focused iron ore miners and Anglo American in the Global diversified
miners given the nature and scale of their operations.
TSR is calculated on a common currency basis to ensure that comparisons with international comparators listed overseas are fair, with a
TSR share price averaging period of six months to help improve the comparison of the management long-term incentive in relation to
potential short-term movements in Ferrexpo’s share price or the share price of comparator companies.
Dividends accrue on performance shares over the vesting period and are paid on shares that vest. Dividends that arise post vesting are
paid to participants in shares.
LTIP framework for 2022
This Directors’ Remuneration Report is published prior to the grant date of awards under the LTIP. The Committee intends to grant
Mr North an LTIP award which is expected to have a face value of c.45% of his CEO salary which sits at the lower end of the award possible
under the policy.
The number of shares under Mr North’s LTIP award for 2022 will be based on the share price prevailing at the time the size of LTIP award
isset.
The performance metrics for the 2022 LTIP awards will continue to be based on a mix of TSR, production and sustainability targets.
The production target will relate to 12.5% of the 2022 LTIP award and directly aligns with the core strategic objective of improving the
product mix to higher grade iron ore pellets. We are targeting increased production in pellets above 65% Fe (i.e. DR pellets) of between 3%
and 7% over the period to the end of 2024.
The carbon emissions target will relate to 12.5% of the 2022 LTIP and incentivise reduction in carbon emissions of between 3% and 5%
p.a. across this period.
The relative TSR target will determine the remaining 75% of the 2022 LTIP award based on our performance measured relative to the
performance of an index derived from a group of iron ore and composite miners with vesting taking place between matching the index and
outperforming the index by 8% p.a. (see above for details of the index constituents which will be the same as per the 2021 award).
Any shares vesting from these awards will be subject to a two-year holding period and recovery provisions (as detailed in the remuneration
policy on page 113) will apply should it be required. Under all metrics, 20% vests at the threshold performance level rising to 100% at
maximum performance levels. Each target operates independently.
### Ferrexpo plc Annual Report & Accounts 2021 123
CORPORATE GOVERNANCE

# Remuneration Report continued

# Non-executive Directors (including the Chair)

The Non-executive Directors' fees are reviewed each year in light of the time commitment and level of involvement that Non-executive Directors are required to devote to the activities of the Board and its Committees.

For 1Q1, fees will be unchanged.

In addition to his fee for Chair of the Board, Mr Genovese serves as a Non-executive Director of Ferrexpo AG for which he received a fee of US$80,000 in 1Q1.

As detailed in last year's Directors' Remuneration Report, Mr Zhevago stepped aside from the role of CEO in October 1Q9 and from this time was a Non-independent Non-executive Director. During 1Q10, his remuneration arrangements were reviewed and from 1 December 1Q10 Mr Zhevago has received a fee in line with other Non-executive Directors (i.e. US$135,000 p.a.). In addition, and to reflect his wider role at the Company in providing strategic advice and managing key relationships with stakeholders, he receives a consultancy fee set at US$85,000 p.a. This fee reflects the expected time commitment of the role and will be kept under review. He does not receive any wider Company benefits in connection with his role.

|  Role | Current fee levels | Change  |
| --- | --- | --- |
|  Chair fee | US$500,000 | N/A  |
|  Non-executive Director base fee | US$135,000 | N/A  |
|  Committee Chair fee | US$20,000 | N/A  |
|  Senior Independent Director fee | US$35,000 | N/A  |
|  Employee Engagement Director fee | US$35,000 | N/A  |

# Directors' shareholdings – audited

Total interests of the Directors in office (and connected persons) as at 31 December 1Q11:

|   | At 31 December 1Q11 | At 31 December 1Q10  |
| --- | --- | --- |
|  AC Andersen | - | -  |
|  G Dacomb | - | -  |
|  L Genovese | 233,651 | 133,651  |
|  V Lisovenko | - | -  |
|  F MacAulay | - | -  |
|  J North | 336,364 | 135,671  |
|  K Zhevago | 296,077,944 | 195,077,944  |

1. Mr Zhevago is interested in these shares as a beneficiary of The Mirco Trust, which is the ultimate shareholder of Favaromiro S.a.r.l., which owns 296,077,944 shares in the Company.

Executive Directors are subject to shareholding requirements under which they are required to build up a holding of shares of equivalent value to 100% of salary. Executive Directors will be expected to retain their vested LTIP shares on an after tax basis until the required level is achieved. Shares deferred under the annual bonus (from 1Q11) and shares that have vested under the LTIP but which are still subject to the two-year holding period will also count towards the guideline, on a net of tax basis if applicable.

A post-employment share ownership guideline applies under which departing Executive Directors will be expected to retain the lower of their share ownership at cessation of employment and 100% of salary for a minimum period of two years. As with the 'in service' share ownership guideline, shares deferred under the annual bonus (from 1Q11 on an after-tax basis) and all shares which vest under existing and future long-term incentive plan awards (after tax) will count for the purposes of the guideline. The Committee will retain discretion to disapply the guideline in exceptional circumstances (e.g. death).

Performance shares that have vested under the LTIP but which are still subject to the two-year holding period will be released at the conclusion of the two-year holding period unless the Committee determines otherwise.

124

Ferrexpo plc Annual Report & Accounts 1Q11
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Mr North’s shareholding against the guideline as at 31 December 2021 was as follows:

| Shareholding |  |  |  |  |  | Current |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| requirement |  | Owned | Subject to |  | shareholding |  | 2 | Requirement |  |
|  | (% salary) | outright | performance | 1 |  | (% salary) |  |  | met? |

J North 200% 336,364 204,800 88% In progress
1. Performance awards are conditional awards. Further details of shares subject to performance are provided below.
2. Based only on shares owned outright at 31 December 2021 and a share price of 299.4 pence on 31 December 2021 and an exchange rate of £1=US$1.3757.
Details of LTIP awards held by Mr North (which are subject to performance) are provided below.

|  |  |  |  |  |  | Total at | Award share |  |  |  | End of |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | At 1 January |  |  | Granted | 31 December |  |  | price |  | performance |  |
| Award |  | 2021 | (2021 award) Vested Lapsed |  |  | 2021 |  | (pence) | 1 |  | period |

2
J North 2019 Award 85,000 – – – 85,000 205.7 01.01.22
2020 Award 117,000 – – – 117,000 142.7 01.01.23
2021 Award – 87, 8 00 – – 87, 8 00 216.4 01.01.24
Total 202,000 87,800 − – 289,800
1. Based on the average share price over the three-month period preceding the start of the performance period.
2. The 2019 award vested at 100% as described above.
With the exception of the reinvestment of the January 2022 dividend to purchase 4,355 shares for Mr North, there have been no changes in
the interests of the Directors from the end of the period under review to 21 April 2022 being a date not more than one month prior to the
date of notice of the AGM. Total outstanding (i.e. awarded but not yet vested) awards granted under the LTIP as at the end of 2021 are
equivalent to 0.049% of issued share capital.
Payments to past Directors and for loss of office – audited
Mr Genovese serves as a Non-executive Director of Ferrexpo AG and, in 2021, received a fee of US$80,000 p.a. Wolfram Kuoni retired from
the Ferrexpo plc Board on 28 November 2016 and serves as the Chair of Ferrexpo AG, for which he received a fee of US$100,000 p.a. in
2021. Mr Lucas retired from the Board on 24 August 2020 and received a consultancy fee of US$101,000 to provide transition support to
the Chair and the CEO.
As set out in the information which has been available on the Company’s website from 21 July 2021 until the date on which this Directors’
Remuneration Report was first made available in accordance with section 430(2B) of the Companies Act 2006, following his stepping down
from the Board on 6 July 2020 and the signing of a settlement agreement, Mr Mawe’s employment terminated on 31 July 2021. Under the
terms of the settlement agreement, Mr Mawe continued to be paid his salary and contractual benefits until 31 July 2021 (with an aggregate
amount of CHF996,776 paid for the period from 1 January 2021 to 31 July 2021). Mr Mawe’s employment contract under Swiss law,
provided for him to receive his full salary and bonus, in line with the remuneration policy, for the period of his employment through to
31 July 2021. Based on legal advice in connection with the settlement of any claims against the Company, the bonus for the period for H2
2020, and for the period 1 January 2021 to 31 July 2021, was payable at the target performance level. Payment of the bonus in line with the
terms of Mr Mawe’s legacy contract ensured that the Company was able to reach a mutually beneficial settlement. The Committee was
comfortable approving a STIP payment for the year ended 31 December 2020 of CHF690,261 with performance assessed at 83.5% of
salary for H1 2020 and at 100% for H2 2020. In respect of performance for the year ended 31 December 2021 (pro-rated for the period to
31 July 2021), he received a STIP payment of CHF289,328 reflecting target performance (75%) as per the Company’s remuneration policy
approved by shareholders in May 2021. As explained on page 122, his LTIP award granted on 25 April 2019 over 100,000 shares vested
inrespect of 80,556 shares (as a result of time pro-rating, the performance conditions having been met in full). Mr Mawe also received a
contribution of £3,500 plus VAT towards his legal fees incurred in taking advice on the settlement agreement.
No other payments were made to past Directors in the year.
### Ferrexpo plc Annual Report & Accounts 2021 125
CORPORATE GOVERNANCE

# Remuneration Report continued

# Percentage change in Directors' remuneration compared to employees

The table below sets out the percentage change in salary, taxable benefits and annual bonus between 1979 and 1990, and 1990 and 1991 for Directors of the Company, and the average for an all employee population as compared with the CEO.

|   | 1979 vs 1990 |   |   | 1990 vs 1990  |   |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  Change in salary/fees | Change in benefits | Change in bonus | Change in salary/fees | Change in benefits | Change in bonus  |
|  All employee average^{1} | 13.4% | 0% | 37.1% | 14.0% | 0% | 7.9%  |
|  J North (CEO)^{1} | 0% | 1,703.4% | -0.5% | 11.6% | 0% | 11.8%  |
|  L Genovese (Chair)^{2} | 0% | 0% | 0% | 400.0% | 0% | 0%  |
|  V Lazovsko (SID)^{3} | 0% | 0% | 0% | 0% | 0% | 0%  |
|  AC Andersen^{4} | 0% | 0% | 0% | N/A | N/A | N/A  |
|  G Dacomb^{5} | 0% | 0% | 0% | 35.0% | 0% | 0%  |
|  F MacAulay (SID) | 0% | 0% | 0% | 35.0% | 0% | 0%  |
|  N Polischuk^{6} | - | - | - | - | - | -  |
|  K Zhevago^{7} | 0% | 0% | 0% | -44.0% | -100.0% | 0%  |

1. The All Employee population is based on the remuneration for the Executive Committee. This population is being used, as Ferrexpo plc does not have any employees. The chosen population is considered the most relevant employees' remuneration group given the Group wide nature of roles performed by incumbents.

2. Mr North, the CEO, was appointed to the Board in July 2020. In 2020, Mr North only received company provided healthcare of US$10,001. In 2021, he received company provided healthcare and an allowance totaling US$138,048.

3. Mr Genovese was appointed to the Board in February 2019 and appointed Chair in August 2020.

4. Mr Lazovsko served as SID from August 2019 until February 2020.

5. Ms AC Andersen was appointed to the Board in March 2021. There is no comparable information for prior years and therefore percentage changes are not shown above.

6. Mr Dacomb was appointed to the Board in June 2019.

7. Ms MacAulay was appointed to the Board in August 2019, and was appointed SID in February 2020.

8. Ms Polischuk was appointed to the Board in December 2021.

9. Mr Zhevago dropped sales from the role of CEO in October 2019 and has been a Non-executive Director since.

# Relative importance of spending on pay

The table below shows Ferrexpo's dividend and total employee pay expenditure (this includes pension and variable pay, including STIP and fair value of LTIP, but not social security) for the financial years ended 31 December 1990 and 31 December 1991, and the percentage change.

|  US$ million | 2021 | 1990 | Year-on-year change  |
| --- | --- | --- | --- |
|  All-employee remuneration | 95 | 93 | 1%  |
|  Distributions to shareholders | 619 | 195 | 27%  |

1. Includes dividends and share buy-backs.

# Comparison of Company performance and Executive Director pay

The graph shows the value, at 31 December 1991, of £100 invested in Ferrexpo's shares on 31 December 1991 compared with the current value of the same amount invested in the FTSE 150 and All-Share indices and in the shares of the LTIP comparator group. The FTSE 150 and All-Share indices are chosen because Ferrexpo was a constituent member of the FTSE 150 for the majority of the period.

126

Ferrexpo plc Annual Report & Accounts 1991
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the ten years to 31 December 2021.

| — Ferrexpo |
| --- |
| — 2020 LTIP Index |
| — FTSE 250 Index |
| — FTSE All-Share Index |

31 Dec 31 Dec 31 Dec 31 Dec
2018 2019 2020 2021
Chief Executive Officer’s pay
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
KZ KZ KZ KZ KZ KZ KZ KZ CM/JN JN
1
Single figure total remuneration (US$000) 291 243 243 243 243 255 251 257 595/1,147 2,473
STIP vesting (% max) K Zhevago did not participate in the STIP 36/67 67
LTIP vesting (% max) K Zhevago did not participate in the LTIP 0/0 100
1. 2020 single figure total based on the total for Mr Mawe in the period from 1 January to 28 May 2020 and for Mr North in the period between 28 May and 31 December 2020.
Statement of shareholder voting
The following table shows the results of the binding vote on the remuneration policy and the advisory vote on the 2020 Annual Report and
Accounts at the 2021 AGM.
For Against Withheld
Shares Shares Shares
(millions) % (millions) % (millions)
Remuneration policy (at 2021 AGM) 499 9 8.1% 10 1.9% 0
2020 Annual Report on Remuneration (at 2021 AGM) 498 97.8% 11 2.2% 0
This report was approved by the Board on 21 April 2022.
Signed on behalf of the Board
Fiona MacAulay
Chair of the Remuneration Committee
400
300
200
100
### Ferrexpo plc Annual Report & Accounts 2021 127
0
CORPORATE GOVERNANCE

# Directors' Report

## Introduction

The Company was incorporated under the name Ferrexpo plc as a public company limited by shares on 22 April 2005. Ferrexpo plc listed on the London Stock Exchange in June 2007 and is a member of the FTSE 250 Index.

The Directors present their Annual Report and Accounts on the affairs of the Group, together with the financial statements and auditor's report, for the year ended 31 December 2021. The Russian invasion into Ukraine on 24 February 2022 which is regarded as a significant event since the balance sheet is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of the Group's assets and liabilities as at 31 December 2021. This event however poses a material uncertainty in respect of the Group's going concern assessment (see Note 2 Basis of preparation to the Consolidated Financial Statements on page 52 for further details) and might have a financial impact on the Group's non-current assets in the future (see Note 35 Events after the reporting period to the Consolidated Financial Statements on page 99 for further details). Information about the use of financial instruments by the Group is given in Note 27 Financial instruments to the Consolidated Financial Statements on page 84.

## Dividends

Results for the year are set out in the Consolidated Income Statement on page 47.

Overall, in 2021 the Group paid out dividends of US$6.9 million, a 2.7% increase compared to 2020 (US$195 million).

In view of Russia's invasion of Ukraine, the Board has decided to defer any decision in relation to an interim dividend in conjunction with the Group's full year results for 2021. The Board will continue to assess the situation, and when appropriate, will make a decision in relation to shareholder returns.

The Board has become aware of a technical issue in respect of the interim dividend of 39.6 US cents per Ordinary Share paid on 26 August 2021. When this was identified, the Board decided to perform a review of historic dividend payments and has identified a technical issue in respect of all or a portion of certain dividends paid in 2010, 2011 and 2012 (the "Relevant Distributions"). The Company did not satisfy certain procedural requirements of the Companies Act 2006 (the "Act") before making the Relevant Distributions. The Company has been advised that, as a consequence of this, it may have claims against past and present Shareholders who were recipients of the Relevant Distributions and against persons who were directors of the Company at the time of payment of the Relevant Distributions. The Company wishes to put all potentially affected parties so far as possible in the position in which they were always intended to be. Accordingly, the Company intends to convene a general meeting at which a resolution will be proposed, which will, if passed, give the Board authority to enter into a Directors' Deed of Release and a Shareholders' Deed of Release to discharge these parties from any obligation to repay any amount to the Company in connection with the Relevant Distributions. The proposed ratification of the Relevant Distributions, and the entry by the Company into the Shareholders' Deed of Release and Directors' Deed of Release will not have any effect on the Company's financial position. A circular to shareholders to convene the general meeting and giving more information about the Relevant Distributions will be sent to shareholders shortly.

## Directors

The Directors of the Company who served during the year and up to the date of signing were:

- Ann-Christin Andersen (appointed 1 March 2021)
- Graeme Dacomb
- Lucio Genovese
- Vitali Lisovenko
- Fiona MacAulay
- Jim North
- Natalie Polischuk (appointed 29 December 2021)
- Kostyantin Zhevago

All of the Directors will retire at the forthcoming AGM and, being eligible, will offer themselves for election or re-election.

Further details about the Directors and their roles within the Group are given in the Directors' biographies on pages 78 to 79. Details of the remuneration of the Directors, their interests in shares of the Company and their service contracts or letters of appointment are contained in the Remuneration Report on pages 106 to 127.

## Appointment and replacement of Directors

Directors may be elected by the shareholders (by ordinary resolution) or appointed by the Board. A Director appointed by the Board holds office only until the next AGM and is then eligible for election by the shareholders.

## Powers of the Directors

Subject to the Articles, the Act and any directions given by special resolution, the business of the Company will be managed by the Board which may exercise all the powers of the Company.

## Directors' and officers' insurance

The Company maintains Directors' and Officers' Liability Insurance in respect of legal action that may be brought against its Directors and Officers.

128

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Directors’ indemnity provision
During the period under review, the Group had in force a qualifying third party indemnity provision in favour of each of the Directors of
Ferrexpo plc against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Act.
Additional disclosures
Additional disclosures which are incorporated by reference into this Directors’ Report, including any information required in accordance
with Listing Rule 9.8.4R of the FCA’s Listing Rules or the Act can be located as set out in the following table:
Page
Capitalised interest (LR 9.8.4R (1)) See Note 10 Net finance expense to the Consolidated Financial 160
Statements
Details of long-term incentive schemes (LR 9.8.4R (4)) Remuneration Report 113
Contracts of significance (LR 9.8.4R (10)) See Note 30 Commitments, contingencies and legal disputes 193
tothe Consolidated Financial Statements. Transactions with
FCVorskla are considered to be contracts of significance
underthe Listing Rules
Contracts for the provision of services by a controlling See Remuneration Report for details of the consultancy 124

| shareholder (LR 9.8.4R(11)) | agreement entered into with Mr Zhevago |  |
| --- | --- | --- |
| Details of waivers of dividends by shareholders | As as 21 April 2022, the employee benefit trust contains 577,370 | – |
| (LR 9.8.4R (12) and (13)) | Ferrexpo Ordinary Shares for satisfying existing and future |  |

awards under management incentive schemes. A dividend
waiver is in place in respect of these shares
Relationship Agreement with controlling shareholder Corporate Governance Report 83
(LR 9.8.4R (14)). Also see Note 34 Related party disclosures
Disclosures concerning greenhouse gas emissions Strategic Report 36
Engagement with suppliers, customers and others Strategic Report and pages 46 to 49
Financial instruments The Group does not hold any derivative financial instruments. 184
Group policy on financial instruments is set out in Note 27
Financial instruments to the Consolidated Financial Statements
Events since the balance sheet date See Note 35 Events after the reporting period to the 199
Consolidated Financial Statements
Statement of Directors’ responsibilities in respect of the Corporate Governance Report 133
Annual Report and Accounts
Information that fulfils the requirements of DTR 7.2 Corporate Governance Report 76
(other than DTR 7.2.6)
Disclosures required by statute
Employees
Information on the Group’s employment policies can be found in the Strategic Report on pages 40 to 41. Employee numbers are stated
inNote 29 Employees to the Consolidated Financial Statements on page 192. The Group employs fewer than 250 staff in the United
Kingdom and so does not disclose its policies on employee involvement or employing disabled people. However, it will give fair
consideration to applications for employment from disabled people.
Political donations
The Group made no political donations, political expenditure or political contributions during the year.
Energy consumption and greenhouse gas emissions reporting
In the UK, our energy consumption is less than 40,000kWh, which is below the threshold for energy and greenhouse gas emissions
disclosure. The Group does report on its global energy consumption and greenhouse gas emissions and this information can be found in
the Strategic Report on page 36. UK energy consumption was the equivalent of less than 0.001% of the Group’s energy consumption in
2021 and UK greenhouse gas emissions was the equivalent of less than 0.001% of the Group’s greenhouse gas emissions in 2021.
Share capital and rights attaching to the Company’s shares
The Company has a single class of Ordinary Shares of 10 pence each.
Subject to applicable statutes and other shareholders’ rights, shares may be issued with such rights and restrictions as the Company may
by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board may decide.
### Ferrexpo plc Annual Report & Accounts 2021 129
CORPORATE GOVERNANCE
## Directors’ Report continued
Ateach AGM, the Board proposes to put in place annual shareholder authority for the Company’s Directors to allot new shares in
accordance with relevant institutional investor guidelines.
Details of the issued share capital of the Company are shown in Note 31 Share capital and reserves to the Consolidated Financial
Statements on page 195.
Variation of rights
Subject to the provisions of the Act, the rights attached to a class of shares may be varied or abrogated either with the consent in writing of
the holders of at least three-quarters of the nominal amount of the issued shares of that class (excluding any shares of that class held as
treasury shares) or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class
validly held in accordance with the Articles.
Transfer of shares
Any share in the Company may be held in uncertificated form and, subject to the Articles, title to uncertificated shares may be transferred
by means of a relevant system. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the
Uncertificated Securities Regulations 2001 and where, in the case of a transfer to joint holders, the number of joint holders to whom the
uncertificated share is to be transferred exceeds four.
Subject to the Articles, any member may transfer all or any of their certificated shares by an instrument of transfer in any usual form or in
any other form which the Board may approve. The Board may decline to register a transfer of a certificated share if it is not in the approved
form. The Board may also decline to register any transfer of any share which is not a fully paid share. The Board may decline to register a
transfer of any of the Company’s certificated shares by a person with a 0.25% or greater interest if such a person has been served with a
notice and has failed within 14 days to provide the Company with information concerning interests in those shares required to be provided
under the Act, unless the transfer is shown to the Board to be pursuant to an arm’s length sale.
The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or
that may result in restrictions on voting rights.
Repurchase of shares
Subject to authorisation by shareholder resolution, the Company may purchase its own shares in accordance with the Act. Any shares
which have been bought back may be held as treasury shares or cancelled immediately upon completion of the purchase.
The Company was given authority to make market purchases of up to approximately 10% of its existing Ordinary Share capital by a
resolution passed on 27 May 2021. This authority will expire at the conclusion of the Company’s 2022 AGM. A special resolution to renew
the authority will be proposed at the forthcoming AGM. Details of the resolution renewing the authority to purchase Ordinary Shares will be
set out in the Notice of AGM.
The Company did not make use of the authority mentioned above during 2021.
Dividends and distributions
Subject to the provisions of the Act, the shareholders may by ordinary resolution, from time to time, declare dividends not exceeding the
amount recommended by the Board. The Board may pay interim dividends and also any fixed rate dividends whenever the financial
position of the Group, in the opinion of the Board, justifies their payment.
Under the Company’s Articles, the Board may withhold payment of all or any part of any dividends or other monies payable in respect of
the Company’s shares from a person with a 0.25% or greater interest (as defined in the Articles) if such person has been served with a
notice under Section 793 of the Act and has failed within 14 days to provide the Company with information concerning interests in those
shares required to be provided under the Act.
Voting
At a general meeting of the Company, every member has one vote on a show of hands and, on a poll, one vote for each share held. Under the
Act, members are entitled to appoint a proxy or proxies to exercise all or any of their rights to attend, speak and vote at a general meeting.
Amember that is a corporation may appoint one or more individuals to act on its behalf at a general meeting as a corporate representative.
Restrictions on voting
No member is entitled to vote at any general meeting in respect of any shares held by them if any call or other sum outstanding in respect
of that share remains unpaid. Currently, all issued shares are fully paid. In addition, subject to the Articles, no member shall be entitled to
vote if they have failed to provide the Company with information concerning interests in those shares required to be provided under the Act.
Shares held in the Employee Benefit Trust (“EBT”)
The trustees of the Company’s EBT may vote or abstain from voting on shares held in the EBT as they think fit and in doing so may take into
account both financial and non-financial interests of the beneficiaries of the EBT or their dependants.
### 1 30 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# Deadline for voting rights

The Articles provide a deadline for submission of proxy forms of not less than 48 hours before the meeting. The Directors will also specify in the notice of any general meeting a time, being not more than 48 hours before the meeting, by which a person must be entered in the register of members in order to have the right to attend and vote at the meeting. The Directors may decide, at their discretion, that no account should be taken of any day that is not a working day when calculating the 48-hour period.

# Substantial shareholdings

As at 3rd December 2021, the Company had been advised, in accordance with the Disclosure Guidance and Transparency Rules, of the following notifiable interests in its voting rights.

|  Name of shareholder | Ordinary Shares | Number of voting rights | % of the Company's total voting rights at date of notification  |
| --- | --- | --- | --- |
|  Fevamotinico S.a.r.l. | 296,077,944 | 296,077,944 | 50.30%  |
|  Schroder Investment Management | 32,100,540 | 32,100,540 | 5.45%  |

As at 21 April 2022, the latest practicable date prior to publication of the Annual Report and Accounts, the following interests in voting rights had been notified to the Company.

|  Name of shareholder | Ordinary Shares | Number of voting rights | % of the Company's total voting rights at date of notification  |
| --- | --- | --- | --- |
|  Fevamotinico S.a.r.l. | 296,077,944 | 296,077,944 | 50.30%  |
|  BlackRock, Inc. | 33,407,724 | 33,407,724 | 5.67%  |
|  Schroder Investment Management | 32,100,540 | 32,100,540 | 5.45%  |

1. Fevamotinico S.a.r.l. is a wholly owned subsidiary of The Minco Trust of which Kostyantin Zhevago is a beneficiary.

# Significant agreements – change of control

The Company does not have any agreements with Directors or employees that would provide for compensation for loss of office or employment resulting from a takeover. There are no circumstances connected with any other significant agreements to which the Company is a party that would take effect, alter or terminate upon a change of control following a takeover bid, except those referred to below:

# LTIP

The rules of the Company's LTIP set out the consequences of a change of control of the Company on employee rights under the plan. Generally, such rights will vest on a change of control to the extent that the performance conditions have been satisfied and on a time pro-rated basis, subject to the discretion of the Remuneration Committee. Participants will become entitled to acquire shares in the Company, or in some cases, to the payment of a cash sum of equivalent basis.

# Relationship Agreement

Details of the Relationship Agreement entered into between Fevamotinico S.a.r.l., Kostyantin Zhevago, The Minco Trust and the Company can be found in the Corporate Governance Report page 83. The Relationship Agreement ceases to apply if Ferrespo's shares cease to be listed and traded on the London Stock Exchange, or if the holding of Fevamotinico S.a.r.l., The Minco Trust or Mr Zhevago individually or collectively falls below 24.9% of the issued share capital of the Company and they are no longer a controlling shareholder for the purposes of the UK Listing Rules.

# Going concern

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 is, as at the date of the approval of these Consolidated Financial Statements, still ongoing. Although the Group has managed to continue its operations, the war continues to pose a 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 at the date of the approval of these Consolidated Financial Statements, the Group has assessed that, taking into account:

- i) its available cash and cash equivalents;
- ii) 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
- iii) 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 are outside of the Group management's control, with the duration and the impact of the war unable to be predicted at this point of time.

Ferrespo plc Annual Report & Accounts 2021

131
CORPORATE GOVERNANCE
## Directors’ Report continued
The Group’s business activities, together with the risk factors that might affect its business model, future performance, solvency or liquidity
and reputation are set out on pages 22 to 72. The Viability Statement is set out in the Strategic Report on page 73 and addresses the threat
to the Group’s viability caused by the Russian invasion into Ukraine. The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Financial Review on pages 22 to 25. In addition, Note 27 Financial instruments to the
Consolidated Financial Statements on pages 183 to 190 sets out the Group’s objectives, policies and processes for managing its capital;
its financial risk management objectives and details of its financial instruments; its exposure to price risk, credit risk, liquidity risk and cash
flow risk, as well as currency risk and interest rate risk
Considering the current situation of the war in Ukraine, all identified available mitigating actions 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, many of
the identified uncertainties are outside of the Group management’s control and are of unpredictable duration and severity, which 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 152 for further details).
Statement on disclosure of information to auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no
relevant audit information (as defined in the Act) of which the Group’s auditors are unaware, and that each Director has taken all steps that
he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information (as defined) and to
establish that the Group’s auditors are aware of that information.
Amendments to Articles of Association
The Articles may be amended by special resolution in accordance with the Act.
AGM
The Board currently intends to hold the AGM of the Company on Wednesday 15 June 2022 at 11.00am, subject to the ongoing Covid-19
pandemic and any UK Government the guidance on social distancing, non-essential travel or public gatherings. Further information will
besent to shareholders in a separate letter from the Chair summarising the business of the meeting together with the Notice convening
theAGM.
The Strategic Report on pages 2 to 75 and this Directors’ Report have been drawn up and presented in accordance with, and in reliance
upon, applicable English company law, and any liability of the Directors in connection with these reports shall be subject to the limitations
and restrictions provided by such law.
The Directors’ Report was approved by the Board on 21 April 2022.
For and on behalf of the Board
Lucio Genovese
Chair
### 132 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# Statement of Directors' Responsibilities

## Statement by the Directors under the UK Corporate Governance Code

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted in the United Kingdom ("UK adopted IFRS") and have also chosen to prepare the Parent Company financial statements in accordance with the United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 10° Reduced Disclosure Framework, and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of their profit or loss for that period.

In preparing the financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK adopted International Financial Reporting Standards have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 10° Reduced Disclosure Framework have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

## Responsibility Statement of the Directors in respect of the Annual Report and Accounts

We confirm that to the best of our knowledge:

(a) the Group financial statements, prepared in accordance with UK adopted IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the subsidiary undertakings included in the consolidation taken as a whole and attention is drawn to the material uncertainty in terms of the Group's ability to continue as a going concern on pages 13 and 32 of the Directors' Report and Note 2 Basis of preparation of the Consolidated Financial Statements on page 52;
(b) the parent company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 10° Reduced Disclosure Framework, give a true and fair view of the company's assets, liabilities and financial position of the Parent Company;"
(c) the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the subsidiary undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
(d) the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's and Company's position, performance, business model and strategy.

The Directors' Report (including Corporate Governance Report) comprises the information on pages 76 to 92.

This responsibility statement was approved by the Board of Directors on 2° April 2022 and is signed on its behalf by:

Lucio Genovese
Chair

Jim North
Chief Executive Officer
2° April 2022

Ferrrepo plc Annual Report & Accounts 2022

133
FINANCIAL STATEMENTS

# Financial contents

|  Notes | Content | Page  |
| --- | --- | --- |
|   | **Independent Auditor's Report** | 135  |
|   | **Primary Statements** |   |
|   | Consolidated Income Statement | 147  |
|   | Consolidated Statement of Comprehensive Income | 148  |
|   | Consolidated Statement of Financial Position | 149  |
|   | Consolidated Statement of Cash Flows | 150  |
|   | Consolidated Statement of Changes in Equity | 151  |
|   | **Notes to the Consolidated Financial Statements** | 152  |
|   | **Section 1: Basis of Preparation** |   |
|  1 | Corporate information | 152  |
|  2 | Basis of preparation | 152  |
|  3 | New accounting policies | 153  |
|  4 | Use of critical estimates and judgements | 155  |
|   | **Section 2: Results for the Year** |   |
|  5 | Segment information | 155  |
|  6 | Revenue | 156  |
|  7 | Operating expenses | 158  |
|  8 | Other income | 159  |
|  9 | Foreign exchange gains and losses | 159  |
|  10 | Net finance expense | 160  |
|  11 | Taxation | 160  |
|  12 | Earnings per share and dividends paid and proposed | 165  |
|   | **Section 3: Assets and Liabilities** |   |
|  13 | Property, plant and equipment | 167  |
|  14 | Leases | 170  |
|  15 | Goodwill and other intangible assets | 171  |
|  16 | Other non-current assets | 173  |
|  17 | Inventories | 174  |
|  18 | Trade and other receivables | 175  |
|  19 | Prepayments and other current assets | 176  |
|  20 | Other taxes recoverable and payable | 177  |
|  21 | Trade and other payables | 178  |
|  22 | Pension and post-employment obligations | 178  |
|  23 | Provisions | 182  |
|  24 | Accrued and contract liabilities | 182  |
|   | **Section 4: Financial Instruments and Financial Risk Management** |   |
|  25 | Cash and cash equivalents | 183  |
|  26 | Interest-bearing loans and borrowings | 183  |
|  27 | Financial instruments | 184  |
|   | **Section 5: Other** |   |
|  28 | Share-based payments | 191  |
|  29 | Employees | 192  |
|  30 | Commitments, contingencies and legal disputes | 193  |
|  31 | Share capital and reserves | 195  |
|  32 | Consolidated subsidiaries | 196  |
|  33 | Investments in associates | 196  |
|  34 | Related party disclosures | 197  |
|  35 | Events after the reporting period | 199  |
|   | **Parent Company Financial Statements** | 200  |
|   | **Additional Disclosures** | 206  |
|   | **Alternative Performance Measures** | 207  |
|   | **Glossary** | 210  |

134 Ferrespo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Independent Auditor’s Report
## To the members of Ferrexpo plc on the
## audit of the financial statements
For the purpose of this report, the terms “we” and “our” denote MHA MacIntyre Hudson in relation to UK legal, professional and regulatory
responsibilities and reporting obligations to the members of Ferrexpo plc. For the purposes of the table on pages 138 to 141 that sets out the key
audit matters and how our audit addressed the key audit matters, the terms “we” and “our” refer to MHA MacIntyre Hudson and/or our component
teams. The Group financial statements, as defined below, consolidate the accounts of Ferrexpo plc and its subsidiaries (the “Group”) and include
the Group’s share of associates. The “Parent Company” is defined as Ferrexpo plc. The relevant legislation governing the Parent Company is the
United Kingdom Companies Act 2006 (“Companies Act 2006”).
Opinion
We have audited the financial statements of Ferrexpo plc and its subsidiaries for the year ended 31 December 2021 which comprise:
– the consolidated income statement;
– the consolidated statement of comprehensive income;
– the consolidated statement of financial position;
– the consolidated statement of cash flows;
– the consolidated statement of changes in equity;
– the related consolidated Notes 1 to 35;
– the Parent Company statement of financial position;
– the Parent Company statement of changes in equity; and
– the related Parent Company Notes 1 to 8.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International
Financial Reporting Standards as adopted in the United Kingdom (“UK adopted IFRS”). The financial reporting framework that has been applied
in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 31 December 2021 and of the
Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted
in the United Kingdom;
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standard Financial Reporting Standard 101 “Reduced Disclosure Framework”, and applicable law); and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
### 135Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
Material uncertainty relating to going concern
We draw your attention to Note 2 Basis of preparation on pages 152 and 153 and also Note 35 Events after the reporting period on page 199 of
the financial statements, which indicates that management has assessed the ongoing armed conflict in Ukraine to pose a threat to the Group’s
mining, processing and logistics operations within Ukraine and on the ability of the Group to continue as a going concern due to the unpredictable
duration and severity of such events and circumstances, which are outside of the Group’s control. This indicates that a material uncertainty exists
that may cast significant doubt upon the Group’s ability to continue as a going concern. Moreover, the ongoing conflict is expected to have an
adverse impact on the Group’s cash flows and a connected negative impact on the carrying value of the non-current assets of the Group after the
balance sheet date. Our opinion is not modified in respect of these matters.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
The going concern assessment required a high level of management judgement and is complex, as a result of the possible interaction of multiple
variable factors, particularly in analysing the potential impact of the war upon the Group’s forecast sales channels to certain customers; liquidity
management including available cash; and its ability to continue mining and processing operations in light of current and potential disruption of
consumables and equipment supplies, and logistics uncertainties.
Management has prepared an updated long-term model, including an 18-month base case scenario reflecting lower sales volume caused by the
unavailable seaborne sales to its customers. Management also considered a series of plausible downside sensitivities to the base case, which
assume reasonably possible adverse outcomes for the items described above such as the potential for supply restrictions and reduced production
and sales volumes, as well as reduction in sales prices and increases in production costs. In evaluating the impact of these downside scenarios,
management has identified reasonable mitigating actions the Group could take, which include reducing production and mining volumes, exploring
new sales channels, deferring and/or reducing the Group’s capital expenditure.
Management also prepared stress tests for ‘severe downside’ scenarios, including cessation of production and/or interruption of its logistics
network for 3, 6 and 18 months. In the severe scenarios, management expected the Group to have sufficient liquidity for more than 12 months.
The Board is satisfied that the Group’s analysis, including the downside scenarios above, supports that it is appropriate to adopt the going
concern basis of preparation but recognise a material uncertainty exists.
For further details, refer to the Audit and Risk Committee’s report on page 96 and other areas of the Annual Report and Accounts (including the
Chairman’s statement on page 2, the CEO’s statement on pages 8 to 10, Principal risks on pages 57 and 58 and longer-term viability statement on
pages 73 to 75).
Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting, having considered
the impact of the war in Ukraine, included:
– Challenging management’s assessment of the potential risks and uncertainties relevant to the Group as a result of the war;
– Challenging whether the Group’s mitigating actions are reasonable and within the Group’s control;
– Obtaining evidence of delivery of critical supplies and reviewing new contracts entered into since 24 February 2022;
– Assessing for reasonableness the assumptions applied in the going concern assessment cash flow forecast, evaluating the potential impact
of the war on the cash available to the Group, including the ability to continue its operations in case of disruption to supplies and to its logistics
network, as well as assessing management’s downside scenarios;
– Reviewing recent production and trading activity to verify the operational results since 24 February 2022, to verify the underlying data on which
the going concern assessment is based;
– Testing the mathematical accuracy and appropriateness of the model used to prepare the forecasts;
– Assessing the Group’s going concern related financial statement disclosures; and
– Reviewing the events after the reporting period note disclosure of the impact on the financial statements, as well as confirming that the non-
adjusting post balance sheet event conclusion has been disclosed as a significant judgement.
We agree with management’s conclusion that there is enough evidence to conclude that the use of the going concern basis of accounting is
appropriate for the Group. We also agree that a material uncertainty risk about the Group’s ability to continue as a going concern exists, as some
of the uncertainties are outside of the Group management’s control, with the duration and the impact of the war unable to be predicted at this
point of time. Whilst the Group has successfully managed to procure all its key consumables, such as natural gas, electricity and diesel fuel,
andequipment required for its mining and processing operations to date, and has managed to continue its operations, the risk of a potential
disruption remains.
In relation to the Group’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the Directors’ Statement in the financial statements about whether the Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
### 136 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Overview of our audit approach
Materiality The materiality that we used for the Group financial statements was US$42 million (2020: US$26.5 million), which was
determined as 5% of the three-year average of profit before tax (“PBT”) and special items (2020: 5%).
Performance materiality was set at 60% of materiality (2020: 60%).
Scope We directed and supervised Baker Tilly member firms (“Component Auditors”) to report on the operations of the two main
mining and processing entities in Ukraine and we directly performed work over the two other material subsidiaries being
the Swiss and Middle East sales and marketing companies.
Material subsidiaries were determined based on:
1) financial significance of the component to the Group as a whole; and
2) assessment of the risk of material misstatements applicable to each component.
Our audit scope results in all major operations of the Group being subject to audit work, covering in 100% of the Group’s
revenue, 98% of the Group’s profit and 95% of the net assets.
Key audit matters The key audit matters that we identified in the current year were:
– Completeness of related party transactions
– Taxation – IFRIC 23 and critical judgements of transfer pricing and the international structure
– Management override of controls
– Completeness of provisions for litigations and claims
– Accounting treatment and valuation of low-grade ore
Our assessment of the Group’s key audit matters is consistent with 2020 except for:
– Accounting treatment and valuation of low-grade Ore
### 137Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
The scope of our audit and our key audit matters
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements and the
financial report. In particular, we looked at where the Directors made subjective judgements, for example, in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on:
– the overall audit strategy;
– the allocation of resources in the audit; and
– directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in
our report.
Completeness of related party relationships and transactions
Key audit matter The Group enters into a number of related party transactions and has reported an expense of US$42.2 million (2020:
description US$35.8 million) and other income of US$0.7 million (2020: US$0.4 million) in 2021.
Our risk assessment and audit approach reflected the identification of a significant risk in respect of the existence of
unidentified or undisclosed related parties and transactions, including the risk relating to significant transactions outside
the normal course of business that could involve related parties.
We therefore considered completeness of related party transactions to be a Key Audit Matter in light of the potential for
unidentified or undisclosed related party transactions. This risk was considered greatest in respect of transactions outside
the normal course of business.
The related party disclosures are set out in Note 34 Related party disclosures to the Financial Statements and the Group’s
controls are described in the Report of the Audit Committee on page 98.
How the scope of We reviewed and evaluated management’s process for identifying and recording related parties into their register.
our audit responded
We reviewed the minutes of meetings of the Board of Directors and relevant sub-committees to assess whether there are
to the key audit
new related party transactions entered into in 2021 that are significant or outside the normal course of business.
matter
We used our data analytics tool to search for transactions which had not been included in the related party disclosures.
We also used our data analytics tool to identify potential transactions with related parties.
We reviewed a sample of suppliers in Ukraine to establish whether they are genuine businesses against information held
on public records.
We performed independent searches of the Board of Directors’ other appointments and shareholdings and did not identify
any counterparties on the list which were not included in the related party disclosures.
Key observations We are satisfied that the related party transactions and balances are appropriately disclosed in the financial statements.
### 138 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# Taxation - IFRIC 23 and critical judgements of transfer pricing and the international structure

|  **Key audit matter description** | A key area in which the Group has applied critical judgement is transfer pricing and international taxation. The Group conducts significant business across the globe through a complex 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. As detailed in Note 11 Taxation to the financial statements and considered by the Audit Committee on page 97 of the Annual Report and Accounts, in August 2017, the State Tax Service of Ukraine ('STS') commenced a tax audit 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 in terms of its pellet sales to another subsidiary of the Group resulting in a formal claim for UAH448 million (US$16.4 million) as at 31 December 2021 (2020: US$15.8 million). The Group's subsidiary initiated legal proceedings through various courts, which were ruled in favour of the Group. The STS subsequently filed an appeal of cassation to the Supreme Court of Ukraine in December 2019, which remains open after several hearings have taken place. The STS launched two additional tax audits in February 2020 into the cross-border pricing arrangements with other Group subsidiaries and for other financial periods. In addition to the above cases, the State Bureau of Investigations ('SBI') has launched a pre-trial investigation into the sale of iron ore products between Group subsidiaries for the financial years 2013 to 2019. The cassation proceedings commenced in November 2021 and although several hearings have been held since then, no decision has yet been made by the Supreme Court of Ukraine. A hearing was scheduled for 28 February 2022, but did not take place due to the Russian invasion into Ukraine on 24 February 2022. Considering the current situation in Ukraine, it is unknown if and when the next hearing will take place. No results of the subsequent tax audits as well as the SBI investigation have been issued by the relevant governmental authorities yet. Significant judgement is required in applying the transfer pricing and international taxation rules, with the interpretation of the taxpayer differing from that of the tax authorities which leads to uncertainty in the correct tax treatment. It is therefore necessary to determine the probability of any loss particularly in connection with the Ukrainian tax audits in accordance with the IFRIC 23 reporting standard. The IFRIC 23 framework can be challenging to apply in the context of international taxation and contentious transfer pricing, in particular regarding the fact that the treatment of transfer pricing cases will typically shift from matters of policy and application in an enquiry to matters of evidence and jurisprudence in an adjudication by a court. The lower courts will usually resolve points of fact and the higher courts will usually address points of law. Adjudication of points of law tends to be a more technically involved process whose outcome is extremely difficult to predict. Consequently, the higher the level of court hearing a matter, the more difficult it becomes to apply the IFRIC 23 framework. This is because the highest courts operate at the highest levels of discretion.  |
| --- | --- |
|  **How the scope of our audit responded to the key audit matter** | We have involved transfer pricing and international tax specialists to assess appropriateness of various international matters potentially impacting the Group. In particular, this included the key risk regarding the transfer pricing policies and documentation in place prepared by management. We have reviewed the correspondence with STS and calculation of the assessed risk with assistance from international tax and transfer pricing specialists. In addition, we have reviewed recent similar cases in Ukraine and the results of the court proceedings. We have relied on experts to assess the risk of an adverse ruling taking place based on their knowledge of the Ukrainian legal system. The consideration of IFRIC 23 requires the Group to consider the position at each financial year end based upon the information as at that date. We have challenged management and considered a sensitivity analysis upon the application of IFRIC 23 to consider the significant judgements made in relation to both transfer pricing and international taxation matters impacting the Group. This included a detailed IFRIC23 assessment for the inherent risks in the international structure.  |
|  **Key observations** | The results of our audit regarding transfer pricing and international taxation were satisfactory, and we concur that the recorded tax provisions and disclosures are materially appropriate.  |

Ferrrepo plc Annual Report & Accounts 2021

139
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
Management override of controls
Key audit matter In accordance with ISA 240 (UK) management override is presumed to be a significant risk. The ability to override controls
description puts management in a unique position to perpetrate or conceal the effects of fraud. This may take a number of forms such
as falsifying accounting entries in order to conceal misappropriation of assets or other manipulation of accounting entries
intended to result in the production of financial statements which give a misleading view of the entity’s financial position
orperformance.
How the scope of We have performed the following procedures in addition to other specific procedures performed which are outlined in the
our audit responded other Key Audit Matters and basis of opinion section of this report:
to the key audit
– We held discussions with a broader range of senior management, being the Chief Executive Officer and Chief Marketing
matter
Officer, Group legal counsel and with lower-level operational management throughout the organisation and at different
levels and in different functions to identify if they are aware of any instances of override of controls.
– We evaluated the design and implementation of key controls including, in particular high-level management review
controls and controls over purchase to pay procurement processes, as part of our risk assessment.
– We reviewed internal audit reports to help identify significant control deficiencies and the whistle blower reports for any
actual or suspected non-compliance with controls.
– We tested the appropriateness of journal entries and other adjustments recorded in the general ledger and other
adjustments in the preparation of the financial statements at both the Parent Company and consolidated Group level.
– We evaluated whether the judgements and decisions made in determining the accounting estimates included in
the financial statements, even if they are individually reasonable, indicate a possible bias on the part of the entity’s
management that may represent a risk of material misstatement due to fraud.
– We evaluated the business rationale for significant transactions that are outside the normal course of the business for
the entity; and
– We held discussions with the Audit Committee, senior management and internal audit regarding the risk of fraud,
effectiveness of key oversight controls and any fraud or suspected fraud identified during the year.
Key observations We did not identify any instances of management override of controls.
Contingencies and completeness of litigations and claims
Key audit matter The Group is involved in a number of legal proceedings, both for and against the Group. Management has assessed that the
description probability of success of the claim and considered how to account and/or disclosed the claims in accordance with IAS 37.
As disclosed in Note 30 Commitments, contingencies and legal disputes, the Group has disclosed the contingencies
which exist as a result of past transactions or events.
Management judgement is involved in assessing the accounting for contingencies and claims. In particular in considering
the probability of a claim being successful and we have accordingly designated this as a Key Audit Matter of the audit.
The key risk related to the claims and contingencies is mainly associated with the completeness of the disclosure and
provisions in the financial statements.
How the scope of In response to the risk of the completeness of litigations and claims in the financial statements, we completed the following
our audit responded audit procedures:
to the key audit
– Obtained external confirmations directly from the Group’s internal and external legal advisors and counsel.
matter
– We discussed the cases with management, and reviewed correspondence and other documents exchanged between
the Group and the other parties involved.
– We read the minutes of the board meetings and inspected the Group’s legal expenses, in order to ensure all cases have
been identified.
– We discussed and challenged the disclosures for completeness based on our procedures detailed above.
Key observations Based on the procedures performed, we noted no material issues from our work.
### 140 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Accounting treatment and valuation of low-grade ore
Key audit matter In accordance with the Group’s accounting policies, low-grade iron ore inventories are required to be measured at the
description lower of cost and net realisable value (‘NRV’) as at 31 December 2021.
The determination of the NRV of the Group’s low grade iron ore stockpile is an accounting estimate which is subject to
high estimation uncertainty, as it is highly dependent on subjective judgements in respect of the amount and timing of
future cash flows based on uncertain events many years in the future.
In October 2021, Management have re-assessed their plans to process low-grade ore in light of operational difficulties
in the processing facilities and changes following the implementation of the Group’s growth project approved by the
Board. As at 31 December 2021, management have confirmed there are no current plans for processing lean ore in the
foreseeable future due to the high iron fines price and current market demand that justify the high grading sales.
Given there is currently no immediate plan to process the low-grade ore, management have concluded that the entire
balance, with the exception of an immaterial balance relating to weathered ore, should be fully impaired as at the year end.
How the scope of In response to the risk of the accuracy of valuation of low-grade iron ore in the financial statements, we completed the
our audit responded following audit procedures:
to the key audit
– Reviewed the method used in estimating the NRV of low-grade ore and considered if it is appropriate.
matter
– Challenged management whether low-grade ore can be sold or contracted for processing to third parties.
– Identified which of the assumptions used are significant to the estimate, i.e., those whose reasonable variation would
cause a material change in the valuation of the NRV of low-grade ore.
– Evaluated whether, in the view of our knowledge of the circumstances of the Group and further information gathered
inthe course of the audit, the assumptions used in estimating the NRV of low-grade ore are reasonable.
– Developed our own point estimate of NRV of lean ore by modifying some of management’s assumptions and completed
a comparison.
– Assessed any evidence of management bias in selecting key assumptions and assessed the impact of changes in the
model vs. the assumptions used in previous periods.
– Reviewed management’s position paper on the rationale for the change in processing plans for 2022 and assessed the
impact of potential further deferrals in processing.
– Challenged whether the changes in intention should have been regarded as a prior year adjustment.
– Challenged whether low-grade ore should be recognised as stripping costs in light of a change in circumstances.
Key observations In October 2021, Management have re-assessed their plans to process low-grade ore in light of operational difficulties in
the processing facilities and changes following the approval of the growth project.
Based upon processing low-grade ore at the same levels as that estimated in the FY 2020, management have confirmed
that as at 31 December 2021 they did not intend to process any low-grade ore using existing and committed production
facilities until at least 2036 or later. Management also confirmed that low-grade ore may be processed at some earlier
point in the future only if additional purpose-built production capacity, for which there is no specific commitment yet,
isrealised.
Based upon our audit review, management’s stated intentions are consistent with the impairment of low-grade iron ore.
### 141Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
How we tailored the audit scope
Our Group audit was scoped by obtaining an understanding of the Group and the Parent Company and their environments, including internal
control, and assessing the risks of material misstatement. The Group’s parent entity and finance companies are UK based, while the head office
and marketing companies are based in Switzerland and the primary mining operations are located in Ukraine.
Considering operational and financial performance and risk factors, we focussed our assessment on the significant components and performed
full scope audits of the Ukrainian Ferrexpo Poltava Mining and Ferrexpo Yeristovo Mining components; the sales and marketing entities Ferrexpo
AG and Ferrexpo Middle East; Ferrexpo Finance plc; and Ferrexpo plc entity along with specified Group level audit procedures over the assets of
the non-operating Ukrainian Ferrexpo Belanovo component; the assets of the Hungarian Helogistics Asset Leasing entity including the vessel; and
revenue of the Hungarian DDSG Mahart entity. Our full scope and specified audit procedures cover revenue (100% of Group total), profit before tax
(98% of Group total) and net assets (95% of Group total).
The remaining 20 components represent a 2% of the Group’s profit before tax and individually do not represent more than a 1% of the Group’s
profit before tax. The work performed by the component audit teams is guided by the Group audit team and is executed at levels of materiality
applicable to each individual entity which were lower than Group materiality and ranged from US$0.9 million to US$16.0 million (2020: US$2.8
million to US$13.2 million).
Revenue (%) Profit before tax (%) Net assets (%)
2 2 2 5
4
Full scope
Specified audit procedures
98 91
96
Analytical procedures
The Group audit team was involved in the audit work performed by the component auditor in Ukraine through a combination of our Group planning
meetings and calls, provision of Group instructions (including detailed supplemented procedures), review and challenge of related component
interoffice reporting and of findings from their work (which included the audit procedures performed to respond to risks of material misstatement),
attendance at component audit closing conference calls and weekly interaction on audit and accounting matters which arose. As a visit to the
Ukrainian team was not practicable, due to the travel restrictions related to the global Covid-19 pandemic and more lately due to the Russian
military build-up on the borders which led to the incursion on 24 February 2022, the Group audit team intensified the interaction with that local
team through video conferences to review and direct the audit approach taken in respect of significant and a number of other relevant risks of
material misstatement.
Ferrexpo plc and Ferrexpo Finance plc are registered in the UK; hence the audits were carried out by the Group audit team.
The Swiss and Middle East sales and marketing entities have a common finance function with the Group finance team and as such the audits of
these components were carried out by the Group audit team.
At the Parent entity level, we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were
no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of
specified account balances.
Our application of materiality
The scope of our audit was influenced by our application of materiality. Our definition of materiality considers the value of error or omission on the
financial statements that, individually or in aggregate, would change or influence the economic decision of a reasonably knowledgeable user of
those financial statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature
of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a
whole. Materiality is used in planning the scope of our work, executing that work and evaluating the results.
### 142 Ferrexpo plc Annual Report & Accounts 2021
   Full scope Full scope Full scope
   Specified audit procedures Analytical procedures Specified audit procedures
  Analytical procedures Analytical procedures
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent Company financial statements

| Overall materiality | Group Materiality |  | Parent Company Materiality |
| --- | --- | --- | --- |
|  | (US$ Million) |  | (US$ Million) |
|  | 40 |  | 14 |
|  | 35 |  | 12 |
|  | 30 | 26.5 | 10 |

9.0
25
8
20

|  | 15 |  | 6 |  |
| --- | --- | --- | --- | --- |
|  | 10 |  | 4 |  |
|  | 5 |  | 2 |  |
|  | 0 |  | 0 |  |
|  |  | 2021 2020 |  | 2021 2020 |
| How we | We have determined materiality by using 5% of a three- |  | 2% of Parent Company’s net assets (2020: 2%) |  |
| determinedit | year average of profit before tax (2020: 5%) |  |  |  |
| Rationale for the | The profit before tax for the years 2019-2021 has |  | We consider the chosen benchmark to be appropriate due to |  |
| benchmark applied | been normalised in determining materiality to exclude |  | the nature of Parent Company’s operations being a holding |  |
|  | items which, due to their variable financial impact and/ |  | company of the Group. |  |

or expected infrequency of the underlying events, are
We set our 2021 performance materiality at 60% of overall
not considered indicative of continuing operations of
materiality (2020: 60%), amounting to US$5.4 million
theGroup.
(2020:US$9.0 million) to reduce the probability that,
These items do not form part of the Group’s internally or inaggregate, uncorrected and undetected misstatements
externally monitored primary key performance indicators, exceed themateriality for the financial statements
and which if included, would distort materiality year on- as a whole. Indetermining performance materiality,
year. We consider this approach of using a three-year we considered anumber of factors – the history of
average to be more appropriate than an assessment misstatements, our riskassessment and the strength
based on current-year results alone given the nature androbustness of the control environment.
of themining industry which is exposed to cyclical
commodity price fluctuations and to therefore provide
amore stable base reflective of the scale of the Group’s
size and operations.
We set our 2021 performance materiality at 60% of overall
materiality (2020: 60%), amounting to US$25.2million
(2020: US$15.9 million) to reduce the probability that,
inaggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements
as a whole. In determining performance materiality,
we considered a number of factors – the history of
misstatements, our risk assessment and the strength
androbustness of thecontrol environment.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them all audit differences in excess of US$2.1 million (2020: US$1.3 million) for the
Group as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
16 45 42.0 15.0
### 143Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
Other Information
The other information comprises the information included in the Annual Report and Accounts other than the financial statements and our auditor’s
report thereon. The Directors are responsible for the other information contained within the Annual Report and Accounts. Our opinion on the
financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the financial statements, or our knowledge obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements and those reports have been prepared in accordance with applicable legal requirements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
– adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Corporate governance statement
We have reviewed the Directors’ Statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement
relating to the entity’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
– Directors’ Statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on page 131;
– Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period is appropriate set
out on pages 73 to 75;
– Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set
out on pages 73 to 75;
– Directors’ statement on fair, balanced and understandable set out on page 133;
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 73;
– Section of the Annual Report and Accounts that describes the review of effectiveness of risk management and internal control systems set out
on page 98; and
– Section describing the work of the audit committee set out on pages 94 and 95.
### 144 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 133, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial
statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of
controls) and determined that the principal risks were related to posting inappropriate journal entries to both reduce costs and inflate operating
profit, and management bias in accounting estimates.
The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud is
detailedbelow:
– obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a
direct effect on the financial statements. We obtained this understanding through assessing the risk register of the Group and understanding the
Group’s response to assessing the legal and regulatory frameworks that apply to it. In addition, we leveraged our understanding of the legal and
regulatory framework applicable to UK listed entities and to those in the mining sector, based on past experience of the team and consultation
with internal and external experts. This included, but was not limited to, discussions with the Group’s key legal advisers and review of minutes of
the Group’s various governance committees, including the Finance and Risk Management Committee;
– the key laws and regulations we considered in this context included UK Companies Act, Listing Rules, and tax legislation. In addition, we
considered compliance with the UK Bribery Act, employee legislation, terms of the Group’s mining licences and environmental regulations as
fundamental to the Group’s operations;
– discussions among the engagement team including significant component audit teams and involving relevant internal specialists, including tax,
valuations, pensions, and IT;
– discussions with Group and local management, internal audit and the Group’s internal and external legal counsel, including consideration of
known or suspected instances of non-compliance with laws and regulations and fraud;
– enquiring of the Audit Committee concerning actual and potential litigation and claims;
– evaluation of the operating effectiveness of management’s controls designed to prevent and detect irregularities;
– assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation of such matters;
– reading key correspondence with regulatory authorities such as the Financial Conduct Authority; and the Financial Reporting Council;
– challenging assumptions and judgements made by management in their significant accounting estimates, in particular, with respect to
valuations of low-grade ore inventories;
– identifying and testing journal entries, in particular, any journal entries posted with understatement of costs, journals that are backdated or
posted by senior management;
– the audit team in Ukraine visited the mines in November and December 2021 and observed the progress of key capital projects, the mining
operations, and physical verification of the inventory; and
– the use of data analytics software to interrogate the journals posted in the year and to review areas where the incentive to override controls may
be greatest. We also used our data analytics tool to identify potential transactions with related parties.
### 145Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Independent Auditor’s Report continued
## To the members of Ferrexpo plc on the
## audit of the financial statements
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from
the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations, or through collusion.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit. The engagement team includes audit partners and staff who have extensive experience of working with listed companies
and with those in the mining sector, and this experience was relevant to the discussion about where the risk of irregularities, including fraud
mayarise.
A further description of our responsibilities is available on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities
This description forms part of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the members of the company by ordinary resolution at the Annual
General Meeting held on 27 May 2021 to audit the financial statements for the year ending 31 December 2021. Our total uninterrupted engagement
is 3 years, covering the years ending 31 December 2019 to 31 December 2021.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form
part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA
in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual
financial report has been prepared using the single electronic format specified in the ESEF RTS.
Rakesh Shaunak FCA
(Senior Statutory Auditor)
For and on behalf of MHA MacIntyre Hudson
Statutory Auditor
London, United Kingdom
21 April 2022
### 146 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Consolidated Income Statement
Year ended Year ended
US$000 Notes 31.12 . 21 31.12.20
Revenue 6 2,5 1 8,23 0 1,70 0 , 3 2 1

| Operating expenses | 5/7 (1 , 4 11 , 9 11) (1,018,109) |
| --- | --- |
| Other operating income | 8 9, 49 9 5,432 |
| Operating foreign exchange (losses)/gains | 9 (3 7 ,808) 61 ,023 |

Operating profit 1 ,078,010 74 8 , 6 6 7
Share of profit from associates 33 4, 4 6 8 5,624
Profit before tax and finance 1, 0 8 2 , 47 8 75 4 , 2 91

| Finance income | 10 637 553 |
| --- | --- |
| Finance expense | 10 (8,940) (12 , 2 8 6) |
| Non-operating foreign exchange (losses)/gains | 9 (3,200) 5, 302 |

Profit before tax 1 ,070,975 747, 8 6 0
Income tax expense 11 (19 9 , 9 8 2) (112 , 5 6 8)
Profit for the year 870 , 9 93 635,292
Profit attributable to:
Equity shareholders of Ferrexpo plc 870,9 87 635,292
Non-controlling interests 6 −
Profit for the year 870,9 9 3 635, 292
Earnings per share:
Basic (US cents) 12 14 8 . 2 10 8 .1
Diluted (US cents) 12 14 7. 9 1 0 7. 9
### 147Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS

## Consolidated Statement of Comprehensive Income

|  UNIONS | Notes | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- | --- |
|  **Profit for the year** |  | **870,993** | **635,292**  |
|  *Items that may subsequently be reclassified to profit or loss:* |  |  |   |
|  Exchange differences on translating foreign operations |  | 62,196 | (317,674)  |
|  Income tax effect | 11 | (3,313) | 16,278  |
|  **Net other comprehensive income/(loss) that may be reclassified to profit or loss in subsequent periods** |  | **78,883** | **(301,396)**  |
|  *Items that will not be reclassified subsequently to profit or loss:* |  |  |   |
|  Remeasurement gains/(losses) on defined benefit pension liability | 22 | 9,882 | (1,057)  |
|  **Net other comprehensive income/(loss) not being reclassified to profit or loss in subsequent periods** |  | **9,882** | **(1,057)**  |
|  **Other comprehensive income/(loss) for the year, net of tax** |  | **88,765** | **(302,453)**  |
|  **Total comprehensive income for the year, net of tax** |  | **959,758** | **332,839**  |
|  *Total comprehensive income attributable to:* |  |  |   |
|  Equity shareholders of Ferrexpo plc |  | 959,778 | 332,822  |
|  Non-controlling interests |  | (20) | 17  |
|   |  | **959,758** | **332,839**  |

148 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Consolidated Statement of Financial Position
As at As at
US$000 Notes 31.12 . 21 31.12.20
Assets

| Property, plant and equipment | 13 | 1, 2 16 , 6 9 3 1 ,00 4,3 85 |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Right-of-use assets | 14 7, 7 7 6 8 , 3 13 |  |  |  |  |
| Goodwill and other intangible assets | 15 |  | 43,586 4 0 ,73 4 |  |  |
| Investments in associates | 33 |  | 7, 0 3 4 5, 873 |  |  |
| Inventories | 17 |  | 8 , 414 21 3,685 |  |  |
| Other non-current assets | 16 96,484 25,480 |  |  |  |  |
| Deferred tax assets | 11 |  | 32,946 |  | 3 0 , 5 74 |
| Total non-current assets |  | 1, 41 2 , 9 3 3 |  | 1, 3 2 9 , 0 4 4 |  |
| Inventories | 17 |  | 202,399 1 44,6 0 5 |  |  |
| Trade and other receivables | 18 192 , 3 6 3 15 2 ,7 5 0 |  |  |  |  |
| Prepayments and other current assets | 19 |  | 6 8 ,16 2 25, 884 |  |  |
| Income taxes recoverable and prepaid | 11 636 1, 3 51 |  |  |  |  |
| Other taxes recoverable and prepaid | 20 48, 040 31, 3 2 3 |  |  |  |  |
| Cash and cash equivalents | 25 16 7, 2 9 1 270,0 0 6 |  |  |  |  |
| Total current assets |  |  | 678 , 8 91 |  | 6 2 5 , 9 19 |
| Total assets |  | 2 , 0 9 1, 8 2 4 |  | 1 ,95 4,9 63 |  |

Equity and liabilities
Issued capital 31 121, 6 2 8 12 1 ,6 28
Share premium 1 8 5 ,11 2 18 5 ,11 2

| Other reserves | 31 (1 ,986, 13 1) (2,0 6 5, 8 9 6) |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Retained earnings |  | 3 , 510 ,7 9 3 |  |  | 3, 25 0,5 3 4 |  |  |
| Equity attributable to equity shareholders of Ferrexpo plc |  | 1, 8 31, 4 0 2 |  |  | 1, 4 9 1, 3 7 8 |  |  |
| Non-controlling interests |  |  |  | 75 |  |  | 95 |
| Total equity |  | 1, 8 31, 47 7 |  |  | 1, 4 9 1, 47 3 |  |  |
| Interest-bearing loans and borrowings | 5/26 2 ,1 4 3 1 3 2 ,1 2 9 |  |  |  |  |  |  |
| Defined benefit pension liability | 22 |  | 2 6 , 0 74 32 , 47 5 |  |  |  |  |
| Provision for site restoration | 23 3 , 873 2,8 4 6 |  |  |  |  |  |  |
| Deferred tax liabilities | 11 |  |  | 141 |  |  | 101 |
| Total non-current liabilities |  |  | 32 , 2 31 |  |  | 16 7, 5 5 1 |  |
| Interest-bearing loans and borrowings | 5/26 48,206 134,34 9 |  |  |  |  |  |  |
| Trade and other payables | 21 72 , 8 2 4 4 3 , 74 9 |  |  |  |  |  |  |
| Accrued and contract liabilities | 24 5 2 , 6 13 45,542 |  |  |  |  |  |  |
| Income taxes payable | 11 3 7,13 8 58,48 3 |  |  |  |  |  |  |
| Other taxes payable | 20 |  | 1 7 ,335 |  |  | 13 , 8 16 |  |
| Total current liabilities |  |  | 2 2 8 ,116 |  |  | 295,939 |  |
| Total liabilities |  |  | 2 6 0 , 3 47 |  |  | 46 3,49 0 |  |
| Total equity and liabilities |  | 2 , 0 9 1, 8 2 4 |  |  | 1,954,963 |  |  |

The financial statements were approved by the Board of Directors and authorised for issue on 21 April 2022 and signed on behalf of the Board.
Lucio Genovese Jim North
Non-executive Chair Chief Executive Officer & Executive Director
### 149Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Consolidated Statement of Cash Flows
Year ended Year ended
US$000 Notes 31.12 . 21 31.12.20
Profit before tax 1 ,070,975 747, 8 6 0
Adjustments for:
Depreciation of property, plant and equipment, right-of-use assets and amortisation of intangible assets 115 ,111 10 2 , 47 5
Finance expense 10 5,7 2 9 9 ,11 3
Finance income 10 (637) (55 3)
Losses on disposal and liquidation of property, plant and equipment 4,69 5 1, 3 0 3

| Write-offs | 7 4,5 07 19 2 |
| --- | --- |
| Impairment of inventories | 7 2 3 1 ,111 − |
| Share of profit from associates | 33 (4,4 6 8) (5, 6 24) |
| Movement in allowance for doubtful receivables | 18 69 0 7 24 |
| Movement in site restoration provision | 23 5 51 18 |
| Employee benefits | 22 4,936 4 ,7 7 9 |
| Share-based payments | 28 856 291 |
| Operating foreign exchange losses/(gains) | 9 37 ,808 (61 ,023) |
| Non-operating foreign exchange losses/(gains) | 9 3, 200 (5, 3 02) |

Other adjustments (4 , 9 14) (2, 5 46)
Operating cash flow before working capital changes 1 , 4 7 0 ,1 5 0 7 9 1, 7 0 7
Changes in working capital:
Increase in trade and other receivables (10 2 , 8 2 7) (49, 5 3 8)
(Increase)/decrease in inventories (6 5 ,1 7 0) 2 7, 0 3 4
Increase/(decrease) in trade and other payables (incl. accrued and contract liabilities) 4 0 ,1 8 6 (4 ,79 8)
(Increase)/decrease in other taxes recoverable and payable (incl. VAT) 20 (1 1 ,073) 3 , 2 14
Cash generated from operating activities 1, 3 31, 2 6 6 76 7, 6 1 9
Interest paid (7, 0 3 1) (2 1, 4 3 9)
Income tax paid 11 (227,930) (5 6 , 5 71)
Post-employment benefits paid (2 , 475) (2 , 3 9 1)
Net cash flows from operating activities 1, 0 9 3 , 8 3 0 6 8 7, 21 8
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets 13/15 (3 60, 86 9) (20 5 ,77 9)
Proceeds from disposal of property, plant and equipment and intangible assets 1, 0 3 0 836
Interest received 583 442
Dividends from associates 3,9 67 4,0 27
Advance payment for investment in joint venture 16 − (5 ,000)
Net cash flows used in investing activities (355,289) (205,4 7 4)
Cash flows from financing activities

| Proceeds from loans and borrowings | 26 4 2 ,14 6 − |
| --- | --- |
| Repayment of loans and borrowings | 26 (2 5 7, 4 3 0) (14 4 , 9 0 4) |
| Principal elements of lease payments | 26 (5 , 5 17) (3, 0 82) |
| Dividends paid to equity shareholders of Ferrexpo plc | 12 (619 , 3 7 7) (19 5 , 4 4 6) |

Net cash flows used in financing activities (8 4 0 ,17 8) (343,43 2)
Net (decrease)/increase in cash and cash equivalents (10 1, 6 3 7) 13 8 , 3 12
Cash and cash equivalents at the beginning of the year 270,00 6 131, 0 2 0
Currency translation differences (1, 0 7 8) 6 74
Cash and cash equivalents at the end of the year 25 16 7, 2 9 1 270 ,0 0 6
### 150 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Consolidated Statement of Changes in Equity
Attributable to equity shareholders of Ferrexpo plc

|  |  |  |  |  |  |  |  |  | Total | Non-controlling |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Issued capital |  | Share premium |  | Other reserves |  | Retained | capital and |  |  | interests | Total |
| US$000 |  | (Note 31) |  | (Note 31) |  | (Note 31) | earnings | reserves |  |  | (Note 32) | equity |

At 1 January 2020 1 21, 6 2 8 1 8 5 ,11 2 (1,76 4 ,7 7 4) 2, 810 , 5 8 8 1 ,352 ,554 78 1, 3 5 2 , 6 3 2
Profit for the year – – – 635,292 635, 292 − 635, 292
Other comprehensive (loss)/
income – – (3 0 1, 413) (1, 0 5 7) (3 0 2 , 470) 17 (302 ,453)
Total comprehensive (loss)/
income for theyear – – (301 ,4 13) 6 3 4,23 5 3 3 2,8 22 17 332, 839
Share-based payments (Note 28) – – 291 – 2 91 – 291
Equity dividends to shareholders
of Ferrexpoplc – – – (19 4 , 28 9) (19 4 , 2 8 9) – (19 4 , 2 8 9)
At 31 December 2020 121, 6 2 8 1 8 5 ,11 2 (2,0 6 5 ,8 9 6) 3, 25 0, 53 4 1, 4 9 1, 3 7 8 95 1, 4 9 1, 47 3
Profit for the year – – – 870,9 87 870,9 87 6 870,9 9 3
Other comprehensive income/
(loss) – – 78 ,9 0 9 9, 8 82 8 8 ,79 1 (2 6) 8 8 ,7 6 5
Total comprehensive income/
(loss) for theyear – – 78 ,9 0 9 8 80, 86 9 959, 778 (2 0) 959, 7 58
Share-based payments (Note 28) – – 856 – 856 – 856
Equity dividends to shareholders
of Ferrexpoplc (Note 12) – – – (620,610) (620,610) – (620,610)
At 31 December 2021 121, 6 2 8 1 8 5 ,11 2 (1 ,986, 1 3 1) 3 , 51 0,7 9 3 1, 8 3 1, 4 0 2 75 1, 8 3 1, 47 7
Although accounts are published in US dollars and dividends are declared in US dollars, the shares are denominated in UK pounds sterling and
dividends are therefore paid in UK pounds sterling. See Note 12 Earnings per share and dividends paid and proposed for dividends paid during
theyear.
### 151Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements
Note 1: Corporate information
Ferrexpo plc (the “Company”) is incorporated and registered in England, which is considered to be the country of domicile, with its registered
office at 55 St James’s Street, London SW1A 1LA, UK. The Company is listed on the London Stock Exchange and is a member of the FTSE 250
Index. Ferrexpo plc and its subsidiaries (the “Group”) operate two mines and a processing plant near Kremenchug in Ukraine, have an interest in a
port in Odessa and sales and marketing activities around the world including offices in Switzerland, Dubai, Japan, China, Singapore and Ukraine.
The Group also owns logistics assets in Austria, which operate a fleet of vessels operating on the Rhine and Danube waterways and an ocean-
going vessel, which provides top-off services. The Group’s operations are vertically integrated from iron ore mining through to iron ore concentrate
and pellet production and subsequent logistics. The Group’s mineral properties lie within the Kremenchug Magnetic Anomaly and are currently
being extracted at the Gorishne-Plavninske-Lavrykivske (“GPL”) and Yerystivske deposits.
The majority shareholder of the Group is Fevamotinico S.a.r.l. (“Fevamotinico”), a company incorporated in Luxembourg. Fevamotinico is ultimately
wholly owned by The Minco Trust, of which Kostyantin Zhevago, the Group’s previous Chief Executive Officer, and two other members of his family
are the beneficiaries. At the time this report was published, Fevamotinico held 50.3% (2020: 50.3%) of Ferrexpo plc’s issued share capital.
Note 2: Basis of preparation
The consolidated financial statements of Ferrexpo plc and its subsidiaries have been prepared in accordance with International Financial
Reporting Standards adopted for use in the United Kingdom (“UK adopted IFRS”) and with the Companies Act 2006, as applicable to companies
reporting under international accounting standards. Entities are included in the consolidated financial statements from the date of obtaining control
and the inclusion in the consolidated financial statements is consequently ceased when the control over an entity is lost. For the definition of
control see Note 32 Consolidated subsidiaries.
The consolidated financial statements have been prepared on a historical cost basis, except for post-employment benefits measured in
accordance with IAS 19 revised Employee benefits. The consolidated financial statements are presented in thousands of US dollars and all values
are rounded to thenearest thousand except where otherwise indicated.
The detailed accounting policies are included in the disclosure notes to the specific financial statement accounts.
Going concern
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 is, as at the date of the approval of these consolidated financial statements, still ongoing. Although the Group has managed to continue its
operations, the war continues to pose a 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 at the date of the approval of these consolidated financial statements, the Group has assessed that, taking into account:
i) its available cash and cash equivalents;
ii) 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
iii) 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 are outside of the Group management’s control, with the duration and the impact
of the war unable to be predicted at this point of time. Whilst the Group has successfully managed to procure all its key consumables, such as
natural gas, electricity and diesel fuel, and equipment required for its mining and processing operation to date, the risk of a potential disruption
to the required supplies, remains. As announced several times to the market, the Group’s seaborne sales through the port of Pivdennyi, located
in southwest Ukraine, where the Group’s berth is located for shipping pellets to customers, have been suspended as a result of the closure
of the port and due to constraints caused by the hostilities in the Black Sea. Although activities at the Black Sea port of Pivdennyi continue to
be suspended, the Group’s logistics pathways to its European customers via rail and barge remain currently available. These have historically
represented approximately 50% of the Group’s sales. However, a further interruption to the availability of the Group’s logistics network may result
in a significant decline in the Group’s operating cash flows. Due to the potential threat resulting form the war in Ukraine, the Group has redesigned
its mining and processing plans in order to align them to the new circumstances. Further to that, the Group has identified possible alternative
options accessible in case of an interruption of the supplies of key consumables and equipment as well as its currently available logistics network.
As at the date of the approval of these consolidated financial statements, the Group is in a net cash position of approximately US$192,000
thousand with an available cash balance of approximately US$209,000 thousand. In addition to the available cash balance, the Group has an
outstanding receivable balance of approximately US$156,000 thousand from its sales in March and April 2022, which are expected to be collected
in the next weeks.
As part of management’s going concern assessment, the Group adjusted its long-term model reflecting the lower sales volume caused by the
unavailable seaborne sales to its customers. The adjusted 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.
As a result of the remaining material uncertainty outside of the Group’s control in respect of the duration and the impact of the war in the future, the
Group also prepared stress tests with more severe adverse changes, such as a ceasing of its production for 3, 6 and 18 months, which could be
caused by a disruption of the supplies for key consumables and equipment and/or a further interruption of the Group’s currently available logistics
network. Based on these stress tests, it is expected that the Group would have sufficient liquidity for more than 12 months and sufficient mitigating
actions, such as further reductions of the development capital expenditures and its operating costs, within its control, even if the operations were
to be stopped immediately.
### 152 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 2: Basis of preparation continued
Considering the current situation of the war in Ukraine, all identified available mitigating actions addressing the uncertainties caused by the war,
as outlined on page 57, 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, many of the identified uncertainties are outside of the Group management’s control and are of
unpredictable duration and severity, which may cast significant doubt upon the Group’s ability to continue as a going concern.
In addition, 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 Principal Risks section on pages 57 and
58 for further information.
If the Group is unable to continue to realise assets and discharge liabilities in the normal course of business, it would be necessary to adjust the
amounts in the statement of financial position in the future to reflect these circumstances, which may materially change the measurement and
classification of certain figures contained in the consolidated financial statements. Further information on the financial impact of the war in Ukraine
is provided in Note 35 Events after the reporting period.
Basis of consolidation
The consolidated financial statements comprise the financial statements for Ferrexpo plc and its subsidiaries as at 31 December each year.
Thefinancial statements of the subsidiaries are prepared as at the same reporting date as Ferrexpo plc’s, using consistent accounting policies.
Subsidiaries are fully consolidated from the date the Group obtains control, which exists from the point of time when the Group is exposed to,
or has rights to, variable returns from an entity and the Group has the ability to affect those returns through its power to direct the activities of an
entity. Similarly, subsidiaries disposed of are deconsolidated from the date on which the Group ceases to hold control. A change in the ownership
interest of an entity without obtaining or losing control is accounted for as an equity transaction.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Business combinations
On the acquisition of a subsidiary, the business combination is accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregated amount of the fair value of the consideration transferred, measured at the date of acquisition. The consideration paid is
allocated to the assets acquired and liabilities (including contingent liabilities) assumed on the basis of fair values at the date of acquisition.
Acquisition costs are expensed when incurred and included in general and administrative expenses.
Functional and presentational currencies
Based on the economic substance of the underlying business transactions and circumstances relevant to the parent, the functional currency of
the parent has been determined to be the US dollar, with each subsidiary determining its own functional currency based on its own circumstances.
The Group has chosen the US dollar as its presentational currency. The functional currency of Ukrainian subsidiaries, which is where the Group’s
main operations are based, is the Ukrainian hryvnia.
Foreign currency translation
For individual subsidiary company accounts, transactions in foreign currencies (i.e. other than the functional currency) are recorded at the rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at
the rate of exchange ruling at the reporting date and non-monetary assets and liabilities at the historic rate. Foreign exchange differences arising
on translation are recognised in the consolidated income statement.
For presentation of the Group’s consolidated accounts, if the functional currency of a subsidiary is different to the presentational currency as at the
reporting date, the assets and liabilities of this entity are translated into the presentational currency at the rate ruling at the reporting date and the
consolidated income statement is translated using the average exchange rate for the year based on the officially published rates by the National
Bank of Ukraine (“NBU”). The foreign exchange differences arising are recognised in other comprehensive income and taken directly to a separate
component of equity. On disposal of a foreign entity the deferred cumulative amount of exchange differences recognised in equity relating to the
particular foreign operation is recognised in the consolidated income statement.
Note 3: New accounting policies
New standards and interpretations adopted
The accounting policies and methods of computation adopted in the preparation of the consolidated financial statements are consistent with
those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2020 except for the adoption of new
standards, interpretations and amendments to UK adopted IFRS effective as of 1 January 2021.
New standards, interpretations and amendments adopted without an impact on the Group’s consolidated financial statements
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 relate to the modification of financial
assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and corresponding disclosure requirements. Modifications
of financial assets and financial liabilities required as a direct consequence of the Interbank offered rates (“IBOR”) reform and made on an
economically equivalent basis are accounted for by updating the effective interest rate and a similar practical expedient is proposed for lessee
accounting applying IFRS 16. All other modifications are accounted for using the current IFRS requirements.
### 153Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

## Note 3: New accounting policies continued

Additional disclosure requirements are introduced in order to allow users to understand the nature of the exposure and extent of risks arising from the IBOR reform and how these risks are assessed as well as the progress in transitioning from IBORs to alternative benchmark rates, and how this transition is managed. As at 31 December 2021, the Group has outstanding short-term uncommitted trade finance facilities at a floating rate (see Note 25 Interest-bearing loans and borrowings for further information). These lines are denominated in USD and linked to USD LIBOR. Following the current IBOR Transition plan, the Group is revising these interest rate conditions with its financial partners to come to define adequate applicable fallback conditions going forward. The Group does not expect a material impact on the funding cost of its lines from the Transition.

### New standards, interpretations and amendments not yet adopted

The Group has elected not to adopt early any revised and amended standards or interpretations that are not yet mandatory in the UK. The standards and interpretations below could have an impact on the consolidated financial statements of the Group in future periods.

Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current were issued in January 2020 and are effective for the financial year beginning on 1 January 2024 subject to endorsement by the UK Endorsement Board. The amendments clarify that the classification of liabilities as current or non-current should be based on the rights to defer the settlement of a liability by at least 12 months in existence at the end of the reporting period and not on future expectations about whether these rights will be exercised. Furthermore, the amendments clarify that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The Group does not expect a material impact in its consolidated financial statements as a consequence of these amendments.

Amendments to IAS 16 Property, Plant and Equipment were issued in May 2020 and are effective for the financial year beginning on 1 January 2022 subject to endorsement by the UK Endorsement Board. The amendments prohibit the deduction from the cost of an item of property, plant and equipment of any proceeds from selling items produced while bringing that asset into operation and clarify that these proceeds (and the corresponding costs of production) are recognised in profit or loss. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.

Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets were issued in May 2020 and are effective for the financial year beginning on 1 January 2022 subject to endorsement by the UK Endorsement Board. The amendments clarify that the cost of fulfilling a contract comprises the costs that relate directly to the contract. These can either be incremental costs of fulfilling that contract or the allocation of other costs that relate directly to fulfilling contracts. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies were issued in February 2021 and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. They require the disclosures of material accounting policies rather than significant accounting policies. The amendments to IAS 1 clarify that accounting policy information may be material because of its nature, even if it relates to immaterial amounts, that accounting policy information is material when it is needed by users of financial statements to understand other material information in the financial statements and that the disclosure of immaterial accounting policy information shall not obscure material accounting policy information. The amendments to IFRS Practice Statement 2 include guidance and examples to the amendments to IAS 1 and illustrate, in particular, the "four-step materiality process" to accounting policy information. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.

Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates were issued in February 2021 and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. The amendments replace the definition of change in accounting estimates with the definition of accounting estimates as monetary amounts subject to measurement uncertainty following accounting policies requirements. A change in accounting estimate resulting from new information or developments is not the correction of an error and changes in an input or a measurement technique of an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors. The effect of the change relating to the current period is recognised as income or expense in the current period while the effect, if any, on future periods is recognised as income or expense in those future periods. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.

Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction were issued in May 2021 and are effective for the financial year beginning on 1 January 2023 subject to endorsement by the UK Endorsement Board. The amendments clarify that the recognition exemption in paragraphs 15 and 24 of IAS 12 does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. For these transactions, such as leases or decommissioning obligations, deferred tax has to be recognised upon accounting of both an asset and a liability. The Group does not expect that these amendments will have a material impact on its consolidated financial statements.

Furthermore, the Group does not expect an impact on its consolidated financial statements from all other standards, interpretations and amendments issued at the reporting date, but not yet to be adopted for these financial statements.

154

Ferreropo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 4: Use of critical estimates and judgements**

The preparation of consolidated financial statements in conformity with IFRSs requires management to make estimates and judgements that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and judgements are based on information available as at the date of authorising the consolidated financial statements for issue. Actual results could therefore differ from those estimates and judgements. The Group identified a number of areas involving the use of critical estimates and judgements made by management in preparing the consolidated financial statements and supporting information is embedded within the following disclosure notes:

# **Critical estimates**

- Note 17 Inventories – low-grade and weathered ore

# **Critical judgements**

- Note 2 Basis of preparation – going concern assumption
- Note 11 Taxation – tax legislation
- Note 30 Commitments, contingencies and legal disputes – loan relationship between related parties of the Group
- Note 35 Events after the reporting period – non-adjusting post balance sheet event

# **Note 5: Segment information**

The Group is managed as a single segment, which produces, develops and markets its principal product, iron ore pellets, for sale to the metallurgical industry. While the revenue generated by the Group is monitored at a more detailed level, there are no separate measures of profit reported to the Group's Chief Operating Decision-Maker ("CODM"). In accordance with IFRS 8 Operating segments, the Group presents its results in a single segment, which are disclosed in the consolidated income statement for the Group.

Management monitors the operating result of the Group based on a number of measures, including underlying EBITDA, gross profit and net cash.

# **Underlying EBITDA and gross profit**

The Group presents the underlying EBITDA as it is a useful measure for evaluating its ability to generate cash and its operating performance. The Group's full definition of underlying EBITDA is disclosed in the Glossary on page 207.

|  US$000 | Notes | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- | --- |
|  Profit before tax and finance |  | 1,082,478 | 754,291  |
|  Losses on disposal and liquidation of property, plant and equipment |  | 4,695 | 1,303  |
|  Share-based payments | 2a | 856 | 291  |
|  Write-offs and impairments | 7 | 235,618 | 192  |
|  Depreciation and amortisation |  | 115,112 | 102,475  |
|  **Underlying EBITDA** |  | **1,438,759** | **858,552**  |
|  US$000 | Notes | Year ended 31.12.21 | Year ended 31.12.20  |
|  Revenue | 8 | 2,518,230 | 1,700,321  |
|  Cost of sales | 7 | (727,818) | (608,641)  |
|  **Gross profit** |  | **1,790,412** | **1,091,680**  |

# **Net cash**

Net cash as defined by the Group comprises cash and cash equivalents less interest-bearing loans and borrowings.

|  US$000 | Notes | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- | --- |
|  Cash and cash equivalents | 2a | 167,291 | 270,008  |
|  Interest-bearing loans and borrowings – current | 2a | (48,208) | (134,349)  |
|  Interest-bearing loans and borrowings – non-current | 2b | (2,143) | (132,129)  |
|  **Net cash** |  | **116,942** | **3,528**  |

The Group made debt repayments net of proceeds of US$221,188 thousand during the year ended 31 December 2021 (2020: US$148,328 thousand). Net cash is an Alternative Performance Measure ("APM"). Further information on the APMs used by the Group, including the definitions, is provided on pages 207 to 208.

Ferrexpo plc Annual Report & Accounts 2021

155
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 5: Segment information continued
Disclosure of revenue and non-current assets
The Group does not generate significant revenues from external customers attributable to the UK, the Company’s country of domicile. The
information on the revenues from external customers attributed to the individual foreign countries is given in Note 6 Revenue. The Group does not
have any significant non-current assets that are located in the country of domicile of the Company. The vast majority of the non-current assets are
located in Ukraine.
Note 6: Revenue
Accounting policy
Revenue recognition
Revenue is recognised to the extent that it is probable that the Group will collect the consideration to which it expects to be entitled in exchange
for transferring promised goods or services to a customer. The following specific recognition criteria are to be met before revenue is recognised.
Sale of goods including sales of pellets and fuel from bunker business
Revenue is recognised when the control of the goods has passed to the buyer and can be reliably measured.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the
normal course of business, net of discounts, customs duties and sales taxes. The Group does not have any material variable considerations, such
as retrospective volume rebates and rights of returns, in the contracts with its customers. Revenues related to provisionally priced sales are initially
recognised at the estimated fair value of the consideration receivable based on the forward price at each reporting date for the relevant period
outlined inthe different contracts. In terms of the associated commodity risk, see Note 27 Financial instruments for further information.
The control of goods passes when title for the goods passes to the customer as determined by the contractual sales terms based on the
International Commercial Terms (“Incoterms”). The sales are typically made under the following terms:
– CIF (“Cost Insurance and Freight”);
– CFR (“Cost and Freight”);
– DAP (“Delivery At Place”); or
– FOB (“Free on Board”).
Under DAP Incoterms, revenue is recognised when goods arrive at the agreed destination or at the border crossing, whereas under the other
above-mentioned terms the title passes on the date of the bill of lading. If the sales agreement allows for adjustment of the sales prices based on
survey of the goods by the customer (e.g. ore content) the revenue is recognised based on the most recent determined product specification.
The Group enters into long-term contracts with some of its customers, which become subject to either renewal or extension when about to expire.
As the performance obligations under the old contracts are not affected by the renewal or extension, the new modified contracts are accounted for
as separate contracts.
The Group has no unsatisfied or partially unsatisfied performance obligations relating to contracts with customers with original expected duration
of more than one year. The Group has therefore taken advantage of the practical expedient provided in IFRS 15 and needs not disclose the
transaction price allocated to the remaining performance obligations.
Freight services related to sales of pellets and concentrate
For CIF and CFR contracts the Group must contract for and pay the freight necessary to bring the goods to the named port of destination.
Consequently, the freight services under CIF and CFR Incoterms meet the criteria of a separate performance obligation and the corresponding
revenue is shown separate from the revenue from sales of iron ore pellets and concentrate.
Freight revenue is recognised over time, as the obligation to perform freight services is fulfilled, along with the associated costs.
For the separate presentation of the freight revenue as required under IFRS 15 Revenue from contracts with customers, the Group measures
freight revenue based on the average freight rates of the relevant pricing period for specific shipments as outlined in the contracts with its
customers. In case the relevant pricing period is after the end of the reporting period (normally within 60 days), revenue is measured based on
forward freight rates at the reporting date.
Actual freight costs recognised for specific shipments might differ from the presented freight revenue due to movements in market rates between
the timing of fixture of vessels and the relevant pricing periods outlined in the contracts with customers.
Logistic services
Revenue from logistic services rendered is measured at the transaction price contractually agreed between the parties based on applicable
market rates for the specific freight services to be provided. The timing of satisfaction of the performance obligation is over time as services are
completed. Where services are invoiced in advance of discharge, amounts attributable to the time between the end of the reporting period and the
discharge date are deferred as contract liabilities.
Other sales
Other sales and services provided include predominantly the revenue generated from the sale of other materials and repair and maintenance
works provided to third parties. The revenues are recognised when the title passes for material sold or services provided are completed.
### 156 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 6: Revenue continued**

Revenue for the year ended 31 December 2021 consisted of the following:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Revenue from sales of iron ore pellets and concentrate | 2,323,238 | 1,523,772  |
|  Freight revenue related to sales of iron ore pellets and concentrate | 137,595 | 125,254  |
|  **Total revenue from sales of iron ore pellets and concentrate** | **2,460,833** | **1,649,026**  |
|  Revenue from logistics and bunker business | 50,390 | 46,002  |
|  Revenue from other sales and services provided | 7,004 | 5,293  |
|  **Total revenue** | **2,518,230** | **1,700,321**  |

Revenue for the year ended 31 December 2021 includes the effect from the derecognition of contract liabilities of US$8,487 thousand (2020: US$8,572 thousand) deferred as revenue in the comparative year ended 31 December 2020. As at 31 December 2021, freight-related revenue in the amount of US$7,848 thousand was deferred in relation to the performance obligations not fulfilled and included in the balance of the contract liabilities. See Note 24 Accrued and contract liabilities for further information.

Export sales of iron ore pellets and concentrate by geographical destination showing separately countries that individually represented 10% or more of export sales in either the current or prior year were as follows:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  **Europe, including Turkey** | **1,354,048** | **584,286**  |
|  Austria | 527,200 | 280,903  |
|  Germany | 291,235 | 145,311  |
|  Turkey | 270,514 | 82,514  |
|  Others | 265,089 | 75,558  |
|  **North East Asia** | **223,409** | **78,786**  |
|  **China & South East Asia** | **770,554** | **951,718**  |
|  China | 549,885 | 908,949  |
|  Others | 220,699 | 42,769  |
|  **Middle East & North Africa** | **23,928** | **–**  |
|  **North America** | **88,864** | **34,236**  |
|  **Total exports** | **2,460,833** | **1,649,026**  |

The Group markets its products across various regions. The presentation of the sales segmentation data has been changed during the financial year 2021 with Turkey being reclassified from the region Middle East and North Africa to Europe in order to reflect how the Group makes its business decisions and monitors its sales. In order to be consistent with the presentation in the current year, export sales of iron ore pellets and concentrate to Turkey in the amount of US$82,514 thousand have been reclassified for the comparative year ended 31 December 2020. Information about the composition of the regions is provided in the Glossary on pages 210 and 211.

During the year ended 31 December 2021, sales made to three customers accounted for 37% of the revenues from export sales of ore pellets and concentrate (2020: 41%).

Sales to customers that individually represented more than 10% of total sales in either current or prior year are as follows:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Customer A | 389,554 | 280,903  |
|  Customer B | 211,231 | 316,720  |
|  Customer C | 290,511 | 96,596  |

Ferrexpo plc Annual Report & Accounts 2021

157
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

## Note 7: Operating expenses

### Accounting policy

Operating expenses arise in the course of the ordinary activities of the Group and are recognised in the consolidated income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.

Expenses are recognised in the consolidated income statement on the basis of a direct association between costs incurred and specific items of income. When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are systematically allocated to the accounting period in which the economic benefits are expected to arise.

Royalties are outflows of resources embodying economic benefits and imposed by governments on entities, in accordance with legislation. The obligating event that gives rise to a liability to pay royalties is the activity, identified by the legislation, that triggers the payment of royalties. The liability to pay royalties is recognised as the obligating event occurs. Mining royalties payable are presented within operating expenses.

Operating expenses for the year ended 31 December 2021 consisted of the following:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Cost of sales | 727,816 | 608,641  |
|  Selling and distribution expenses | 340,301 | 309,276  |
|  General and administrative expenses | 72,163 | 61,788  |
|  Other operating expenses | 271,629 | 38,404  |
|  **Total operating expenses** | **1,411,911** | **1,018,109**  |

Total operating expenses include:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Inventories recognised as an expense upon sale of goods | 697,900 | 582,796  |
|  Employee costs (excl. logistics and bunker business) | 104,018 | 106,782  |
|  Inventory movements | (51,603) | 41,471  |
|  Depreciation of property, plant and equipment and right-of-use assets | 113,429 | 101,278  |
|  Amortisation of intangible assets | 1,682 | 1,197  |
|  Royalties | 40,871 | 29,180  |
|  Costs of logistics and bunker business | 47,254 | 39,993  |
|  Audit and non-audit services | 1,694 | 1,719  |
|  Community support donations | 6,449 | 5,800  |
|  Write-offs and impairments | 235,618 | 192  |
|  Losses on disposal and liquidation of property, plant and equipment | 4,695 | 1,303  |

|  US$000 | Notes | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- | --- |
|  Write-off of inventories |  | 247 | 456  |
|  Write-off (write-back) of property, plant and equipment | 13 | 3,233 | (288)  |
|  Write-off of intangible assets | 15 | 831 | —  |
|  Write-off of receivables and prepayments |  | 98 | 14  |
|  **Total write-offs** |  | **4,507** | **192**  |
|  Impairment of inventories | 17 | 231,111 | —  |
|  **Total impairments** |  | **231,111** | **—**  |
|  **Total write-offs and impairments** |  | **235,618** | **192**  |

Impairment of inventories for the year ended 31 December 2021 is related to the stockpiled low-grade ore for which the start of the processing of low-grade ore and the volume expected to be utilised cannot be reliably estimated as at the date of the approval of the consolidated financial statements. Further information is provided in Note 17 Inventories. Write-offs of property, plant and equipment and intangible assets for the year ended 31 December 2021 is primarily related to the cancellation of the licence for the Galeschynske project, which is in the exploration phase. Whilst the Group is focused on returning this licence to its previous state, all capitalised costs associated with this licence have been written off as the outcome is currently uncertain. For further information see Note 30 Commitments, contingencies and legal disputes and the update on the Group's Principal Risks on page 60 in terms of the Ukraine country risk.

158

Ferreropo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 7: Operating expenses**continued

# **Auditor remuneration**

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  **Audit services** |  |   |
|  Ferrexpo plc Annual Report and Accounts | 1,269 | 1,356  |
|  Subsidiary entities | 196 | 213  |
|  **Total audit services** | **1,465** | **1,569**  |
|  Audit-related assurance services | 229 | 150  |
|  **Total audit and audit-related assurance services** | **1,694** | **1,719**  |
|  **Total auditor remuneration** | **1,694** | **1,719**  |

Auditor remuneration paid is in respect of the audit of the financial statements of the Group and its subsidiary companies and, when applicable, for the provision of other services not in connection with the audit.

# **Note 8: Other income**

# **Accounting policy**

Other income mainly includes lease income generated from rail cars, mining equipment and premises, and the proceeds from the sale of spare parts, scrap metal and fuel and compensations received from insurance companies. Lease income is recognised based on the underlying contractual basis over the term of the lease. Other income from the sale of consumable materials is recognised as revenue when the title passes.

Other income for the year ended 31 December 2021 consisted of the following:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Lease income | 916 | 649  |
|  Other income | 8,583 | 4,783  |
|  **Total other income** | **9,499** | **5,432**  |

# **Note 9: Foreign exchange gains and losses**

# **Accounting policy**

Foreign exchange gains and losses are reported on a net basis. Operating foreign exchange gains and losses are those resulting directly from the Group's operating activities. Non-operating gains and losses are predominantly those associated with the Group's financing and treasury activities, including the translation of interest-bearing loans and borrowings denominated in currencies different from the respective functional currencies and transactional gains and losses from the conversion of cash balances in currencies different from the local functional currencies at exchange rates different from those at the initial recognition date.

Foreign exchange gains and losses for the year ended 31 December 2021 consisted of the following:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  **Operating foreign exchange (losses)/gains** |  |   |
|  Conversion of trade receivables | (37,791) | 61,948  |
|  Conversion of trade payables | 38 | (538)  |
|  Other | (55) | (387)  |
|  **Total operating foreign exchange (losses)/gains** | **(37,808)** | **61,023**  |
|  **Non-operating foreign exchange (losses)/gains** |  |   |
|  Conversion of interest-bearing loans | (3,229) | 3,378  |
|  Conversion of cash and cash equivalents | (181) | 2,506  |
|  Other | 210 | (582)  |
|  **Total non-operating foreign exchange (losses)/gains** | **(3,200)** | **5,302**  |
|  **Total foreign exchange (losses)/gains** | **(41,008)** | **66,325**  |

Ferrexpo plc Annual Report & Accounts 2021

159
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 9: Foreign exchange gains and losses continued

The translation differences and foreign exchange gains and losses are predominantly dependent on the fluctuation of the exchange rate of the Ukrainian hryvnia against the US dollar and the outstanding US dollar denominated receivable balances in Ukraine. During the financial year 2021, the Ukrainian hryvnia appreciated from 28.275 as at the beginning of the year to 27.278 as at 31 December 2021 resulting in an operating foreign exchange loss (2020 depreciation from 23.686 as at the beginning of the year to 28.275 as at 31 December 2020 resulting in an operating foreign exchange gain).

The table below shows the closing and average rates of the most relevant currencies of the Group compared to the US dollar.

|  Against US$ | Average exchange rates |   | Closing exchange rates  |   |
| --- | --- | --- | --- | --- |
|   |  As at 31.12.21 | As at 31.12.20 | Year ended 31.12.21 | Year ended 31.12.20  |
|  UAH | 27.286 | 26.958 | 27.278 | 28.275  |
|  EUR | 0.845 | 0.877 | 0.882 | 0.815  |

Exchange differences arising on translation of non-US dollar functional currency operations (mainly in Ukrainian hryvnia) are included in the translation reserve. See Note 31 Share capital and reserves for further details.

# Note 10: Net finance expense

# Accounting policy

# Finance expense

Finance expense is expensed as incurred with the exception of interest on loans and borrowings measured at amortised cost, which is recognised in the consolidated income statement using the effective interest method. Finance expense includes interest on defined benefit plans.

Borrowing costs incurred in respect of the financing of construction or production of a qualifying asset are capitalised up to the date when the asset is ready for its intended use. See also Note 13 Property, plant and equipment for further details.

# Finance income

Finance income comprises interest income on funds invested and the effect of unwinding discounts recorded in previous years. Interest income is recognised as it accrues using the effective interest method.

Finance expense and income for the year ended 31 December 2021 consisted of the following:

|  US$000 | Notes | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- | --- |
|  **Finance expense**  |   |   |   |
|  Interest expense on loans and borrowings |  | (9,567) | (22,381)  |
|  Less capitalised borrowing costs |  | 5,343 | 14,871  |
|  Net interest on defined benefit plans | 22 | (3,211) | (3,170)  |
|  Bank charges |  | (632) | (829)  |
|  Interest expense on lease liabilities |  | (474) | (443)  |
|  Other finance costs |  | (399) | (334)  |
|  **Total finance expense** |  | **(8,940)** | **(12,286)**  |
|  **Finance income**  |   |   |   |
|  Interest income |  | 609 | 497  |
|  Other finance income |  | 28 | 56  |
|  **Total finance income** |  | **637** | **553**  |
|  **Net finance expense** |  | **(8,303)** | **(11,733)**  |

# Note 11: Taxation

# Accounting policy

# Current income tax

Current income taxes are computed based on enacted or substantively enacted local tax rates and laws at the reporting date and the expected taxable income of the entities of the Group for the respective period.

Current income taxes are recognised as an expense or income in the consolidated income statement unless related to items directly recognised in other comprehensive income or equity or if related to the initial accounting for a business combination.

# Deferred income tax

Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

160

Ferrrepo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 11: Taxation continued**

Deferred tax liabilities are generally recognised for taxable temporary differences that will become taxable. Deferred income tax assets are generally recognised for deductible temporary differences, carry forwards of available unused tax credits and tax losses, to the extent that it is more likely than not that they will be recovered in a future period against taxable profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

No deferred assets or liabilities are recognised if the temporary differences arise from the initial recognition of assets and liabilities in a transaction, other than in a business combination, which affects neither the accounting profit nor taxable profit or loss.

Deferred tax liabilities are recognised in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets in relation to temporary differences on such investments and interests are recognised to the extent that it is probable that there are sufficient taxable profits available against which the benefits of the temporary differences can be utilised and that they are expected to reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilised. Additionally, unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Income tax effects on items directly recognised in other comprehensive income or equity are also recognised in other comprehensive income or equity, respectively.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

# **Critical judgements**

# **Tax legislation**

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.

In August 2017, the State Fiscal Service of Ukraine ("SFS") commenced a tax audit 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 in terms of its pellet sales to another subsidiary of the Group. Following the completion of this audit, the SFS issued its official tax audit report on 27 December 2018, claiming a tax adjustment totaling U44448 million (US$16,423 thousand as at 31 December 2021) and issued the formal claim on 12 March 2019. The Group's subsidiary initiated legal proceedings and filed a claim to the first court instance in Poltava on 22 March 2019. The Poltava court of first instance confirmed on 4 September 2019 the position of the Group's major subsidiary. The SFS filed its appeal in November 2019 and the Second Administrative Court of Appeal confirmed on 21 December 2019 the decision of the first court instance and supported the position of the Group's subsidiary in full. The SFS subsequently filed an application of cassation to the Supreme Court of Ukraine. The cassation proceedings commenced in November 2021 and although several hearings have been held since then, no decision has yet been made by the Supreme Court of Ukraine. A hearing was scheduled for 28 February 2022, but did not take place due to the Russian invasion into Ukraine on 24 February 2022. Considering the current situation in Ukraine, it is unknown if and when the next hearing will take place.

On 18 February 2020, the State Tax Service of Ukraine ("STS"), formerly known as SFS, commenced two new 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. The audits were halted in March 2020 due to a Covid-19 related quarantine imposed in Ukraine and resumed on 10 February 2021. 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. Based on legislation in Ukraine, the results of these audits are to be provided by the STS within 18 months after commencement. As for the claim for cross-border transactions currently heard in the Supreme Court of Ukraine, the above-mentioned tax audits are on hold and it is currently unknown if and when these will resume again.

The Group considers that it has complied with applicable legislation for all cross-border transactions undertaken and continues to expect that it can successfully defend its methodology applied to determine the prices between its subsidiaries. Consequently, no provision has been recorded as at 31 December 2021, neither for the years subject to the aforementioned court proceedings nor for transactions and years subject to the new audits commenced by the SFS in Ukraine. As of the approval of these consolidated financial statements, no claim has been made by the SFS in respect of the newly commenced audits.

As required by IFRIC 23 *Uncertainty over income tax treatments*, the Group reviewed and reassessed its exposure in respect of all uncertain tax positions, including the ongoing court proceedings and the newly commenced audits of cross-border transactions in Ukraine under the provisions of this interpretation. Considering the two favourable court decisions and third party advice obtained for the financial years 2021, 2020 and 2019, the management of the Group concluded that it is probable that the Supreme Court of Ukraine will confirm the decisions from the two lower court instances. It is considered that, if there are any new claims made by the SFS, the Group will continue to successfully defend its pricing methodology applied during these years. An unexpected outcome of the ongoing court proceeding would have an adverse impact on the Group's total income tax expense and effective tax rate in a future period.

Ferreropo plc Annual Report & Accounts 2021 161
FINANCIAL STATEMENTS

## Notes to the Consolidated Financial Statements continued

### Note 11: Taxation continued

Separate from the cases mentioned above, on 23 June 2020 FPM received a court ruling, which grants access to information and documents to the State Bureau of Investigators in Ukraine ("SBI") in relation to the sale of iron ore products to two subsidiaries of the Group outside of Ukraine during the years 2013 to 2019. The court ruling relates to pre-trial investigations carried out by the SBI in relation to potential tax evasion by the Group in Ukraine. At the time of the approval of these consolidated financial statements, there is very little information provided in the court ruling in respect to the alleged offences. There is no quantified claim made by the SBI and the ruling is primarily seeking disclosure of information in order to allow the SBI to determine whether there have potentially been any offences. The Ukrainian subsidiaries cooperated with the SBI and provided the requested information as per the court ruling in order to support these pre-trial investigations. As of the date of approval of these consolidated financial statements, there have been no actions or any new requests received from the SBI.

The Ukrainian legislation and regulations on taxation continued to evolve over the last number of years. However, they are not always clearly written and are therefore subject to varying interpretations and inconsistent enforcement by local, regional and national tax authorities. As a result, instances of inconsistent interpretations and enforcements to resolve the same or similar cases are not unusual. See also the Principal Risks section on pages 59 and 60 for further information on the Ukraine country risk.

Except for the matters in Ukraine mentioned above, the Group is not aware of any significant challenges by local tax authorities in any jurisdictions in which the Group operates. However, the application of international and local tax legislation and regulations can be complex and requires judgement to assess possible associated risks, particularly in relation to the Group's cross-border operations and transactions.

The income tax expense for the year ended 31 December 2021 consisted of the following:

|  USD/US$ | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  **Current income tax** |  |   |
|  Current income tax charge | 202,335 | 111,160  |
|  Amounts related to previous years | (1,010) | (1,203)  |
|  **Total current income tax** | **201,325** | **109,857**  |
|  **Deferred income tax** |  |   |
|  Origination and reversal of temporary differences | (1,343) | 2,611  |
|  **Total deferred income tax** | **(1,343)** | **2,611**  |
|  **Total income tax expense** | **199,902** | **112,568**  |

Tax effects on items recognised in other comprehensive income consisted of the following for the year ended 31 December 2021:

|  USD/US$ | Notes | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- | --- |
|  Tax effect of exchange differences arising on translating foreign operations | 31 | 3,313 | (16,278)  |
|  **Total income tax effects recognised in other comprehensive (loss)/income** |  | **3,313** | **(16,278)**  |

162 Ferrespo.plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# Note 11: Taxation continued

The weighted average statutory corporate income tax rate is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the profits and losses before tax of the subsidiaries in the respective countries, as included in the consolidated financial information. The weighted average statutory corporate income tax rate was 15.5% for the financial year 2021 (2020: 15.1%). A reconciliation between the income tax charged in the accompanying financial information and income before taxes multiplied by the weighted average statutory tax rate for the year ended 31 December 2021 is as follows:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Profit before tax | 1,070,975 | 747,860  |
|  National tax charge computed at the weighted average statutory tax rate of 15.5% (2020: 15.1%) | 166,330 | 112,583  |
|  Democognition/(recognition) of deferred tax assets^{1} | 1,107 | 2,139  |
|  Credit for Ukrainian fuel excise tax against income tax^{2} | – | (1,106)  |
|  Expenses not deductible for local tax purposes^{3} | 42,163 | 1,046  |
|  Income exempted for local tax purposes^{4} | (238) | (1,807)  |
|  Effect from utilisation of non-recognised deferred taxes^{5} | (5,852) | –  |
|  Effect from capitalised tax loss carry forwards on historic tax losses^{6} | (1,578) | –  |
|  Effect from non-recognition of deferred taxes on current year losses^{7} | – | 1,345  |
|  Effect of different tax rates on local profit streams^{8} | (1,131) | 779  |
|  Prior year adjustments to current tax^{9} | (1,010) | (1,203)  |
|  Effect from share of profit from associates^{10} | (803) | (997)  |
|  Other (including translation differences) | 994 | (212)  |
|  **Total income tax expense** | **199,982** | **112,568**  |

1. The derecognition in 2021 and 2020 is related to deferred tax assets recognised in 2019 in light of the change of the tax law in Switzerland. The deferred tax assets recognised were in connection with available transitional measures for companies losing the special tax status available under the old tax law. The derecognition is due to the fact that the taxable profits of the Swiss subsidiaries were lower than forecasted. Whilst the recognition is considered of a non-recurring nature, the derecognition might incur again depending on the taxable profits of the Swiss subsidiaries in the future.
2. Effective 1 January 2019, a temporary provision in the Ukrainian tax code allowed a reduction in income tax payable for the amount of excise tax included in prices of fuel used for mining equipment. This provision was still applied for the financial year 2020, but not for the financial year 2021.
3. The effect in 2021 predominantly relates to the impairment loss of US$231 (11 thousand) on stockpiled low-grade ore recorded in one of the Group's subsidiaries in Ukraine, which is not deductible. The effect is considered to be of a non-recurring nature. There are other expenses in Ukraine and the United Kingdom, which are historically not deductible for tax purposes according to the enacted local tax legislation and considered to be of a recurring nature.
4. The effect in 2020 largely relates to interest income that does not incur any additional loss/loss in the United Kingdom due to withholding tax paid on this interest in Ukraine. This effect is considered to be of a non-recurring nature.
5. The effects relate to a subsidiary in Ukraine, for which no deferred tax asset was recognised for available tax losses at the end of the comparative year ended 31 December 2020. During the financial year 2021, the subsidiary became profitable and available tax losses incurred in previous years were used to offset the profit. As all available losses are either used or recognised as a deferred tax asset as at 31 December 2021, the effect is considered to be of a non-recurring nature.
6. The effect in 2020 relates mainly to a subsidiary in Ukraine. Due to the uncertainty in respect of the timing of the subsidiary becoming profitable for local tax purposes, no deferred tax asset has been recognised. This effect was considered to be of a recurring nature with the subsidiary becomes operative and profitable.
7. The effects in 2021 and 2020 relate to different tax rates applying to different income streams in Swiss subsidiaries as a result of their specific tax status. The effect is of a recurring nature.
8. The effects in 2021 and 2020 relate to that tax assessments imposed in Switzerland. Similar effects are likely to occur in the future. In addition to the effect in Switzerland in 2021, included threats to the release and recognition of provisions, which are expected to be non-recurring.
9. Share of profit from associates is recognised net of taxes of the associates. This effect is of a recurring nature.

The Group operates across a number of jurisdictions and its effective tax rate is subject to various factors outside of the Group's control. This includes the volatility in the global iron ore pellet market and foreign exchange rate movements, primarily between the Ukrainian hryvnia and the US dollar. The effective tax rate of the financial year 2021 was 18.7% (2020: 15.1%). The increase predominantly relates to an impairment loss in respect of stockpiled low-grade ore recorded in a subsidiary in Ukraine, which is not tax deductible in Ukraine. This effect is considered to be of a non-recurring nature and, without this effect, the effective tax rate for the financial year 2021 would have been 15.4%.

Following an agreement reached by the Finance Ministers from the G7 in July 2021 backing the creation of a global minimum corporate tax rate of least 15%, over 140 countries and jurisdictions have agreed to the OECD/G20 Inclusive Framework on BEPS, also referred to as BEPS 2.0, including Ukraine, United Arab Emirates and Switzerland. The new framework aims to ensure that large multinational enterprises pay a fair share of tax wherever they operate and to set a global minimum tax rate. Earliest possible implementation is on 1 January 2023 and it is expected that implementation in key countries will commence soon. Whilst some details are still unknown, the United Arab Emirates and Switzerland announced the adjustment of their local tax legislation by 1 June 2023 and 1 January 2024, respectively, resulting in an increase of the local corporate tax rate.

Based on the current understanding of the anticipated changes to the global tax landscape, the Group expects an increase of its future effective tax rate once adjustments are made to relevant local tax legislation. The Group's future effective tax rate is expected to be in a range of 15.0% to 19.0%. As mentioned above, this effective tax rate is also dependent on the volatility in the global iron ore pellet market and on foreign exchange rate movements, primarily between the Ukrainian hryvnia and the US dollar.

Ferrexpo plc Annual Report & Accounts 2021 163
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 11: Taxation continued
As mentioned under critical judgements on page 161, the Group is involved in ongoing court proceedings in respect of its cross-border
transactions and an unexpected adverse outcome would have an adverse impact on the Group’s total income tax expense and its effective tax
rate in the future. In addition to the changes in the statutory tax rates, the Group’s future effective tax rate could also be impacted by legislative
changes or different interpretations of the legislation in any of its key jurisdictions. See also the Principal Risks section on pages 59 and 60 for
further information on the Ukraine country risk.
The net balance of income tax payable changed as follows during the financial year 2021:
Year ended Year ended
US$000 31.12 . 21 31.12.20
Opening balance (57,132) (21,064)
Charge in the consolidated income statement (201,325) (109,957)
Booked through other comprehensive (loss)/income (3,313) 16,278
Tax paid 227,930 56,571
Translation differences (2,662) 1,040
Closing balance (36,502) (57,13 2)
The net income tax payable as at 31 December 2021 consisted of the following:
As at As at
US$000 31.12 . 21 31.12.20
Income tax receivable balance 636 1,351
Income tax payable balance (37,138) (58,483)
Net income tax payable (36,502) (57,13 2)
Temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes and the recognition of available tax loss carry forwards result in the following deferred income tax assets and liabilities at
31 December2021:

|  |  | Consolidated statement |  |  |  |  |  | Consolidated |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | of financial position |  |  |  |  | income statement |  |  |
|  |  |  | As at |  | As at | Year ended |  |  | Year ended |
| US$000 | Notes | 31.12 . 21 |  | 31.12.20 |  |  | 31.12 . 21 |  | 31.12.20 |

Property, plant and equipment 23,757 21,996 895 (426)
Right-of-use assets 532 425 92 (518)
Intangible assets 5,942 7,447 (1,456) (1,869)
Inventory 478 344 123 (409)
Allowance for restricted cash and deposits 30 3,837 3,702 – 9
Defined benefit pension liability 537 1,098 (560) 331
Other 1,679 1,203 450 (14)
Tax losses recognised 2,157 499 1,657 134
Total deferred tax assets/change 38,919 36,714 1,201 (2,762)
Thereof netted against deferred tax liabilities (5,973) (6,140)
Total deferred tax assets as per the statement of financial position 32,946 30,574
Property, plant and equipment (559) (600) 33 (64)
Intangible assets (470) − (472) −
Financial assets (4,133) (4,422) 289 (86)
Lease obligations (590) (519) (53) 488
Other (362) (700) 345 (187)
Total deferred tax liabilities/change (6,114) (6,241) 142 151
Thereof netted against deferred tax assets 5,973 6,140
Total deferred tax liabilities as per the statement of financial position (141) (101)
Net deferred tax assets/net change 32,805 30,473 1,343 (2,611)
### 164 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 11: Taxation continued**

The movement in the deferred income tax balance is as follows:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- |
|  Opening balance | 30,473 | 38,468  |
|  Charge in consolidated income statement | 1,343 | (2,611)  |
|  Translation differences | 988 | (5,384)  |
|  **Closing balance** | **32,805** | **30,473**  |

The increase of the deferred tax assets as at 31 December 2021 is primarily related to the recognition of available tax losses for a Ukrainian subsidiary that started to trade and generate taxable profits in 2021. At current prices for iron ore pellets, it is expected that the entire balance of available tax losses from previous years will be utilised during the financial year 2022. Other movements, which impacted the net deferred tax assets though not necessarily the income tax expense, related to foreign exchange movements and a reclassification from current to deferred taxes.

As at 31 December 2021, the Group had available tax loss carry forwards in the amount of US$78,188 thousand (2020: US$116,078 thousand) for which no deferred tax assets were recognised. US$44,591 thousand (2020: US$82,100 thousand) are related to losses incurred in Ukraine and Austria and those losses do not expire. The remaining balance totalling US$33,588 thousand (2020: US$33,913 thousand) relates to losses incurred in Hungary, of which US$16,545 thousand (2020: US$22,407 thousand) expire after more than eight years.

No deferred tax liabilities have been recognised on temporary differences in the amount of US$1,282,355 thousand (2020: US$1,001,311 thousand) arising from undistributed profits from subsidiaries as no distributions are planned. Other temporary differences of US$7,765 thousand have not been recognised as of 31 December 2021 (2020: US$5,489 thousand), of which the vast majority relates to temporary differences on property, plant and equipment in Ukraine.

# **Non-adjusting post balance sheet event**

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. This event is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of the Group's assets and liabilities as at 31 December 2021. However, as a result of the uncertainties caused by the war, the recoverability of the recognised deferred tax assets will have to be re-assessed when the Group is preparing its interim condensed consolidated financial statements for the six months period ended 30 June 2022. Note 35 Events after the reporting period provides further information on the possible financial impact.

# **Note 12: Earnings per share and dividends paid and proposed**

# **Accounting policy**

# **Basic number of Ordinary Shares outstanding**

The basic number of Ordinary Shares is calculated by reducing the total number of Ordinary Shares in issue by the weighted average of shares held in treasury and employee benefit trust reserve. The basic earnings per share ("EPS") are calculated by dividing the net profit for the year attributable to ordinary equity shareholders of Ferrexpo plc by the weighted average number of Ordinary Shares.

# **Dilutive potential Ordinary Shares**

The dilutive potential Ordinary Shares outstanding are calculated by adjusting the weighted average number of Ordinary Shares in issue on the assumption of conversion of all potentially dilutive Ordinary Shares. All share awards that are potentially dilutive are considered in the calculation of diluted earnings per share.

# **Distributable reserves**

Ferrexpo plc (the "Company") is the Group's holding company, with no direct operating business, so its ability to make distributions to its shareholders is dependent on its ability to access profits held in the subsidiaries. The Group's consolidated retained earnings shown in the consolidated statement of changes in equity do not reflect the profits available for distribution in the Group as of 31 December 2021.

|   | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- |
|  **Earnings for the year attributable to equity shareholders – per share in US cents** |  |   |
|  Basic | 148.2 | 108.1  |
|  Diluted | 147.9 | 107.9  |
|  **Profit for the year attributable to equity shareholders – US$000** |  |   |
|  Basic and diluted earnings | 870,993 | 835,292  |
|  **Weighted average number of shares – thousands** |  |   |
|  Basic number of Ordinary Shares outstanding | 587,699 | 587,496  |
|  Effect of dilutive potential Ordinary Shares | 1,028 | 1,510  |
|  **Diluted number of Ordinary Shares outstanding** | **588,727** | **589,006**  |

Ferrexpo plc Annual Report & Accounts 2021 165
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 12: Earnings per share and dividends paid and proposed continued
Dividends proposed and paid
Prior to the dividend proposed below and taking into account the provisions of the Companies Act 2006 and relevant thin capitalisation rules,
thetotal available distributable reserves of Ferrexpo plc is US$170,800 thousand as of 31 December 2021 (2020: US$317,646 thousand).
Year ended
US$000 31.12 . 21
Dividends proposed
Interim dividend for 2021: 6.6 US cents per Ordinary Share 38,788
Total dividends proposed 38,788
The interim dividend for 2021 was declared on 22 December 2021 and paid on 28 January 2022.
Year ended
US$000 31.12 . 21
Dividends paid during the year

| Interim dividend for 2021: 39.6 US cents per Ordinary Share | 231,011 |
| --- | --- |
| Final dividend for 2020: 13.2 US cents per Ordinary Share | 77,89 0 |
| Special interim dividend for 2020: 39.6 US cents per Ordinary Share | 233,097 |
| Special interim dividend for 2020: 13.2 US cents per Ordinary Share | 77,379 |
| Total dividends paid during the year | 619,377 |

Although accounts are published in US dollars and dividends are declared in US dollars, the shares are denominated in UK pounds sterling and
dividends are therefore paid in UK pounds sterling.
Companies Act requirements in respect of dividend payments
During the financial year 2021, the Directors became aware of a technical issue in respect of the interim dividend declared on 4 August 2021 and,
following investigations of the issue, of technical issues in respect of dividend payments made by the Company in 2010 and 2011. Further details are
included in Directors’ Report on page 128.
Year ended
US$000 31.12.20
Dividends proposed
Special interim dividend for 2020: 39.6 US cents per Ordinary Share 232,729
Special interim dividend for 2020: 13.2 US cents per Ordinary Share 77,576
Total dividends proposed 310,305
The special interim dividend for 2020 was declared on 5 January 2021 and paid on 28 January 2021.
Year ended
US$000 31.12.20
Dividends paid during the year
Special interim dividend for 2020: 6.6 US cents per Ordinary Share 39,004

| Interim dividend for 2020: 6.6 US cents per Ordinary Share | 38,796 |
| --- | --- |
| Interim dividend for 2020: 6.6 US cents per Ordinary Share | 39,177 |
| Final dividend for 2019: 3.3 US cents per Ordinary Share | 20,050 |
| Special final dividend for 2019: 3.3 US cents per Ordinary Share | 19,458 |
| Special interim dividend for 2019: 6.6 US cents per Ordinary Share | 38,961 |
| Total dividends paid during the year | 195,446 |

### 166 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 13: Property, plant and equipment
Accounting policy
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses. Such cost includes the
costof replacing part of the property, plant and equipment and borrowing costs for qualifying assets (see below) if the recognition criteria are met.
The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.
Major spare parts, stand-by and servicing equipment qualify as property, plant and equipment when they are expected to be used during more
than one period. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are
charged to the consolidated income statement in the period the costs are incurred unless it can be demonstrated that the expenditure results in
future economic benefits, when the expenditure is capitalised as an additional cost.
Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value that have
different useful lives. Assets included in property, plant and equipment are depreciated over their estimated useful life taking into account their
own physical life limitations and the present assessment of economically recoverable reserves of the mine property at which the assets are
located. The remaining useful lives for major assets are reassessed on a regular basis. Mining assets are depreciated using the unit of production
method. Changes in expected resources, which affect the unit of production calculations, are accounted for prospectively.
Except for mining assets, which are depreciated using the unit of production method, depreciation is calculated on a straight-line basis over the
estimated useful life of the asset, as follows:
– Buildings: 20–50 years
– Vessels: 8–40 years
– Plant and equipment: 3–15 years
– Vehicles: 7–15 years
– Fixtures and fittings: 2.5–10 years
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the item) is included in the consolidated income statement in the period the item is derecognised.
Assets in the course of construction are initially recognised in assets under construction. Assets under construction are not depreciated. On
completion of the asset and when available for use, the cost of construction is transferred to the appropriate asset category in property, plant and
equipment and depreciation commences.
Freehold land is not depreciated.
Deferred stripping costs
Rock, soil and other waste materials are typically to be removed to access an ore body, which is known as stripping activity. Stripping work
comprises overburden removal at pre-production, mine extension and production stages.
Pre-production stripping costs incurred in the development of a component of a mine before commercial production commences are capitalised
as part of assets under construction. After the commencement of commercial production, the respective capitalised pre-production stripping
costs are transferred to mining assets and depreciated over the life of the respective component of the ore body on a unit of production
(“UOP”)basis.
Production stripping costs are generally charged to the consolidated income statement as variable production costs unless these costs are
related to gaining improved access to an identified component of the ore body to be mined in future periods. Such production stripping costs are
capitalised within mining assets provided all the following conditions are met:
– it is probable that the future economic benefit associated with the stripping activity will be realised;
– the component of the ore body for which access has been improved can be identified; and
– the costs relating to the stripping activity associated with the improved access can be reliably measured.
Once the commercial production of the specific component of the ore body commences, the capitalised production stripping costs are
depreciated on a UOP basis over the life of the respective identified component. No production stripping costs were capitalised as at
31 December 2021 and as at the end of the comparative year ended 31 December 2020.
Mining assets
Any capitalised stripping activities, either of a pre-production or production nature, are reclassified to mining assets at the point of time when
the extraction of the ore body of the specific component starts. Mining assets are depreciated using the UOP method based on the estimated
economically recoverable reserves to which they relate.
Exploration and evaluation assets
Costs incurred in relation to the exploration and evaluation of potential iron ore deposits are capitalised and classified as tangible or intangible
assets depending on the nature of the expenditures. Costs associated with exploratory drilling, researching and analysing of exploration data
andcosts of pre-feasibility studies are included in tangible assets whereas those associated with the acquisition of licences are included
inintangible assets.
### 167Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 13: Property, plant and equipment continued
Capitalised exploration and evaluation expenditures are carried forward as an asset as long as these costs are expected to be recouped in full
through successful development and exploration in a future period.
Exploration and evaluation assets are measured at cost and are neither amortised nor depreciated, but monitored for indications of impairment.
To the extent that the capitalised expenditures are not expected to be recouped, the excess is fully provided for in the financial year in which this
isdetermined.
Upon reaching the development stage, exploration and evaluation assets are either transferred to assets under construction or other intangible
assets, if those costs were associated with the acquisition of licences.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time
to get ready for its intended use or sale (“qualifying asset”) are capitalised as part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of the funds.
In the case of general borrowings used to fund the acquisition or construction of a qualifying asset, the borrowing costs to be capitalised are
calculated based on a weighted average interest rate applicable to the relevant general borrowings of the Group during aspecific period.
Impairment testing
Property, plant and equipment is considered to be part of a single cash-generating unit (“CGU”). The recoverable amount of the CGU is
determined to be the fair value less cost of disposal. The Group assesses at each reporting date whether there are indications that assets may
be impaired or previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, or when annual
impairment testing for an asset, such as goodwill, is required, the Group estimates the assets’ recoverable amounts. If the carrying amount of an
asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. Impairment losses
are recognised in the consolidated income statement.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognised. In this case, the carrying amount of the asset is increased to its recoverable amount, but
not exceeding the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the consolidated income statement and the basis for future depreciation is adjusted accordingly.
Impairment losses in respect of goodwill are not reversed.
### 168 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 13: Property, plant and equipment continued
Capitalised stripping costs
Stripping costs are deferred and capitalised if related to gaining improved access to an identified component of an ore body to be mined in
future periods. The capitalised amount is determined based on the volume of waste extracted, compared with expected ore volume in the
identified component of the ore body. As at 31 December 2021, deferred pre-production stripping costs totalling US$159,141 thousand relate to
components in operation and are included in mining assets (2020: US$90,819 thousand). Deferred pre-production stripping costs in relation to
components expected to be put into operation in a future period totalled US$156,975 thousand and are included in assets under construction
(2020:US$128,609 thousand). No production stripping costs are capitalised as of this point of time.
As at 31 December 2021, property, plant and equipment comprised:

|  | Exploration |  |  | Buildings |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | and | Mining | and tailings |  | Plant and |  | Fixtures | Assets under |
| US$000 | evaluation Land |  | assets |  | dam Vessels | equipment Vehicles | and fittings |  | construction Total |

Cost:
At 1 January 2020 1,917 7,777 226,476 239,371 121,067 334,519 242,704 11,173 358,771 1,543,775
Additions – 1,867 55 73 1,498 60 – 48 226,714 230,315
Transfers – – – 38,597 3,021 97,350 29,016 653 (168,637) –
Disposals – – – (572) (6) (4,779) (6,313) (252) (4,480) (16,402)
Translation differences (311) (1,306) (36,752) (39,135) 8,392 (57,6 04) (40,510) (1,457) (60,742) (229,425)
At 31 December 2020 1,606 8,338 189,779 238,334 133,972 369,546 224,897 10,165 351,626 1,528,263
Additions – 1,827 587 1 1,044 764 447 169 312,059 316,898
Transfers – 56 76,620 26,256 4,005 66,330 33,188 1,909 (208,364) –
Disposals – 7 – (2,910) – (6,415) (1,245) (1,634) (6,918) (19,115)
Translation differences 59 302 9,574 8,219 (7,520) 13,266 7,535 272 9,683 41,390
At 31 December 2021 1,665 10,530 276,560 269,900 131,501 443,491 264,822 10,881 458,086 1,867,436
Accumulated depreciation and impairment:
At 1 January 2020 – 11 74,816 76,903 63,583 159,159 115,774 5,846 3,257 499,349
Depreciation charge – 3 6,384 20,960 8,281 40,537 27,943 1,115 – 105,223
Disposals – – – (210) (84) (3,919) (6,458) (242) – (10,913)
(Write-back)/impairment – – – (35) – (678) (138) – 563 (288)
Translation differences – 1 (12,468) (13,551) 4,078 (26,869) (19,781) (654) (249) (69,493)
At 31 December 2020 – 15 68,732 84,067 75,858 168,230 117,340 6,065 3,571 523,878
Depreciation charge – 3 7,797 25,231 5,648 48,192 32,216 1,664 – 120,751
Disposals – – – (2,043) – (4,095) (924) (1,741) – (8,803)
(Write-back)/impairment – – – 5 – (13) (4) 1 3,244 3,233
Translation differences – (1) 2,506 3,004 (3,791) 5,915 3,850 149 52 11,684
At 31 December 2021 – 17 79,035 110,264 77,715 218,229 152,478 6,138 6,867 650,743
Net book value:
At 31 December 2020 1,606 8,323 121,047 154,267 58,114 201,316 107,557 4,100 348,055 1,004,385
At 31 December 2021 1,665 10,513 197,525 159,636 53,786 225,262 112,344 4,743 451,219 1,216,693
A ssets under construction consist of ongoing capital projects amounting to US$294,244 thousand (2020: US$219,446 thousand) and capitalised
pre-production stripping costs of US$156,975 thousand (2020: US$128,609 thousand). Once production commences, stripping costs are
transferred to mining assets.
Property, plant and equipment includes capitalised borrowing costs on qualifying assets of US$55,768 thousand (2020: US$50,474 thousand).
Thecapitalised borrowing costs on general borrowings were determined based on the capitalisation rate of 6.51% (2020: 6.59%), which is the
average effective interest rate on general borrowings for the period until the full repayment of the Group’s major debt facility in June 2021. The
Group has no specific borrowings in relation to qualifying assets during either reporting period.
US$2,620 thousand of property, plant and equipment have been pledged as security for liabilities (2020: US$13,174 thousand).
The gross value of fully depreciated property, plant and equipment that is still in use is US$119,706 thousand (2020: US$89,053 thousand).
### 169Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 13: Property, plant and equipment continued
Non-adjusting post balance sheet event
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. This event is treated as a non-adjusting post
balance sheet event and therefore does not affect the carrying value of the Group’s assets and liabilities as at 31 December 2021. However, as a
result of the uncertainties caused by the war, the Group adjusted its long-term model to reflect the lower sales volume caused by the unavailable
seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the Group’s cash flow generation, which would
in turn negatively impact the carrying value of the Group’s assets in future periods. Note 35 Events after the reporting period provides further
information on the possible financial impact.
Note 14: Leases
Accounting policy
The Group leases buildings, equipment and land not used for the direct extraction of ore. The leases for land used for the extraction of ore are not
within the scope of IFRS 16 according to the scope exemptions set out in the standard.
The right-of-use assets and corresponding lease liabilities recognised as at 31 December 2021 primarily refer to long-term rental contracts for
several ofthe Group’s office premises with rental periods of five to ten years, leased equipment and land not used for the direct extraction of ore.
The lease agreements for land in Ukraine are with the Ukrainian government and have typically a duration of up to 49 years requiring land lease
payments in the form of rental taxes based on annually determined rates by the government. Consequently, related right-of-use assets and lease
liabilities are recognised over a lease term of 12 months only, reflecting the period over which substantially fixed lease payments are expected.
Beyond this period, payments are subject to non-market driven changes in either the normative value of land and/or in the rental tax rate and are
disclosed as commitments as they cannot be considered in-substance fixed payments or as variable lease payments that depend on an index
orarate.
Right-of-use assets
The right-of-use asset is recognised at the commencement date of the lease (when the asset is ready for use) and initially measured at cost.
Thecost includes the balance of the lease liability recognised, initial direct costs and lease payments made at or before the commencement date.
In subsequent periods, the value of the right-of-use assets is adjusted for accumulated depreciation, impairment losses and remeasurement
ofthelease liability, if any. The depreciation is on a straight-line basis over the shorter of the estimated useful life of the underlying asset and
thelease term.
Lease liabilities
At the commencement date, lease liabilities are measured at the net present value of the remaining lease payments, discounted using the interest
rate implicit in the lease or, when not available, the incremental borrowing rate computed for a group of leases with similar characteristics as
regards to type of asset, lease term, contract currency and economic environment.
The carrying amount of the lease liabilities is subsequently increased to reflect the interest on the lease liability and decreased by the lease
payments made during the period. Lease payments are split between principal elements and interest and are allocated to net cash flows from
financing activities and operating activities, respectively. The carrying amount is subject to remeasurement in subsequent periods to reflect any
lease modifications.
Commitments
Future minimum rental payments
These commitments relate to leases under the scope of IFRS 16 to which the lessee is committed, but not commenced.
Future commitments for contingent rental payments
These commitments include future cash flows dependent on non-fixed rates related to the long-term portion of leases of land not used for the
direct extraction of ore and accounted for under IFRS 16, whereas the short-term portion is recognised as a lease liability in the statement of
financial position.
As at 31 December 2021, the net book value of the right-of-use assets included in the consolidated statement of financial position and the
associated depreciation charge included in the consolidated income statement comprised:

|  | Exploration |  |  | Buildings |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | and | Mining | and tailings |  | Plant and | Fixtures | Assets under |
| US$000 | evaluation Land |  | assets |  | dam Vessels | equipment Vehicles | and fittings | construction Total |

Net book value:
At 31 December 2020 − 2,503 − 3,693 − 2,098 12 7 − 8,313
At 31 December 2021 − 3,830 − 3,072 − 872 − 2 − 7,776
Depreciation charge:
Year ended 31 December 2020 − 2,053 − 954 − 1,328 43 6 − 4,384
Year ended 31 December 2021 − 2,890 − 990 − 1,299 11 6 − 5,196
During the year ended 31 December 2021, the additions to right-of-use assets totalled US$4,504 thousand (2020: US$2,599 thousand).
### 170 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 14: Leases continued**

Leased assets and assets under hire purchase contracts are pledged as security for the related finance leases and hire purchase liabilities.

As at 31 December 2021, the carrying amount of the lease liabilities consisted of the following:

|  US$000 | Notes | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- | --- |
|  Non-current | 28 | 2,143 | 3,796  |
|  Current | 28 | 6,060 | 5,252  |

The total cash outflow for leases falling under the scope of IFRS 16 *Leases* during the year ended 31 December 2021 was US$5,904 thousand (2020: US$3,425 thousand). During the year ended 31 December 2021, US$748 thousand was recognised as an expense in the consolidated income statement in respect of short-term leases with a corresponding impact on the net cash flows from operating activities (2020: US$424 thousand). Furthermore, interest expense on lease liabilities in the amount of US$474 thousand was recognised in the consolidated income statement during the year ended 31 December 2021 (2020: US$443 thousand).

Lease related commitments for future contingent rental payments were US$51,034 thousand as at 31 December 2021 (2020: US$16,217 thousand).

# **Note 15: Goodwill and other intangible assets**

# **Accounting policy**

# **Goodwill**

If the cost of acquisition in a business combination exceeds the identifiable net assets attributable to the Group, the difference is considered as purchased goodwill, which is not amortised. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is subject to an annual impairment review and a further review is made when indicators of impairment arise following the initial review. An impairment loss recognised for goodwill is never reversed in a subsequent period. In the case that the identifiable net assets attributable to the Group exceed the cost of acquisition, the difference is recognised in profit and loss as a gain on bargain purchase. For each business combination, the Group measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. If the initial accounting for a business combination cannot be completed by the end of the reporting period in which the combination occurs, only provisional amounts are reported, which can be adjusted during the measurement period of 12 months after acquisition date.

# **Explanation and evaluation assets**

See the policy disclosed in Note 13 Property, plant and equipment.

# **Other intangible assets**

Other intangible assets acquired separately are measured on initial recognition at cost and the useful lives are assessed as either finite or indefinite. Following the initial recognition, the intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. If amortised, the intangible assets are amortised on a straight-line basis over the estimated useful life of the asset, ranging between one and three years. Capitalised mineral licences are amortised on a unit of production basis.

The cost of other intangible assets acquired in a business combination is its fair value as at the date of acquisition.

Fennepo plc Annual Report & Accounts 2021

171
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 15: Goodwill and other intangible assets continued
As at 31 December 2021, goodwill and other intangible assets comprised:
Exploration Patents and Computer Other
US$000 Goodwill and evaluation licences software intangible assets Total
Cost:
At 1 January 2020 33,530 4,177 5,270 9,587 165 52,729

| Additions | – | − | − 25 1,602 1,627 |
| --- | --- | --- | --- |
| Disposals | – | − | (14) (16) (2) (32) |
| Transfers | – | (10) | − 1,259 (1,249) − |

Translation differences (5,271) (677) (768) (927) (26) (7,66 9 )
At 31 December 2020 28,259 3,490 4,488 9,928 490 46,655

| Additions | – 1,269 – 19 2,697 3,985 |  |
| --- | --- | --- |
| Disposals | – – (5) (107) (2) (114) |  |
| Transfers | – | (17) 202 2,528 (2,713) – |

Translation differences 989 158 119 164 42 1,472
At 31 December 2021 29,248 4,900 4,804 12,532 514 51,998
Accumulated amortisation and impairment:

| At 1 January 2020 | – – 1,538 3,639 | – 5,177 |  |
| --- | --- | --- | --- |
| Amortisation charge | – – 229 968 – 1,197 |  |  |
| Disposals | – – (14) (16) – (30) |  |  |
| Translation differences | – – (185) (238) – |  | (423) |
| At 31 December 2020 | – – 1,568 4,353 – |  | 5,921 |
| Amortisation charge | – – 242 1,427 | 12 1,681 |  |
| Write-offs | – 931 – – – 931 |  |  |
| Disposals | – – (5) (106) – (111) |  |  |
| Translation differences | – 1 16 (27) – (10) |  |  |
| At 31 December 2021 | – 932 1,821 5,647 12 |  | 8,412 |

Net book value:
At 31 December 2020 28,259 3,490 2,920 5,575 490 40,734
At 31 December 2021 29,248 3,968 2,983 6,885 502 43,586
The goodwill acquired through business combinations in previous periods has been allocated for impairment purposes to a single cash-generating
unit, as the Group only has one operating segment, being the production and sale of iron ore products. This represents the lowest level within the
Group at which goodwill is monitored for internal management purposes.
The major component of other intangible assets comprises mining licences and purchased software.
Impairment testing
Impairment testing was performed at 31 December 2021 based on a fair value less cost of disposal calculation using cash flow projections over
the remaining estimated lives of the GPL and the Yerystivske deposits, which are expected to expire in 2058 and 2048, respectively, according to
the current approved mine plans. The estimated production volumes are based on these mine plans and do not take into account the effects of
expected future mine life extension programmes.
The cash flow projection is based on a financial long-term model approved by senior management covering the expected life of the mines. A
number of significant judgements and estimates are used when preparing the financial long-term model of the Group. These judgements and
estimates as well as the key assumptions used are reviewed by the Audit Committee with a specific consideration given to the price forecasts,
production volumes and costs and the discount rate used.
### 172 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 15: Goodwill and other intangible assets** *continued*

The key assumptions used for the impairment testing are:

|  Estimates/assumptions | Basis  |
| --- | --- |
|  Future production | Proved and probable reserves  |
|  Commodity prices | Contract prices and longer-term price estimates  |
|  Capital expenditures | Future sustaining capital expenditures  |
|  Cost of raw materials and other production/distribution costs | Expected future costs  |
|  Exchange rates | Current market exchange rates  |
|  Discount rates | Cost of capital risk adjusted for the resource concerned  |

The production capacity used for the cash flow projections is expected to increase by approximately 41% over a period of five years from the level in the financial year 2021, as a result of the completion of certain growth projects. Once full capacity is reached, it will remain at a fixed level and therefore no perpetual growth rate is applied for the cash flow projections beyond this point of time.

Cash flows are projected based on management's expectations regarding the development of the iron ore and steel market and the cost of producing and distributing the pellets. The Group takes into account two key assumptions: selling price and total production costs considering relevant macro and local factors.

In determining the future long-term selling price, the Group takes into account external and internal analysis of the longer-term and shorter-term supply and demand dynamics in the local region and throughout the world along with costs of production of competitors and the marginal cost of incremental production in a particular market. The Group considers local supply and demand balances affecting its major customers and the effects this could have on the longer-term price. An average iron ore price of US$95.7 per tonne of 65% Fe lines CFR North China was used in the assumptions for the cash flow projection for the next five years. At the time of approval of these consolidated financial statements, the average price applied is below the forecasted average price of one of the leading third party providers of commodity price forecasts.

Cost of production and shipping is considered taking into account local inflationary pressures, major exchange rate developments between the Ukrainian hryvnia and the US dollar, the longer-term and shorter-term trends in energy supply and demand and the effect on costs along with the expected movements in steel-related commodity prices, which affect the cost of certain production inputs. An average devaluation of the hryvnia of 3.5% per year was assumed over the next 5 years in the Group's cash flow projection used for the impairment testing.

For the purpose of the goodwill impairment test, the future cash flows were discounted using a pre-tax real discount rate of 13.8% (2020: 12.6%) per annum. These rates reflect the time value of money and risk associated with the asset, and are in line with the rates used by competitors with a similar background.

# **Sensitivity to changes in assumptions**

The Group's management believes that, due to the available headroom resulting from the Group's impairment testing of its operating assets as at 31 December 2021, no reasonable change in the above key assumptions would cause the carrying value of these operating assets to materially exceed its recoverable amount. Please see below in respect of a non-adjusting post balance sheet event.

# **Non-adjusting post balance sheet event**

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. This event is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of the Group's assets and liabilities as at 31 December 2021. However, as a result of the uncertainties caused by the war, the Group adjusted its long-term model to reflect the lower sales volume caused by the unavailable seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the Group's cash flow generation, which would in turn negatively impact the carrying value of the Group's assets in future periods. Note 35 Events after the reporting period provides further information on the possible financial impact.

# **Note 16: Other non-current assets**

As at 31 December 2021, other non-current assets comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Prepayments for property, plant and equipment | 91,132 | 18,098  |
|  Prepaid bank arrangement fees | - | 1,940  |
|  Other non-current assets | 5,352 | 5,442  |
|  **Total other non-current assets** | **96,484** | **25,480**  |

Other non-current assets include a prepayment of US$5,000 thousand in relation to an investment in a joint venture with an expected closing date of the transaction later in 2022.

Ferrerape plc Annual Report & Accounts 2021 373
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

## Note 17: Inventories

### Accounting policy

Inventories are stated at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

- Raw materials – at cost on a first-in, first-out basis.
- Finished goods and work in progress – at cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity, but excluding borrowing costs.
- Low-grade and weathered ore – at cost, if lower than net realisable value.

The net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion (conversion into pellets or concentrate) and the estimated costs necessary to sell the product or goods.

Major spare parts and servicing equipment that meet the definition of property, plant and equipment are, in accordance with IAS 16, included in property, plant and equipment and not in inventory.

### Critical estimates

#### Low-grade and weathered ore

Iron ore of various grades is being extracted at the Group's two operating mines GPL and Verysilvaite. In order to maximise the operational efficiency and output of the processing facility at FPM, management determines the optimal mix and grade of ore to be delivered to the processing facility from each mine under consideration of the market environment for iron ore pellets. As a result, ore of a lower iron content was stockpiled due to limited processing capacities during the last financial years.

As at 31 December 2021, the stockpiled ore valued at cost totalled US$8,414 thousand (2020: US$213,685 thousand). The decrease compared to the comparative year is due to an impairment loss of US$231,111 thousand recorded as at 31 December 2021 in respect of the stockpiled low-grade ore. The balance of US$8,414 thousand relates to weathered ore, which is not expected to be processed within the next 12 months.

The processing of the stockpiled ore is dependent on the availability of additional processing capabilities. It was the Group's intention to ramp up the processing of the stockpiled low-grade ore once additional processing capabilities became available. Whilst additional processing capabilities were commissioned in the second half of 2020, operational difficulties were experienced during the financial year 2021 as the new facility did not deliver the expected and required capacities. Because of this and in light of changed customer demand for additional high quality iron ore and the continued high price environment for iron ore pellets, management decided during the financial year 2021 to postpone the processing of the low-grade ore in order to maximise the financial benefits from the prevailing market conditions.

Following the approval of a growth project by the Board in October 2021, management has had to revisit its mining and processing plans and strategies as the growth project requires significant higher volumes of high-grade ore in order to meet future production needs for the current market expectations. Further to that, because of the recent focus on the decarbonisation challenges facing the global steel industry, there has been a significant increase in the demand for high quality products in the second half of the financial year 2021, such as direct reduction pellets, which cannot be produced by feeding low-grade ore into the Group's current processing facilities. As a consequence, management is exploring a further expansion of its processing capabilities to be in the position to process the low-grade ore using a facility built for this specific purpose.

As at the date of the approval of the consolidated financial statements, it cannot be reliably predicted when the additional processing capabilities will be available and the unknown timing of processing of the stockpiled low-grade ore was considered in the net realisable value test performed. Whilst the stockpiled low-grade ore is considered as an asset for the Group, the changed circumstances have resulted in a full impairment of the stockpiled low-grade ore totalling US$231,111 thousand.

The most critical estimate in determining the net realisable value of low-grade ore as at 31 December 2021 is the fact that the start of processing of low-grade ore and the volume expected to be utilised cannot be reliably estimated as at the date of the approval of these consolidated financial statements. Further critical estimates are a WACC-based pre-tax discount rate of 13.8% and an average forecasted long-term iron ore prices of US$104 per tonne of 65% Fe Ines CFR North China.

Some or all of this impairment loss might reverse in the future, once changed facts and circumstances can be considered in the net realisable value test of this asset. It is the Group's intention to accelerate the currently ongoing engineering studies exploring the option of new processing capabilities for the specific purpose of processing low-grade ore. Depending upon the outcome of the engineering studies, the Group may move the project forward. Inclusion of the additional processing facilities in a future net realisable value test is subject to completion of full technical feasibility study, financial budgets and Board approval relating to the construction and operation of these new processing capabilities. In the best case, the new processing capabilities could be available during the financial year 2020. Assuming the start of the processing of the currently stockpiled low-grade ore in 2020 and an utilisation of approximately 11,500 thousand tonnes per year, the impairment loss of US$231,111 thousand recorded as at 31 December 2021 would be approximately US$167,200 thousand lower, all other assumptions unchanged.

174

Ferrengo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 17: Inventories** *continued*

At 31 December 2021, inventories comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Raw materials and consumables | 57,575 | 38,286  |
|  Spare parts | 80,888 | 76,565  |
|  Finished ore pellets | 48,058 | 17,699  |
|  Work in progress | 13,496 | 9,679  |
|  Other | 2,384 | 2,376  |
|  **Total inventories – current** | **202,399** | **144,605**  |
|  Low-grade and weathered ore | 8,414 | 213,685  |
|  **Total inventories – non-current** | **8,414** | **213,685**  |
|  **Total inventories** | **210,813** | **358,290**  |

Inventories classified as non-current comprise low-grade and weathered ore that are, based on the Group's current processing plans, not planned to be processed within the next 12 months. The processing of this stockpile will take more than 12 months and the beginning and duration of the processing depend on the Group's future mining activities, processing capabilities and anticipated market conditions.

The balance of low-grade and weathered ore is net of an impairment loss of US$231,111 thousand recorded as at 31 December 2021 in respect of the stockpiled low-grade ore. See further information on critical estimates on the previous page.

# **Note 18: Trade and other receivables**

# **Accounting policy**

Trade receivables are non-derivative financial assets initially measured at fair value. Due to their short maturity, the fair value of trade receivables approximates their carrying amount, which is stated at original invoice amount less an allowance for expected credit losses. The Group measures the loss allowance at an amount equal to the lifetime expected credit losses of its customers based on publicly available default risk ratings adjusted for current observable circumstances, forecast information and past history of credit losses. All of the Group's receivable balances are classified as current based on the agreed terms and conditions and the Group has no history of credit losses. Therefore, the Group measures the lifetime expected credit losses of its customers as the 12-month expected credit losses. Individual balances are written off when management deems that there is no possibility of recovery.

Trade receivables include provisionally priced sales, which are open at the end of the reporting period. Certain contracts have embedded provisional pricing mechanisms, which have the character of commodity derivatives that are carried at fair value through profit and loss. For further information on the Group's contracts with customers see Note 6 Revenue. Revenues on these contracts are initially recognised at the estimated fair value of consideration receivable, based on the contractual price, and adjusted at the end of each subsequent reporting period on the basis of changes in iron ore prices and the specific underlying contract terms. Final prices based on the relevant index are normally known within 60 days after the reporting period. Further information on the fair value of the embedded provisional pricing mechanism at 31 December 2021 is disclosed in Note 27 Financial instruments.

At 31 December 2021, trade and other receivables comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Trade receivables | 189,664 | 148,954  |
|  Other receivables | 5,730 | 6,109  |
|  Expected credit loss allowance | (3,031) | (2,313)  |
|  **Total trade and other receivables** | **192,363** | **152,750**  |

As trade receivables are non-interest bearing and final invoices are generally settled within 90 days after delivery, contracts with customers are not deemed to contain a significant financing component.

Trade receivables at 31 December 2021 include US$4,283 thousand (2020: US$4,570 thousand) owed by related parties. The detailed related party disclosures are made in Note 34 Related party disclosures.

Ferraropa plc Annual Report & Accounts 2021

175
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

Note 18: Trade and other receivables continued

The movement in the expected credit loss allowance for trade and other receivables during the year under review was:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Opening balance | 2,313 | 1,844  |
|  Increase | 1,201 | 1,124  |
|  Release | (511) | (400)  |
|  Translation differences | 28 | (255)  |
|  Closing balance | 3,031 | 2,313  |

During the financial year 2021 and the comparative year 2020, there was no movement in the expected credit loss allowance for trade and other receivables relating to lifetime expected credit losses and credit impaired assets.

The following table shows the Group's receivables at the reporting date that are subject to credit risk using a provision matrix:

|  As at 31.12.21 US$000 | Current | Days past due |   |   | Total  |
| --- | --- | --- | --- | --- | --- |
|   |   |  Less than 40 days | 40 to 60 days | Over 60 days  |   |
|  Expected loss rate | 0.4% | 3.8% | 2.4% | 53.3% | 1.6%  |
|  Trade receivables – gross carrying amount | 183,004 | 1,298 | 1,750 | 3,612 | 189,664  |
|  Other receivables – gross carrying amount | 5,087 | 19 | - | 624 | 5,730  |
|  Expected credit loss allowance | 678 | 50 | 42 | 2,260 | 3,031  |

|  As at 31.12.20 US$000 | Current | Days past due |   |   | Total  |
| --- | --- | --- | --- | --- | --- |
|   |   |  Less than 40 days | 40 to 60 days | Over 60 days  |   |
|  Expected loss rate | 0.6% | 6.2% | 2.3% | 61.7% | 1.5%  |
|  Trade receivables – gross carrying amount | 145,382 | 1,698 | 673 | 1,201 | 148,954  |
|  Other receivables – gross carrying amount | 5,055 | 192 | 3 | 859 | 6,109  |
|  Expected credit loss allowance | 909 | 117 | 16 | 1,271 | 2,313  |

The change of the balance of impairment losses on trade receivables recognised in the consolidated income statement as of 31 December 2021 and during the comparative year ended 31 December 2020 was not material and therefore not disclosed separately in the consolidated income statement. For further information see the table above.

The Group's exposures to credit, currency and commodity risks are disclosed in Note 27 Financial instruments.

Note 19: Prepayments and other current assets

As at 31 December 2021, prepayments and other current assets comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Prepayments to suppliers: |  |   |
|  Electricity and gas | 17,850 | 3,697  |
|  Materials and spare parts | 9,600 | 4,136  |
|  Services | 7,452 | 2,760  |
|  Other prepayments | 220 | 489  |
|  Prepaid bank arrangement fees | - | 2,284  |
|  Prepaid expenses | 13,687 | 12,446  |
|  Other | 16,253 | 92  |
|  Total prepayments and other current assets | 68,162 | 25,884  |

Prepayments at 31 December 2021 include US$2,076 thousand (2020: US$1,390 thousand) made to related parties. The detailed related party disclosures are made in Note 34 Related party disclosures.

176

Ferraropa plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 19: Prepayments and other current assets continued**

Other current assets as at 31 December 2021 include cash deposits for letters of credit in the amount of US$18,962 thousand available only after three months from the date of inception of the letters of credit, whereas those with a maturity within 3 months are classified as cash equivalents. See Note 25 Cash and cash equivalents for further information.

Freight costs in the amount of US$7,097 thousand were included in the balance of prepaid expenses at the beginning of the year and recognised in the consolidated income statement during the year ended 31 December 2021 (2020: US$6,754 thousand).

# **Note 20: Other taxes recoverable and payable**

# **Accounting policy**

# *Value added tax*

Revenues, expenses and assets are recognised net of the amount of value added tax ("VAT"), except:

- where VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
- receivables and payables are stated with the amount of VAT included.

VAT receivable balances are not discounted unless the overdue balances are expected to be received after more than 12 months following the year end.

As at 31 December 2021, other taxes recoverable comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  VAT receivable | 47,654 | 31,226  |
|  Other taxes prepaid | 86 | 97  |
|  **Total other taxes recoverable and prepaid** | **48,040** | **31,323**  |

The table below provides a reconciliation of the VAT receivable balance in Ukraine:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Opening balance, gross | 31,602 | 37,471  |
|  Net VAT incurred | 194,488 | 135,816  |
|  VAT refunds received in cash | (179,959) | (134,789)  |
|  Translation differences | 832 | (6,896)  |
|  **Closing balance, gross** | **46,963** | **31,602**  |
|  Allowance | (1,361) | (1,739)  |
|  **Closing balance, net** | **45,602** | **29,963**  |

There is no material VAT receivable balance overdue in Ukraine as at 31 December 2021 and the end of the comparative year ended 31 December 2020. The allowance of US$1,361 thousand (2020: US$1,739 thousand) is related to uncertainties in terms of the timing of the recovery of VAT receivable balances.

As at 31 December 2021, other taxes payable comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Environmental tax | 1,954 | 2,052  |
|  Royalties | 10,641 | 8,251  |
|  VAT payable | 310 | 130  |
|  Other taxes | 4,430 | 3,383  |
|  **Total other taxes payable** | **17,335** | **13,816**  |

Ferrexpo plc Annual Report & Accounts 2021

177
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 21: Trade and other payables

# Accounting policy

Trade and other payables are not interest-bearing, being generally short-term, and are stated at their original invoice amount.

As at 31 December 2021, trade and other payables comprised:

|  US$000 | As at 31.12.21 | As at 31.12.22  |
| --- | --- | --- |
|  Materials and services | 58,488 | 33,269  |
|  Payables for equipment | 13,036 | 9,984  |
|  Other | 300 | 496  |
|  Total current trade and other payables | 72,824 | 45,749  |

Trade and other payables at 31 December 2021 include US$1,221 thousand (2020: US$550 thousand) due to related parties (see Note 34 Related party disclosures).

The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 27 Financial instruments.

# Note 22: Pension and post-employment obligations

# Accounting policy

The defined benefit costs relating to the plans operated by the Group in the different countries are determined and accrued in the consolidated financial statements using the projected unit credit method for those employees entitled to such payments. The underlying assumptions are defined by management and the defined benefit pension liability is calculated by independent actuaries at the end of each annual reporting period.

Remeasurements, comprising actuarial gains and losses, are immediately reflected in the statement of financial position. The corresponding charge or credit is recognised in the other comprehensive income of the period in which it occurred and immediately reflected in retained earnings as not reclassified to the consolidated income statement in subsequent periods.

The costs of managing plan assets are deducted from the return on plan assets reflected in other comprehensive income. All other scheme administration costs are charged to the consolidated income statement. The net interest is calculated by applying the discount rate to the net defined benefit pension liability or plan assets. Any past service costs are recognised in the consolidated income statement at the earlier of when the plan amendment occurs or when related restructuring costs are recognised.

The service costs (including current and past) are included in cost of sales, selling and distribution expenses and general and administrative expenses in the consolidated income statement whereas the net finance expenses are included in finance expenses. The effects from remeasurements are recognised in other comprehensive income.

The defined benefit pension liability is the aggregate of the defined benefit obligation less plan assets of funded schemes. The Group operates funded and unfunded schemes.

The Group's expenses in relation to defined contribution plans are charged directly to the consolidated income statement.

The Group mainly operates defined benefit plans for qualifying employees of its subsidiaries in Ukraine and Switzerland. All local defined benefit pension liabilities are calculated by independent actuaries applying accepted actuarial techniques. In addition to the aforementioned schemes, the Group operates a defined benefit scheme in Austria and contribution plans for qualifying employees in the UK and in Singapore.

Details of the major defined benefit schemes in Ukraine and Switzerland are provided below:

# Ukraine

The Group's subsidiaries in Ukraine make defined contributions to the Ukrainian State Pension Scheme at statutory rates based on the gross salary payments made to the employees. PJSC Ferrexpo Poltava Mining ("FPM") and LLC Ferrexpo Yeristovo Mining ("FYM") also have a legal obligation to compensate the Ukrainian State Pension Fund for additional pensions paid to certain categories of its current and former employees. All pension schemes in Ukraine are unfunded.

At 31 December 2021, the pension schemes in Ukraine covered 2,847 current employees (2020: 3,380 people) and there are 768 former employees currently in receipt of pensions (2020: 795 people).

# Switzerland

The employees of the Group's Swiss operations are covered under a collective pension plan (multi-employer plan), which is governed in accordance with the requirements of Swiss law. The funding, of which two-thirds is contributed by the employer and one-third by the employees, is based on the regulations of the pension scheme and Swiss law. The pension scheme in Switzerland is funded and the assets of the pension scheme are held separately from those of the Group and are invested with an insurance company. The accumulated capital of the employees is subject to interests determined by the local legislation and defined in the regulations of the pension scheme.

178

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 22: Pension and post-employment obligations continued**

On retirement, employees are entitled to receive either a lump sum or an annual proportion of their accumulated capital as a pension underpinned by certain guarantees. The Group and the employees make contributions to the pension scheme as a percentage of the insured salaries depending on the age of the employees.

At 31 December 2021, the Swiss pension scheme covered 18 people (2020: 20 people).

The principal assumptions used in determining the defined benefit obligation are shown below:

|   | Year ended 31.12.21 |   | Year ended 31.12.20  |   |
| --- | --- | --- | --- | --- |
|   |  Ukrainian schemes | Swiss schemes | Ukrainian schemes | Swiss schemes  |
|  Discount rate | 12.9% | 0.3% | 10.8% | 0.2%  |
|  Retail price inflation | 5.2% | 1.3% | 5.1% | 0.5%  |
|  Expected future salary increase | 6.0% | 1.25% | 5.6% | 1.0%  |
|  Expected future benefit increase | 6.0% | – | 5.6% | –  |
|  Female life expectancy (years) | 81.2 | 89.4 | 81.8 | 89.8  |
|  Male life expectancy (years) | 76.8 | 87.8 | 77.4 | 87.7  |
|  US$000 |  |  | As at 31.12.21 | As at 31.12.20  |
|  Present value of funded defined benefit obligation |  |  | 4,404 | 9,729  |
|  Fair value of plan assets |  |  | (3,045) | (5,941)  |
|  Funded status |  |  | 1,359 | 3,788  |
|  Present value of unfunded defined benefit obligation |  |  | 24,715 | 28,687  |
|  **Defined benefit pension liability** |  |  | **26,074** | **32,475**  |
|  *Thereof for Ukrainian schemes* |  |  | **24,608** | **28,586**  |
|  *Thereof for Swiss scheme* |  |  | 1,359 | 3,788  |
|  *Thereof for schemes in other jurisdictions* |  |  | 107 | 101  |

Amounts recognised in the consolidated income statement or in other comprehensive income are as follows:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  *Defined benefit cost charged in the consolidated income statement:* |  |   |
|  Current service cost | 1,810 | 1,588  |
|  Past service cost | (96) | –  |
|  Interest cost on defined benefit obligation | 3,231 | 3,181  |
|  Interest income on plan assets | (20) | (1)  |
|  Administration cost | 11 | 21  |
|  **Total defined benefit cost charged in the consolidated income statement** | **4,936** | **4,779**  |
|  *Remeasurement (gains)/cost in consolidated statement of other comprehensive income:* |  |   |
|  Remeasurement effect from demographic assumptions | (361) | 856  |
|  Remeasurement effect from financial assumptions | (4,055) | (336)  |
|  Experience adjustment | (5,230) | 476  |
|  Return on plan assets | (236) | 61  |
|  **Total remeasurement (gains)/cost in other comprehensive income** | **(9,882)** | **1,057**  |
|  **Total defined benefit cost** | **(4,946)** | **5,836**  |
|  *Thereof for Ukrainian schemes* | (2,953) | 5,206  |
|  *Thereof for Swiss scheme* | (2,013) | 636  |
|  *Thereof for schemes in other jurisdictions* | 20 | (6)  |

Ferrisspo plc Annual Report & Accounts 2021

179
FINANCIAL STATEMENTS

## Notes to the Consolidated Financial Statements continued

### Note 22: Pension and post-employment obligations continued

The majority of the effects from remeasurement of financial assumptions relates to the changes of the discount rate and effective salary increases in Ukraine. The remeasurement effect from financial assumptions as at 3$^{rd}$ December 2021 is driven by the increase of the discount rate from 10.8% to 12.9%, compared to a decrease from 12.3% to 16.8% at the end of the comparative year ended 3$^{rd}$ December 2020, resulting in significant actuarial gains as at 3$^{rd}$ December 2021. The positive effect from the experience adjustments as at 3$^{rd}$ December 2021 is due a lower effective salary increase in Ukraine than expected as at the end of the comparative year ended 3$^{rd}$ December 2020.

Changes in the present value of the defined benefit obligation are as follows:

|  USD/000 | Year ended 31.12.21 | Year ended 31.12.21  |
| --- | --- | --- |
|  Opening defined benefit obligation | 38,416 | 38,383  |
|  Current service cost | 1,810 | 1,588  |
|  Interest cost on defined benefit obligation | 3,231 | 3,181  |
|  Remeasurement (gains)/losses | (9,646) | 996  |
|  Contributions paid by employer | (2,074) | (1,892)  |
|  Contributions paid by employees | 114 | 135  |
|  Benefits paid and net transfers through pension assets | (3,341) | 239  |
|  Plan amendments | (96) | —  |
|  Translation differences | 705 | (4,214)  |
|  **Closing defined benefit obligation** | **29,119** | **38,416**  |
|  *Thereof for Ukrainian schemes* | **24,608** | **28,586**  |
|  *Thereof for Swiss scheme* | **4,404** | **9,729**  |
|  *Thereof for schemes in other jurisdictions* | **107** | **107**  |
|  *Thereof for active employees* | **13,572** | **25,178**  |
|  *Thereof for vested terminations* | **9,485** | **7,793**  |
|  *Thereof for pensioners* | **6,062** | **5,445**  |

The durations of the defined benefit obligation for the different schemes as at 3$^{rd}$ December 2021 are 10.2 years in Ukraine (2020: 9.6 years) and 22.7 years in Switzerland (2020: 21.3 years).

Contributions to the defined benefit plans, including benefits paid by employer and employee contributions, are expected to be US$2,131 thousand for the schemes in Ukraine and US$164 thousand in Switzerland in the next financial year.

The expenses in relation to the defined contribution plan in the UK and Singapore totalled US$23 thousand (2020: US$62 thousand).

Changes in the fair values of the plan assets are as follows:

|  USD/000 | Year ended 31.12.21 | Year ended 31.12.21  |
| --- | --- | --- |
|  Opening fair value of plan assets | 5,941 | 4,755  |
|  Interest income | 20 | 11  |
|  Contributions paid by employer | 287 | 363  |
|  Contributions paid by employees | 114 | 135  |
|  Benefits paid and net transfers through pension assets | (3,341) | 239  |
|  Return on plan assets | 236 | (87)  |
|  Administration cost | (11) | (21)  |
|  Translation differences | (201) | 520  |
|  **Closing fair value of plan assets** | **3,045** | **5,941**  |
|  *Thereof for Swiss scheme* | **3,045** | **5,941**  |

180

Ferrrepo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 22: Pension and post-employment obligations continued**

The asset allocation of the plan assets of the Swiss scheme is as follows:

|  % / US$000 | As at 31.12.21 | As at 31.12.21 | As at 31.12.20 | As at 31.12.20  |
| --- | --- | --- | --- | --- |
|  **Scheme assets at fair value**  |   |   |   |   |
|  Equities | 29.7 | 905 | 30.7 | 1,824  |
|  Bonds | 29.7 | 905 | 33.0 | 1,961  |
|  Properties | 15.3 | 466 | 13.7 | 814  |
|  Other | 25.3 | 769 | 22.6 | 1,342  |
|  **Fair value of scheme assets** | **100.0** | **3,045** | **100.0** | **5,941**  |

The pension assets are included in a multi-employer plan and no information in respect of the split of the investments into quoted and non-quoted assets is available. Taking into account the requirements of Swiss law, it is assumed that equities and bonds reflect investments into quoted assets with a portion of the other assets in the portfolio assumed to be investments into non-quoted assets.

Changes to interest rates and future salary increases in Ukraine are considered to be the main pension-related risks for the Group, as such changes are likely to affect the balance of the Group's defined benefit obligation. The percentage used to calculate the sensitivities was set under consideration of the volatility for these assumptions for the Ukrainian schemes and has also been applied for the Group's less material schemes in other jurisdictions.

Changes to the significant assumptions would have the following effects on the defined benefit obligation in the different jurisdictions:

|  US$000 | Year ended 31.12.21  |   |   |   |   |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  Ukrainian schemes | Swiss scheme | Other jurisdictions | Ukrainian schemes | Swiss scheme | Other jurisdictions  |
|   | Increase by |   |   | Decrease by  |   |   |
|  Change | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year  |
|  Discount rate (%) | (1,876) | (780) | (7) | 2,145 | 1,125 | 8  |
|  Future salary increases (%) | 1,129 | 176 | 7 | (1,029) | (151) | (7)  |
|  Local inflation (%) | 61 | 5 | n/a | (87) | - | n/a  |
|  Indexation of pension (%) | n/a | 398 | n/a | n/a | n/a | n/a  |
|  Life expectancy (years) | 394 | 69 | n/a | (468) | (69) | n/a  |

|  US$000 | Year ended 31.12.20  |   |   |   |   |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  Ukrainian schemes | Swiss scheme | Other jurisdictions | Ukrainian schemes | Swiss scheme | Other jurisdictions  |
|   | Increase by |   |   | Decrease by  |   |   |
|  Change | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year | 1.0% or 1 year  |
|  Discount rate (%) | (2,510) | (1,657) | (9) | 2,908 | 2,335 | 10  |
|  Future salary increases (%) | 1,676 | 233 | 7 | (1,464) | (215) | (7)  |
|  Local inflation (%) | 74 | 12 | n/a | (137) | (22) | n/a  |
|  Indexation of pension (%) | n/a | 1,102 | n/a | n/a | n/a | n/a  |
|  Life expectancy (years) | 467 | 206 | n/a | (547) | (206) | n/a  |

Based on the Ukrainian pension legislation, the pension indexation is defined by the future salary increases and the local inflation rate. As a result of this, no sensitivity for the indexation of pension is calculated for the Ukrainian schemes, but the sensitivity for local inflation is used instead.

For the presentation of the effects of the changes of the significant assumptions shown in the table above, the present value of the defined benefit obligation has been calculated based on the projected unit credit method at the end of the reporting period, which is the same as the one applied for the calculation of the defined benefit obligation recognised in the statement of financial position as at the end of the respective reporting period. The methods and assumptions used for the sensitivity analysis for the prior year are unchanged.

Ferrarapo plc Annual Report & Accounts 2021 181
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 23: Provisions

# Accounting policy

# General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

# Site restoration

Site restoration provisions are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs (determined by an independent expert) in the accounting period when the related environmental disturbance occurs. The provision is discounted, if material, and the unwinding of the discount is included in finance costs. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future benefit and depreciated over future production from the mine to which it relates. The provision is reviewed on an annual basis for changes in cost estimates, discount rates or the life of operations.

The provision for site restoration changed as follows during the financial year 2021:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- |
|  Opening balance | 2,846 | 3,016  |
|  Unwind of the discount | 370 | 311  |
|  Charge to the consolidated income statement | 551 | 18  |
|  Translation differences | 106 | (499)  |
|  Closing balance | 3,873 | 2,846  |

The costs of restoration of the different deposits in the Group's open pit mines are based on amounts determined by an independent and credited institute taking into account the codes of practice and laws applicable in Ukraine. The useful lives of the different pits and mines are determined by the same institute based on expected annual stripping and production volumes having taken into account the expected timing and effect of future mine-life extension programmes. It is expected that the restoration works of the GfR, mine will start after the years 2040, 2044 and 2061 for the different areas within the mine. The first minor restoration work of the Yerystivske mine is expected to start for some dump areas after 2026, whereas the removal of equipment and the flooding of the pit will only begin at the end of the mine's life in 2048.

The provision represents the discounted value of the estimated costs of decommissioning and restoring the mines at the dates when the deposits are expected to be depleted in the relevant areas within the mine. The present value of the provision has been calculated in Ukrainian hryvnia using nominal pre-tax discount rates taking into account the beginning of the restoration work in the different areas of the mines, averaging at 5.22% (2020: 12%).

Uncertainties in estimating the provision include potential changes in regulatory requirements, decommissioning and reclamation alternatives and the discount and inflation rates to be used in the calculations.

# Note 24: Accrued and contract liabilities

# Accounting policy

Accrued expenses are recognised for amounts to be paid in a future period for goods or services received, which have not been billed to the Group as at the end of the reporting period.

Contract liabilities consist of the portion of freight revenues under CIF and CFR Incoterms, which is deferred and recognised over time as the performance obligation is fulfilled, and released at the point of time when the freight services are completed. Contract liabilities are normally derecognised within 60 days after the reporting period.

As at 31 December 2021, accrued and contract liabilities comprised:

|  US$000 | As at 31.12.21 | As at 31.12.22  |
| --- | --- | --- |
|  Accrued expenses | 10,915 | 5,334  |
|  Accrued interest | 28 | 1,764  |
|  Accrued employee costs | 19,068 | 17,333  |
|  Advances from customers | 13,184 | 11,713  |
|  Contract liabilities1 | 9,398 | 9,998  |
|  Total accrued and contract liabilities | 52,813 | 45,542  |

1. For further information on the change in contract liabilities during the year ended 31 December 2021 see Note 6 Revenue.

182

Ferraropa plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 25: Cash and cash equivalents**

# **Accounting policy**

Cash and cash equivalents include cash at bank and on hand and short-term deposits with original maturity of 90 days or less from inception. Cash at bank and on hand and short-term deposits are recorded at their nominal amount as these present an insignificant risk of changes in value.

As at 31 December 2021, cash and cash equivalents comprised:

|  US$000 | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- |
|  Cash at bank and on hand | 158,052 | 270,006  |
|  Cash equivalents | 9,239 | –  |
|  **Total cash and cash equivalents** | **167,291** | **270,006**  |

The Group made debit repayments net of proceeds of US$221,188 thousand during the year ended 31 December 2021 (2020: US$148,328 thousand) affecting the balance of cash and cash equivalents. Further information on the Group's gross debit is provided in Note 26 Interest-bearing loans and borrowings.

The balance of cash and cash equivalents held in Ukraine amounts to US$52,326 thousand as at 31 December 2021 (2020: US$33,058 thousand). The Group's exposure to liquidity, counterparty and interest rate risk as well as a sensitivity analysis for financial assets and liabilities are disclosed in Note 27 Financial instruments.

Cash equivalents as at 31 December 2021 relate to cash deposits for letters of credit available within three months from the date of inception of the letters of credit. Cash deposits available only after three months are classified as other current assets. See Note 19 Prepayments and other current assets for further information.

# **Note 26: Interest-bearing loans and borrowings**

# **Accounting policy**

Interest-bearing loans and borrowings (excluding lease liabilities) are measured at amortised cost. All loans are in US dollars. See also Note 27 Financial instruments for more details in respect of the accounting policies applied. This note provides information about the contractual terms of the Group's major finance facilities.

|  US$000 | Notes | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- | --- |
|  **Current** |  |  |   |
|  Syndicated bank loans – secured |  | – | 128,333  |
|  Other bank loans – unsecured |  | – | 764  |
|  Lease liabilities | 4 | 6,060 | 5,252  |
|  Trade finance facilities |  | 42,146 | –  |
|  **Total current interest-bearing loans and borrowings** |  | **48,206** | **134,349**  |
|  **Non-current** |  |  |   |
|  Syndicated bank loans – secured |  | – | 128,333  |
|  Lease liabilities | 4 | 2,143 | 3,796  |
|  **Total non-current interest-bearing loans and borrowings** |  | **2,143** | **132,129**  |
|  **Total interest-bearing loans and borrowings** | 27 | **50,349** | **266,478**  |

Following two further quarterly amortisations and the cancellation of advance prepayments of US$60,000 thousand of the Group's syndicated revolving pre-export facility (the "facility") earlier in 2021, the remaining outstanding amount of US$140,000 thousand was fully repaid on 30 June 2021 and the facility was subsequently cancelled. The facility agreement was signed in 2018 and repayment was scheduled to take place in quarterly instalments between 2020 and 2022.

As at the end of the comparative year ended 31 December 2020, the outstanding amount of the facility was US$256,666 thousand.

The aforementioned bank debit facility was guaranteed and secured as follows:

- Ferrexpo AG and Ferrexpo Middle East FZE, which are also joint borrowers, assigned the rights to revenue from certain sales contracts;
- PJSC Ferrexpo Poltava Mining assigned all of its rights of certain export contracts for the sale of pellets to Ferrexpo AG and Ferrexpo Middle East FZE; and
- the Group pledged bank accounts of Ferrexpo AG and Ferrexpo Middle East FZE into which sales proceeds from certain assigned sales contracts are exclusively received.

Ferrexpo plc Annual Report & Accounts 2021 183
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 26: Interest-bearing loans and borrowings continued

As at 31 December 2021, the Group has uncommitted trade finance facilities in the amount of US$140,000 thousand of which US$42,146 thousand were drawn, compared to a total and undrawn US$80,000 thousand as at the end of the comparative year ended 31 December 2020.

Trade finance facilities are secured against receivable balances related to these specific trades.

Arrangement fees for the aforementioned syndicated revolving pre-export facility were presented as prepayments in current assets and other non-current assets based on the maturity of the underlying facility and were amortised on a straight-line basis over the term of the facility. Following the cancellation of the facility, the associated arrangement fees were amortised in full.

The table below shows the movements in the interest-bearing loans and borrowings:

|  USD/£ | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- |
|  **Opening balance of interest-bearing loans and borrowings** | **266,478** | **412,378**  |
|  *Cash movements:* |  |   |
|  Repayments of syndicated bank loans – secured | (256,666) | (143,333)  |
|  Repayments of other bank loans – unsecured | (784) | (1,570)  |
|  Principal and interest elements of lease payments | (5,904) | (3,425)  |
|  Change of trade finance facilities, net | 42,146 | –  |
|  **Total cash movements** | **(221,188)** | **(148,328)**  |
|  *Non-cash movements:* |  |   |
|  Amortisation of prepaid arrangement fees | 4 | 39  |
|  Additions to lease liabilities | 4,506 | 2,589  |
|  Others (incl. translation differences) | 549 | (200)  |
|  **Total non-cash movements** | **5,059** | **2,428**  |
|  **Closing balance of interest-bearing loans and borrowings** | **80,349** | **266,478**  |

The interest elements of lease payments are included in the cash flows from operating activities and not in the cash flows used in financing activities.

Further information on the Group's exposure to interest rate, foreign currency and liquidity risk is provided in Note 27 Financial instruments.

# Note 27: Financial instruments

# Accounting policy

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

# Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities (e.g. promissory notes), trade and other receivables, cash and cash equivalents, loans and borrowings (including lease liabilities) and trade and other payables.

# Derivative financial instruments

Except for the provisionally priced receivables disclosed in Note 18 Trade and other receivables, the Group does not hold any derivative financial instruments.

# Initial measurement

# Non-derivative financial instruments

Financial assets and financial liabilities (excluding lease liabilities) are initially measured at fair value. Any transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities are added or deducted from its fair value except for financial assets and financial liabilities at fair value through the consolidated income statement. For those financial assets and financial liabilities, the transaction costs are recognised immediately in the consolidated income statement.

All regular way purchases and sales of financial assets are recognised on the trade date (i.e. the date that the Group commits to purchase or sell the asset). Regular way purchases or sales are those that require delivery of assets within the period generally established by regulation or convention in the marketplace.

The subsequent measurement is based on the classification of the financial instruments.

184

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 27: Financial instruments continued
Subsequent measurement
Financial assets
Loans and receivables
Except for the provisionally priced receivables disclosed in Note 18 Trade and other receivables, loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost
using the effective interest method. Gains and losses are recognised in the consolidated income statement when the loans and receivables
are derecognised or impaired along with the amortisation process.
Other
Other non-derivative financial assets are measured at amortised cost using the effective interest method less any impairment losses.
Financial liabilities
Trade and other payables
Trade and other payables are subsequently measured at amortised cost using the effective interest method.
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings (excluding lease liabilities) are subsequently measured at amortised cost using the effective interest
method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through
the amortisation process. For the accounting policy of lease liabilities see Note 14 Leases.
Impairment of financial assets
In addition to the individual assessment at each reporting date whether a financial asset or group of financial assets is impaired, the Group also
assesses the expected credit losses on financial assets carried at amortised cost. As all of the Group’s loan and receivable balances are
classified as current based on the agreed terms and conditions, the loss allowance is measured at an amount equal to the 12-month expected
credit losses based on publicly available credit default ratings adjusted for current observable circumstances, forecast information and past
history of credit losses. This assessment is performed individually for all financial assets that are individually significant and collectively for those
that are not individually significant and have similar credit risk characteristics. The carrying amount of the financial assets is reduced by an
allowance account with the change of the allowance being recognised in the consolidated income statement.
Individual balances are written off when management deems that there is no possibility of recovery.
The accounting classification of each category of financial instruments and their carrying amounts are set out below:
As at 31.12.21

|  |  |  | Financial |  | Financial |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | assets |  | liabilities |  |
|  |  | measured at |  | measured at |  | Lease |
| US$000 | Notes | amortised cost |  | amortised cost |  | liabilities Total |

Financial assets
Cash and cash equivalents 25 167,291 – – 167, 291
Trade and other receivables 18 192,363 – – 192,363
Other financial assets 26,246 – – 26,246
Total financial assets 385,900 – – 385,900
Financial liabilities

| Trade and other payables | 21 – 72,824 – 72,824 |
| --- | --- |
| Accrued liabilities | 24 – 30,031 – 30,031 |
| Interest-bearing loans and borrowings | 26 – 42,146 8,203 50,349 |

Total financial liabilities – 145,001 8,203 153,204
### 185Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
As at 31.12.20

|  |  |  | Financial |  | Financial |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  | assets |  | liabilities |  |
|  |  | measured at |  | measured at |  | Lease |
| US$000 | Notes | amortised cost |  | amortised cost |  | liabilities Total |

Financial assets
Cash and cash equivalents 25 270,006 – – 270,006
Trade and other receivables 18 152,750 – – 152,750
Other financial assets 5,328 – – 5,328
Total financial assets 428,084 – – 428,084
Financial liabilities

| Trade and other payables | 21 – 43,749 – 43,749 |
| --- | --- |
| Accrued liabilities | 24 – 24,407 – 24,407 |
| Interest-bearing loans and borrowings | 26 – 257,430 9,048 266,478 |

Total financial liabilities – 325,586 9,048 334,634
Fair values and impairment testing
Financial assets and other financial liabilities
The fair values of cash and cash equivalents, trade and other receivables and payables are approximately equal to their carrying amounts
due to their short maturity.
Interest-bearing loans and borrowings
The fair values of interest-bearing loans and borrowings are based on the discounted cash flows using market interest rates (Level 2).
Thefair values of interest-bearing loans and borrowings totalled US$50,349 thousand (2020: US$257,441 thousand).
Fair value measurements recognised in the statement of financial position
Except for the provisionally priced trade receivables (Level 2) disclosed in Note 18 Trade and other receivables, the Group does not have
any financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to Level 3 based on the
degree to which the fair value is observable. There were no transfers between Level 1 and Level 2 during the financial year 2021 and the
comparative year ended 31 December 2020.
Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
– credit risk;
– liquidity risk; and
– market risk – including currency and commodity risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes
formeasuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout
theseconsolidated financial statements. The Board has overall responsibility for the establishment and oversight of the Group’s risk
management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims
to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its
oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures,
the results of which are reported to the Audit Committee and the CFO.
The Group operates a centralised financial risk management structure under the management of the Executive Committee, accountable to
the Board.
The Executive Committee delegates certain responsibilities to the CFO. The CFO’s responsibilities include authority for approving all new
physical, commercial or financial transactions that create a financial risk for the Group. Additionally, the CFO controls the management of
treasury risks within each of the business units in accordance with a Board-approved treasury policy.
### 186 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 27: Financial instruments continued**

# **Financial instrument risk exposure and management**

Natural hedges that can be identified and their effectiveness quantified are used in preference to financial risk management instruments. Derivative transactions may be executed for risk mitigation purposes only – speculation is not permitted under the approved treasury policy – and are designed to have the effect of reducing risk on underlying market or credit exposures. Appropriate operational controls ensure operational risks are not increased disproportionately to the reduction in market or credit risk.

The Group has not used any financial risk management instruments that are derivative in nature, or other hedging instruments, in this or the comparative year.

# **Credit risk**

# **Trade and other receivables**

The Group, through its trading operations, enters into binding contracts, which contain obligations that create exposure to credit, counterparty and country risks. It is the primary objective of the Group to manage such risks to reduce uncertainty of collection from buyers. A secondary objective is to minimise the cost of reducing risks within acceptable parameters.

Credit risk is the risk associated with the possibility that a buyer will default, by failing to make required payments in a timely manner or to comply with other conditions of an obligation or agreement. Where appropriate, the Group uses letters of credit to assist in mitigating such risks.

Counterparty risk crystallises when a party to an agreement defaults. Where letters of credit are used to minimise this risk, the Group uses a confirming bank with a similar or higher credit rating to mitigate country and/or credit risk of the issuing bank.

Country risk is the potential volatility of foreign assets, whether receivables or investments, that is due to political and/or financial events in a given country.

Group Treasury monitors the concentration of all outstanding risks associated with any entity or country, and reports to the Group CFO on a timely basis.

# **Investment securities**

Outside Ukraine the Group limits its cash exposure to credit, counterparty and country risk by only investing in liquid securities and with counterparties that are incorporated in an A+ or better "S&P" rated OECD country. A ratings approach is used to determine maximum exposure to each counterparty. Cash not required within three months for production, distribution and capital expenditures is invested with counterparties rated by S&P or Moody's at a level of long-term BBB "S&P" or short-term A3 "S&P" or better.

Recognising that the principal activities of the Group are predominantly in Ukraine, special consideration is given to Ukrainian transactional banking counterparties where the sector is small and constrained by the sovereign credit rating. Exceptions may be made under the following conditions:

- the counterparty is included in the top 15 financial institutions in Ukraine based on the Group's assessment of the financial institution.

Irrespective of the counterparty risk assessment above, the Group only uses subsidiaries of Western banks for transactional purposes unless required differently by law.

Subsequent to the declaration of insolvency of the Group's former transactional bank in Ukraine (see Note 30 Commitments, contingencies and legal disputes), the Group changed its transactional banking arrangements and is currently working with four banks in Ukraine, all of them being subsidiaries of Western banks, and is still exposed to Ukraine country and banking sector risk in this respect.

# **Guarantees**

The Group's policy is to provide financial guarantees under limited circumstances only for the benefit of wholly owned or substantially wholly owned subsidiaries. At the end of the comparative year ended 31 December 2020, Ferrexpo AG, Ferrexpo Finance plc and Ferrexpo Middle East FZE were jointly and severally liable under a US$400 million revolving pre-export finance facility, of which US$256,666 thousand was drawn and US$10,000 thousand was undrawn. The facility was fully repaid on 30 June 2021 and subsequently cancelled. See Note 26 Interest-bearing loans and borrowings for further information.

Furthermore, Ferrexpo AG acted as guarantor for finance facilities provided to Ukrainian subsidiaries in the amount of US$767 thousand as at the end of the comparative year ended 31 December 2020. No such facilities were outstanding as at 31 December 2021.

The total remaining contractual maturities of the guarantees provided under the facilities listed above were US$257,433 thousand as at the end of the comparative year ended 31 December 2020.

# **Exposure to credit risk**

The carrying amount of financial assets at 31 December 2021 was US$385,900 thousand (2020: US$428,084 thousand) and represents the maximum credit exposure. See page 165 for further information.

Of the total maximum exposure to credit risk, US$85,457 thousand (2020: US$38,088 thousand) related to Ukraine.

Ferrexpo plc Annual Report & Accounts 2021

187
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 27: Financial instruments continued

The total receivables balance relating to the Group's top three customers was US$130,684 thousand (2020: US$75,108 thousand), making up 75% of the total amounts receivable (2020: 53.0%). The top three customers are considered to be crisis-resistant top-class steel mills and sales are made under long-term contracts.

Whilst the global Covid-19 pandemic did not result in a significant increase in the Group's credit risk, the risks related to Covid-19 remain relevant. See the Principal Risks section on page 72 for detailed information.

# Impairment profile

The Group's exposure to credit risk relating to trade and other receivables is disclosed in Note 18 Trade and other receivables.

# Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation by holding surplus cash or undrawn committed credit facilities.

The Group prepares detailed rolling cash flow forecasts, which assist it in monitoring cash flow requirements and optimising its cash return on investments. Typically, the Group intends to ensure that it has sufficient cash on demand and/or lines of credit to meet expected operational expenses, including the servicing of financial obligations. The Group also makes use of uncommitted trade finance facilities to manage its short-term liquidity requirements. Trade finance generally refers to the financing of individual transactions or a series of revolving transactions and is often self-liquidating, whereby the lending bank stipulates that all sales proceeds to be collected are applied to settle the loan, with the remainder returned to the Group. Trade finance transactions are approved by the Group Treasurer.

For further information see Note 26 Interest-bearing loans and borrowings and the Group's Viability Statement on pages 73 to 75.

The following are the contractual maturities of financial liabilities:

As of 31.12.21

|  US$000 | Less than 1 year | Between 1 to 2 years | Between 2 to 3 years | Between 3 to 4 years | Between 4 to 5 years | More than 5 years | Total  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  Interest-bearing |  |  |  |  |  |  |   |
|  Floating rate loans and borrowings | 42,146 | - | - | - | - | - | 42,146  |
|  Lease liabilities | 6,182 | 963 | 881 | 577 | 7 | 7 | 8,817  |
|  Total interest-bearing | 48,328 | 963 | 881 | 577 | 7 | 7 | 90,763  |
|  Non-interest-bearing |  |  |  |  |  |  |   |
|  Trade and other payables | 72,824 | - | - | - | - | - | 72,824  |
|  Accrued liabilities | 30,031 | - | - | - | - | - | 30,031  |
|  Future interest payable | 51 | - | - | - | - | - | 51  |
|  Total non-interest-bearing | 102,906 | - | - | - | - | - | 102,906  |
|  Total financial liabilities | 151,234 | 963 | 881 | 577 | 7 | 7 | 153,669  |

As of 31.12.21

|  US$000 | Less than 1 year | Between 1 to 2 years | Between 2 to 3 years | Between 3 to 4 years | Between 4 to 5 years | More than 5 years | Total  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  Interest-bearing |  |  |  |  |  |  |   |
|  Floating rate loans and borrowings | 29,105 | 28,333 | - | - | - | - | 257,433  |
|  Lease liabilities | 5,502 | 2,369 | 765 | 718 | 703 | - | 10,057  |
|  Total interest-bearing | 34,602 | 30,702 | 765 | 718 | 703 | - | 267,490  |
|  Non-interest-bearing |  |  |  |  |  |  |   |
|  Trade and other payables | 43,749 | - | - | - | - | - | 43,749  |
|  Accrued liabilities | 24,407 | - | - | - | - | - | 24,407  |
|  Future interest payable | 9,999 | 3,810 | - | - | - | - | 13,809  |
|  Total non-interest-bearing | 78,155 | 3,810 | - | - | - | - | 81,965  |
|  Total financial liabilities | 212,757 | 34,512 | 765 | 718 | 703 | - | 349,455  |

The difference of the total of floating interest-bearing loans and borrowings compared to the balances disclosed in Note 26 Interest-bearing loans and borrowings mainly related to arrangement fees paid for specific facilities, which were netted for the presentation in the statement of financial position, at the end of the comparative year ended 31 December 2020.

188

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 27: Financial instruments continued**

# **Currency risk**

The Group is exposed to currency risk on financial assets and financial liabilities resulting from sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group's subsidiaries. The functional currencies of the Group's subsidiaries are primarily the Ukrainian hryvnia, US dollars, euro and Swiss francs. The Group's functional currency and reporting currency is the US dollar.

The Group's major lines of borrowings and the majority of its sales are denominated in US dollars, with costs of local Ukrainian production mainly in hryvnia. The value of the hryvnia is published by the NBU.

An appreciation of the Ukrainian hryvnia increases the operating costs of the production unit in US dollar terms and the value of hryvnia payables recorded in the statement of financial position at the year end in US dollars, with the opposite effect in case of a depreciation of the Ukrainian hryvnia. As the majority of sales and receivables are denominated in US dollars, a change in the local currency will result in operating exchange differences recorded in the consolidated income statement.

In case of a change of the local currency compared to the US dollar, US dollar-denominated loans held by the Ukrainian subsidiaries result in non-operating exchange differences to the extent these are not matched by US dollar-denominated assets. Fixed assets are held in local currency amounts and a change in the functional currencies different to the US dollar results in a change of the Group's net assets as recorded in the translation reserve.

The NBU manages and determines the official exchange rates. An interbank market for the exchange of currencies exists in Ukraine and is monitored by the NBU. The Group, through financial institutions, exchanges currencies at bank offered market rates.

Trade receivables are predominantly in US dollars and are not hedged. Trade payables denominated in US dollars are also not hedged on the market but are matched against US dollar currency receipts. This includes the interest expense, which is principally payable in US dollars. Trade receivables and trade payables in Ukrainian hryvnia are not hedged as a forward market for the currency is generally not available.

Other Group monetary assets and liabilities denominated in foreign currencies are considered immaterial as the exposure to currency risk mainly relates to corporate costs within Switzerland and the UK.

The Group's exposure to foreign currency risk was as follows as of 3$^{rd}$ December 2021:

|  US$000 | As at 31.12.21 | As at 31.12.25  |
| --- | --- | --- |
|  **Total financial assets** | **385,900** | **428,084**  |
|  *Thereof exposed to Ukrainian hryvnia* | – | –  |
|  *Thereof exposed to US dollar* | 32,120 | 6,966  |
|  *Thereof exposed to euro* | 7,025 | 87  |
|  *Thereof exposed to Swiss franc* | 1,014 | –  |
|  *Thereof exposed to other currencies* | 549 | 512  |
|  **Total exposures to currencies other than local functional currencies** | **48,708** | **7,565**  |
|  **Total financial liabilities** | **(153,204)** | **(334,634)**  |
|  *Thereof exposed to Ukrainian hryvnia* | – | –  |
|  *Thereof exposed to US dollar* | (4,482) | (2,402)  |
|  *Thereof exposed to euro* | (4,058) | (2,504)  |
|  *Thereof exposed to Swiss franc* | (225) | (2,167)  |
|  *Thereof exposed to other currencies* | (445) | (623)  |
|  **Total exposures to currencies other than local functional currencies** | **(5,210)** | **(7,698)**  |

No other subsidiaries of the Group, apart from the Ukrainian subsidiaries, have financial assets and liabilities denominated in the Ukrainian hryvnia. The functional currency of the Ukrainian subsidiaries is the Ukrainian hryvnia and the translation of financial assets and financial liabilities does not therefore pose a foreign currency risk exposure in the consolidated income statement of the Group as translation differences are reflected in the translation reserve (see Note 3$^{rd}$ Share capital and reserves).

# **Interest rate risk**

The Group predominantly borrows bank funds that are at floating interest rates and is exposed to interest rate movements. No interest rate swaps have been entered into in this or prior years.

Ferraropa plc Annual Report & Accounts 2021 189
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 27: Financial instruments continued
Commodity risk
Revenues related to provisionally priced sales are initially recognised at the estimated fair value of the consideration receivable based on
the forward price at each reporting date for the relevant period outlined in the different contracts. As a consequence, the receivable
balance may change in a future period when final invoices can be issued based on final iron ore prices to be applied according to the
specific underlying contract terms. The provisionally priced iron ore exposure as at 31 December 2021 was 342,916 tonnes (2020: 622,705
tonnes) and gave rise to a fair value gain relating to the embedded provisional pricing mechanism of US$4,455 thousand as at
31 December 2021 (2020: US$28,921 thousand). Final iron ore prices based on the relevant index are normally known within 60 days after
the reporting period. The difference between the provisionally priced receivable balance recognised as at 31 December 2021 and the
receivable balance taking into account the known final prices is US$13,550 thousand and would have increased the consolidated result and
the shareholders’ equity by this amount (2020: increase of US$3,968 thousand).
Where pricing terms deviate from the index-based pricing model, derivative commodity contracts may be used to swap the pricing terms
tothe iron ore index price.
Finished goods are held at cost without revaluation to a spot price for iron ore pellets at the end of the reporting period, as long as the
recoverable amount exceeds the cost basis.
Sensitivity analysis
A 20% strengthening of the US dollar against the following currencies at 31 December would have increased/(decreased) the consolidated
result and equity by the amounts shown below. The percentage applied to the sensitivity analysis of the Group’s foreign currency exposure
is based on the average change of the Ukrainian hryvnia, the Group’s most relevant foreign currency, compared to the US dollar in past
years, which might repeat again in the near future. This percentage was also applied for the Group’s less relevant foreign currencies and
does not have a significant effect on the total effect of this sensitivity analysis. This assumes that all other variables, in particular interest
rates, remain constant.

|  | Year ended |  | Year ended |  |
| --- | --- | --- | --- | --- |
|  |  | 31.12 . 21 |  | 31.12.20 |
|  |  | Income |  | Income |
|  | statement/ |  | statement/ |  |
| US$000 |  | equity |  | equity |

Ukrainian hryvnia 4,606 761
Euro 495 (403)
Swiss franc 131 (361)
Other 17 (19)
Total 5,249 (22)
A 20% weakening of the US dollar against the above currencies would have an equal but opposite effect to the amounts shown above,
onthe basis that all the other variables remain constant.
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not hold any
derivatives (e.g. interest rate swaps). Therefore, a change in interest rates at the reporting date would not affect the consolidated income
statement.
Cash flow sensitivity for variable rate instruments
An increase of 100 basis points (“bps”) in interest rates would have increased equity and the consolidated result by the amounts shown
below. The possible change applied to the cash flow sensitivity represents a plausible scenario taking into account the movement of
variable interest rates in the last year and possible changes in the near future. This analysis assumes that all other variables, in particular
foreign currency rates, remain constant.
Year ended Year ended
US$000 31.12 . 21 31.12.20
Net finance charge 1,251 126
A decrease of 100bps would decrease equity and profit by US$984 thousand for the year ended 31 December 2021 (2020: US$550
thousand). This is on the basis that all the other variables remain constant.
Capital management
The Board’s policy is to maintain a strong capital base. The Board of Directors monitors both the demographic spread of shareholders,
aswell as the return on capital, which the Group defines as total shareholders’ equity, excluding non-controlling interests, and the level
ofdividends to ordinary shareholders. Please refer to the statement of changes in equity for details of the capital position of the Group.
A key measure in respect of the Group’s capital management is the level of net cash/(debt). The net cash position has increased
fromUS$3,528 thousand at the beginning of the year to US$116,942 thousand as at 31 December 2021 as a result of strong
financialperformance.
### 190 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 27: Financial instruments continued**

The capital base of the Group can be adversely affected by falls in the price of iron ore reducing reported revenues and profitability. The price that the industry earns for iron ore products is cyclical in nature and the Board of Directors continues to review its capital base in line with industry trends. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and advantages and security afforded by a low gearing and strong capital position.

Growth projects are approved under consideration of potential future market constraints, intended further de-gearing of the Group's balance sheet and expected returns to shareholders.

The Board maintains a dividend policy consistent with the Group's profile, reflecting the investment activities the Group has made supporting current and future production growth and the cash generated by existing operations, while maintaining a prudent level of dividend cover supported by an appropriate level of liquidity.

Neither Ferrexpo plc (the "Company") nor any of its subsidiaries is currently subject to externally imposed capital requirements. Compliance is ensured by balancing dividend payments against the earnings of the Group.

The Company is the Group's holding company, with no direct operating business, so its ability to make distributions to its shareholders is dependent on its ability to access profits held in the subsidiaries. The Group's consolidated retained earnings shown in the consolidated statement of changes in equity do not reflect the profits available for distribution in the Group as of 3rd December 2021. See Note 12 Earnings per share and dividends paid and proposed for further information.

For more information about the Group's interest-bearing loans and borrowings see Note 26 Interest-bearing loans and borrowings.

# **Note 28: Share-based payments**

# **Accounting policy**

# **Equity-settled transactions**

The cost of equity-settled transactions with employees is measured by reference to the fair value of the award at the grant date using modelling techniques consistent with the mathematics underlying the Black-Scholes option pricing model extended to allow for the performance conditions. The fair value is determined by reference to the quoted closing share price on the grant date. The cost is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. In valuing equity-settled transactions, no account is taken of any vesting conditions, except for market conditions, such as the relative Total Shareholder Return ("TSR").

Where the vesting of awards is subject to the satisfaction of certain market conditions, a vesting charge is recognised irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where awards terminate before the performance period is complete, any unamortised expense is recognised immediately.

At each reporting date, the cumulative expense of outstanding awards is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognised in the consolidated income statement, with a corresponding entry in the employee benefit trust reserve in equity.

# **Long-term incentive plan ("LTIP")**

The LTIP is a share-based scheme whereby certain senior management and executives receive rewards based on the relative TSR. The LTIP is subject to a performance condition based on the TSR compared to a comparator group, which operates in a similar environment, measured over the vesting period. Further description is provided in the Remuneration Report. The cost of equity-settled awards is measured as described above together with an estimate of future social security contributions payable in respect of this value.

The following number of share awards were granted under the LTIP in the previous financial years. The LTIP vesting period is three years.

|  Traverse | 2021 LTIP | 2020 LTIP | 2019 LTIP | Total  |
| --- | --- | --- | --- | --- |
|  **Year ended 31.12.21** | **295** | **-** | **81** | **376**  |
|  Year ended 31.12.20 | - | 780 | - | 780  |
|  Year ended 31.12.19 | - | - | 470 | 470  |

The following expenses have been recognised in 2021 and 2020 in respect of the LTIP:

|  US$000 | 2021 LTIP | 2020 LTIP | 2019 LTIP | 2020 LTIP | Total  |
| --- | --- | --- | --- | --- | --- |
|  **Year ended 31.12.21** | **302** | **131** | **380** | **(7)** | **856**  |
|  Year ended 31.12.20 | - | 199 | 54 | 38 | 297  |

The expenses recognised in 2021 include the effect of lapsed awards resulting from the departure of two members of the key management.

Ferrexpo plc Annual Report & Accounts 2021 191
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 28: Share-based payments continued

| Year ended |  | Year ended |  | Year ended | Year ended |
| --- | --- | --- | --- | --- | --- |
|  | 31.12 . 21 |  | 31.12.20 | 31.12 . 21 | 31.12.20 |
| WAFV (US$) |  | WAFV (US$) |  | No. (000) | No. (000) |

LTIP
Beginning of the year 1.57 1.94 1,034 1,558
Awards granted during the year 3.83 0.90 376 793
Awards vested during the year 2.22 1.65 – (705)
Awards lapsed during the year 2.05 1.58 (364) (612)
Outstanding unvested awards at 31 December 2.22 1.57 1,046 1,034
The main inputs to the valuation of the 2021 LTIP awards were the share price at date of grant of US$4.81 (2020 LTIP awards: US$1.47), the
volatility of the share price of 60% p.a. (2020 LTIP awards: 56% p.a.) and a risk-free interest rate of 0.2% p.a. (2020 LTIP awards: 0.3% p.a.).
The assumptions have been based on historical volatility and correlation of the relevant stocks over a period based on the expected term of
the awards.
The weighted average share price at the date of exercise of the awards during the comparative year ended 31 December 2020 was
US$1.48. No awards vested during the financial year 2021. As at the date of authorising the consolidated financial statements for issue,
allawards from previous years have been exercised.
Note 29: Employees
Employee benefits expenses for the year ended 31 December 2021 consisted of the following:
Year ended Year ended
US$000 Notes 31.12 . 21 31.12.20
Wages and salaries 88,960 89,152
Social security costs 18,002 21,137
Post-employment benefits 22 1,810 1,588
Other employee costs 3,006 2,201
Share-based payments 28 856 291
Total employee benefits expenses 112,634 114,369
The table above includes compensation for Non-executive Directors, Executive Directors and other key management personnel
asoutlinedbelow:
Year ended 31.12.21 Year ended 31.12.20

|  | Non-executive |  |  |  | Non-executive |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | and Executive |  |  | Other key | and Executive |  |  | Other key |
| US$000 |  | Directors | management Total |  |  | Directors | management Total |  |

Wages and salaries 3,217 2,917 6,134 3,186 5,829 9,015
Social security costs 73 81 154 132 35 167
Post-employment benefits 111 63 174 81 74 155
Other employee costs 290 82 372 107 21 128
Share-based payments 215 424 639 77 62 139
Total compensation for key management 3,906 3,567 7,473 3,583 6,021 9,604
The totals of shared-based payments for employees and for key management recognised in the comparative year ended 31 December
2020 include the effect of lapsed awards resulting from the departure of two members of the key management.
### 192 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 29: Employees continued**

The average number of employees during the financial year 2021 is detailed in the table below:

|  Average number of employees | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Production | 6,427 | 6,758  |
|  Marketing and distribution | 171 | 74  |
|  Administration | 1,283 | 1,211  |
|  Other | 366 | 521  |
|  **Total average number of employees** | **8,267** | **8,664**  |

# **Note 30: Commitments, contingencies and legal disputes**

# **Accounting policy**

# **Contingencies**

Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

# **Commitments for the lease of mining land**

These commitments relate to the agreements for the use of mining land, which fall out of the scope of IFRS '6 Leases.

# **Commitments**

Commitments as at 31 December 2021 consisted of the following:

|  US$000 | Year ended 31.12.21 | Year ended 31.12.20  |
| --- | --- | --- |
|  Total commitments for the lease of mining land (out of the scope of IFRS '6) | 57,665 | 30,874  |
|  Total capital commitments on purchase of property, plant and equipment | 191,412 | 57,526  |
|  Commitments for investment in a joint venture | 6,064 | 6,064  |

For further information on lease-related commitments see Note '4 Leases.

# **Critical judgements**

# **Loan relationship between related parties of the Group**

As disclosed in the 2020 Annual Report and Accounts, the Board, acting through the Committee of Independent Directors (the "CID"), conducted during the financial year 2020 a review in connection with the Group's sponsorship arrangements with FC Vorskla and concluded its enquiry in March 2021. See Note 30 Commitments, contingencies and legal disputes in the 2020 Annual Report and Accounts for detailed information. In the event that any of the payments made by the Group to FC Vorskla were not fully used for the benefit of the football club, or there was any non-compliance with legal, regulatory or other requirements, liabilities (including fines and penalties) may accrue to the Group. At the current time, the existence, timing or quantum of potential future liabilities, if any, cannot be determined and measured reliably and, as a consequence, no associated liabilities have been recognised in relation to these matters in the consolidated statement of financial position as of 31 December 2021 similarly to the position as of 31 December 2020.

# **Legal**

In the ordinary course of business, the Group is subject to various legal actions and ongoing court proceedings. 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. See also the Principal Risks section on pages 59 and 60 for further information on the Ukraine country risk.

# **Share dispute**

On 23 November 2020, the Kyiv Commercial Court opened court proceedings in relation to an old shareholder litigation. In 2005, a former shareholder in FJSC Ferrexpo Poltava Mining ("FPM") brought proceedings in the Ukrainian courts seeking to invalidate the share sale and purchase agreement pursuant to which a 40.9% stake in FPM was sold to nominee companies that were previously ultimately controlled by Kostyantin Zhevago, amongst other parties. After a long period of litigations, all old claims were fully dismissed in 2015. In January 2021, Ferrexpo AG ("FAG") received a claim from a former shareholder in FPM to invalidate part of the share sale and purchase agreement concluded in 2002 related to the sale of a 9.32% shareholding in FPM. Following the receipt of the claim, FAG, as the parent company of FPM, filed on 27 January 2021 its statement of defence to the court in response.

In February 2021, after the first hearing of the Kyiv Commercial Court on this case, FAG became aware that three new claims had been filed by three other former shareholders in FPM. Taken together, four claimants seek to invalidate the share sale and purchase agreement concluded in 2002 pursuant to which a 40.9% stake in FPM was sold, similarly to the previous claims made back in 2005. FAG filed on 5 March 2021 its statements of defence to the court in response to these new claims. The Kyiv Commercial Court ruled on 27 May 2021 in

Ferrexpo plc Annual Report & Accounts 2021

193
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 30: Commitments, contingencies and legal disputes continued
favour of FAG. The opposing parties filed in June 2021 their appeals. The Northern Commercial Court of Appeal has opened the appeal
proceedings and several hearings have been held since then without a court decision made. Considering the current situation in Ukraine,
itis unknown if and when the next hearing will take place. The date of the next hearing is not yet known.
Based on legal advice obtained and considering the dismissal of the claims made by a former shareholder in FPM back in 2015, it is
management’s view that FAG has compelling arguments to defend its position in the court.
Royalty-related investigation and claim
On 3 February 2022, PJSC Ferrexpo Poltava Mining (“FPM”) and Ferrexpo Yeristovo Mining LLC (“FYM”) received letters from the Office of
Prosecutor General notifying about ongoing investigation on potential underpayment of iron ore royalty payments during the years 2018 to
2021. The amount of underpayment is not specified in the letters. As part of the investigation, the Office of Prosecutor General requested
documents related to iron ore royalty payments and requested four representatives of the Group’s subsidiaries to appear as witnesses for
investigations. The Group’s subsidiaries are collecting the necessary documents and intend to comply with all lawful requests in this
investigation. However, due to the current situation in Ukraine, the status and further development of the initiated investigation is unknown.
On 8 February 2022, FPM received a tax audit report, which claims the underpayment of iron ore royalty payments during the period from
April 2017 to June 2021 in the amount of approximately UAH1,042,000 thousand (approximately US$38,200 thousand as at 31 December
2021). The Group provided its objections to the claims made in the tax audit report and it was expected that this case will ultimately be
heard by the courts in Ukraine in due course. However, due to the current situation in Ukraine, it is unknown if and when a first hearing will
take place in respect of the claim received and how the aforementioned investigation is going to further develop.
Based on legal advice obtained, it is management’s view that FPM has compelling arguments to defend its position in the court and,
asaconsequence, no associated liabilities have been recognised in relation to the claim made in the consolidated statement of financial
position as of 31 December 2021.
Ecological claims
In September 2021, the State Ecological Inspection carried out an inspection of Ferrexpo Yeristovo Mining LLC (“FYM”) and on 1 October
2021 issued an order to remove a number of alleged violations of environmental rules. On 19 October 2021, FYM received two ecological
claims from the State Ecological Inspection. One of the claims was related to an allegation of violation of rules regarding removal of soil on
a particular land plot and the State Ecological Inspection requested payment for damages of approximately UAH768 million (US$28,155
thousand). The other claim was related to an allegation of absence of documents for disposal of waste on a particular land plot and the
State Ecological Inspection requested payment for damages in the amount of approximately UAH18 million (US$660 thousand). Each claim
states that if FYM does not voluntarily pay the damages, the State Ecological Inspection will start court proceedings. In November 2021,
FYM sent written objections to these claims to the State Ecological Inspection. The State Ecological Inspection has neither responded to
FYM’s objections nor filed the claims to the court within a reasonable period by February 2022. In February 2022, FYM has therefore filed a
lawsuit to the court. The Kremenchuk District Prosecutor’s Office is conducting the investigation in connection with alleged violations of
environmental rules. Due to the current situation in Ukraine, it is not clear if and when a first hearing will take place.
Based on legal advice obtained, it is management’s view that FYM has compelling arguments to defend its position in the court and, as a
consequence, no associated liabilities have been recognised in relation to these matters in the consolidated statement of financial position
as of 31 December 2021.
Cancellation of licence for Galeschynske deposit
On 24 June 2021, an Order of the President of Ukraine was published on the official website of the President (the “Order”), which enacted
the Decision of the National Security and Defence Council of Ukraine on the application of personal special economic and other restrictive
measures and sanctions (the “Decision”). Ferrexpo Belanovo Mining (“FBM”) is included in the list of legal entities which are subject to
sanctions pursuant to the Decision. The Order and the Decision do not provide any legal ground for the application of sanctions. The
sanction imposed on FBM is the cancellation of the mining licence for the Galeschynske deposit, which is one of two licences held by FBM.
The Galeschynske deposit is a project in the exploration phase that is situated to the north of the Group’s active mining operations.
### 194 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 31: Share capital and reserves**

# **Accounting policy**

# **Ordinary Shares**

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares and share options are recognised as a deduction from equity, net of any tax effects.

# **Employee benefit trust reserve**

Ferrexpo plc shares held by the Group are recognised at cost and classified in reserves. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from the sale and the original cost to be recorded in reserves. No gain or loss is recognised in the consolidated income statement on the purchase, issue or cancellation of equity shares.

# **Treasury shares**

Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from equity and represent a reduction in distributable reserves. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in reserves.

# **Translation reserve**

The translation reserve represents exchange differences arising on the translation of non-US dollar functional currency operations, mainly those in Ukrainian hryvnia, within the Group into US dollars.

# **Share capital**

Share capital represents the nominal value on issue of the Company's equity share capital, comprising 0.10 Ordinary Shares. The fully paid share capital of Ferrexpo plc at 31 December 2021 was 613,967,956 Ordinary Shares (2020: 613,967,956) at a par value of 0.10 paid for in cash, resulting in share capital of US$12,628 thousand (2020: US$12,628 thousand) per the statement of financial position.

As at 31 December 2021, other reserves attributable to equity shareholders of Ferrexpo plc comprised:

|  US$000 | Uniting of interest reserve | Treasury share reserve | Employee benefit trust reserve | Translation reserve | Total other reserves  |
| --- | --- | --- | --- | --- | --- |
|  **At 1 January 2020** | 31,780 | (77,260) | (2,826) | (1,716,468) | (1,764,774)  |
|  Foreign currency translation differences | - | - | - | (317,691) | (317,691)  |
|  Tax effect | - | - | - | 16,278 | 16,278  |
|  **Total other comprehensive loss for the year** | - | - | - | (307,413) | (307,413)  |
|  Share-based payments | - | - | 291 | - | 291  |
|  **At 31 December 2020** | 31,780 | (77,260) | (2,535) | (2,077,881) | (2,065,896)  |
|  Foreign currency translation differences | - | - | - | 82,222 | 82,222  |
|  Tax effect | - | - | - | (3,313) | (3,313)  |
|  **Total other comprehensive income for the year** | - | - | - | 78,909 | 78,909  |
|  Share-based payments | - | - | 856 | - | 856  |
|  **At 31 December 2021** | 31,780 | (77,260) | (1,679) | (1,938,972) | (1,986,131)  |

# **Uniting of interest reserve**

The uniting of interest reserve represents the difference between the initial investment by Ferrexpo AG in FPM to gain control of the subsidiary in 2005 and the net assets acquired, which under the pooling of interests method of accounting are consolidated at their historic cost, less non-controlling interests.

# **Treasury share reserve**

In September 2008, Ferrexpo plc completed a buy-back of 25,343,814 shares for a total cost of US$77,260 thousand. These shares are currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights) and the payment of dividends in respect of treasury shares.

# **Employee benefit trust reserve**

This reserve represents the treasury shares held by Ferrexpo AG setting up an employee benefit trust reserve. The reserve is used to satisfy future grants for senior management incentive schemes. Information on the Group's share-based payments is provided in Note 28 Share-based payments. As at 31 December 2021, the employee benefit trust reserve includes 924,899 shares (2020: 924,899 shares).

Ferrexpo plc Annual Report & Accounts 2021

195
FINANCIAL STATEMENTS

# Notes to the Consolidated Financial Statements continued

# Note 32: Consolidated subsidiaries

# Translation reserve

During the financial year 2021, the Ukrainian hryvnia appreciated from 28,275 as at the beginning of the year to 27,278 as at 31 December 2021 and the exchange differences arising on translation of the Group's foreign operations are initially recognised in the consolidated statement of comprehensive income. See also page 148.

# Accounting policy

Entities are included in the consolidated financial statements from the date of obtaining control and the inclusion in the consolidated financial statements is consequently ceased when the control over an entity is lost. Control is obtained when the Group is exposed, or has the rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee that gives the current ability to direct the relevant activities. Control can be obtained through voting rights, but also through agreements, statutes, contracts, trust deeds or other schemes.

Non-controlling interests in the net assets of consolidated subsidiaries are shown separately in the Group's consolidated statement of financial position and consolidated statement of changes in equity. The share of the profit attributable to non-controlling interests is shown in the consolidated income statement and the consolidated statement of comprehensive income. The carrying amount of the non-controlling interests is adjusted for any change in ownership interest to reflect the relative controlling and non-controlling interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in the equity attributable to equity shareholders of Ferrexpo plc.

The Group comprises Ferrexpo plc and its consolidated subsidiaries. The Group's interests in the entities are held indirectly by the Company, with the exception of Ferrexpo AG, which is directly held. All of the Group's major subsidiaries are wholly owned. The interests that non-controlling interests have in the Group's operations are not material and no significant judgements and assumptions were required to determine that the Group has control over these entities. The Group's consolidated subsidiaries are listed on page 206.

The Group does not have any other interests of 20% or more in undertakings that are not disclosed on page 206, except for the investment in the associate mentioned in Note 33 Investments in associates.

# Note 33: Investments in associates

# Accounting policy

The Group's investments in associates are accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus any post-acquisition changes in the Group's share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised nor individually tested for impairment. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group's investment in the associate.

The share of profit from an associate is shown on the face of the consolidated income statement. This is the profit attributable to the Group and is therefore the profit after tax and non-controlling interests in the subsidiaries of the associate. The reporting dates of the associates and the Group are identical and the associates' accounting policies are generally in conformity with those applied by the Group.

The Group holds an interest of 49.9% (2020: 49.9%) in TIS Ruda LLC, operating a port on the Black Sea, which the Group uses as part of its distribution channel.

|  US$000 | Year ended 31.12.21 | Year ended 31.12.22  |
| --- | --- | --- |
|  Opening balance | 5,873 | 8,064  |
|  Share of profit | 4,468 | 5,624  |
|  Dividends declared | (3,534) | (6,381)  |
|  Translation adjustments | 229 | (1,434)  |
|  Closing balance | 7,034 | 5,873  |

For the year ended 31 December 2021 the summarised financial information for the associate was as follows:

|  US$000 | Revenue |   | Net profit  |   |
| --- | --- | --- | --- | --- |
|   |  Year ended 31.12.21 | Year ended 31.12.22 | Year ended 31.12.21 | Year ended 31.12.22  |
|  TIS Ruda LLC | 21,619 | 23,074 | 8,947 | 7,271  |

1. Based on preliminary and unaudited financial information.

196

Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 33: Investments in associates continued
The figures in the table above represent 100% of the associate’s revenue and net profit and not the Group’s share based on its ownership.
As at 31 December 2021, the associate’s total assets were US$20,106 thousand (2020: US$18,745 thousand) and the total liabilities were
US$6,009 thousand (2020: US$6,977 thousand) based on preliminary and unaudited statutory accounts. Any deviations from the Group’s
associate’s equity based on the audited financial statements is adjusted subsequent to the year end once the audited financial statements
are available.
Note 34: Related party disclosures
During the years presented, the Group entered into arm’s length transactions with entities under the common control of Kostyantin
Zhevago, a controlling shareholder of Ferrexpo plc, with associated companies and with other related parties. Management considers that
the Group has appropriate procedures in place to identify, control, properly disclose and obtain independent confirmation, when relevant,
for transactions with the related parties.
Entities under common control are those under the control of Kostyantin Zhevago. Associated companies refer to TIS Ruda LLC, in which
the Group holds an interest of 49.9% (2020: 49.9%). This is the only associated company of the Group. Information on the Directors’ fee
payments made to the Non-executive Directors and Executive Directors is provided in the Remuneration Report on pages 118 and 119.
Related party transactions entered into by the Group during the years presented are summarised in the following tables:
Revenue, expenses, finance income and expense
Year ended 31.12.21 Year ended 31.12.20

|  | Entities |  |  | Entities |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | under |  | Other | under |  | Other |
|  | common | Associated | related | common | Associated | related |
| US$000 | control | companies | parties | control | companies | parties |

a
Other sales 657 – 9 323 – 7
Total related party transactions within revenue 657 – 9 323 – 7
b
Materials and services 8,334 – – 6,299 – –
c
Spare parts and consumables 6,350 – – 3,063 – –
d
Other expenses 2,172 – – 524 – –
Total related party transactions within cost of sales 16,856 – – 9,886 – –
e
Selling and distribution expenses 4,876 18,139 – 4,552 19,073 –
f
General and administration expenses 1,762 – 524 1,747 – 482
Finance expense 20 – – 25 – –
Total related party transactions within expenses 23,514 18,139 524 16,210 19,073 482
Other income 2 – – 21 – –
Total related party transactions 24,173 18,139 533 16,554 19,073 489
A description of the most material transactions, which are in aggregate over US$200 thousand in the current or comparative year, isgivenbelow.
Entities under common control
The Group entered into various related party transactions with entities under common control. All transactions were carried out on an arm’s length basis in the normal course of business.
a Sales of scrap metal to OJSC Uzhgorodsky Turbogas totalling US$437 thousand (2020: US$157 thousand); and
a Sales of electricity to Kislorod PPC for US$209 thousand (2020: US$140 thousand).
b Purchases of oxygen, scrap metal and services from Kislorod PCC for US$1,533 thousand (2020: US$2,060 thousand);
b Purchases of cast iron balls from OJSC Uzhgorodsky Turbogas for US$5,700 thousand (2020: US$4,191 thousand); and
b Purchase of maintenance and construction services from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) for US$1,024 thousand (2020: nil).
c Purchases of spare parts from OJSC AvtoKraz Holding in the amount of US$1,983 thousand (2020: US$446 thousand);
c Purchases of spare parts from CJSC Kyiv Shipbuilding and Ship Repair Plant (“KSRSSZ”) in the amount of US$837 thousand (2020: US$656 thousand);
c Purchases of spare parts from OJSC Uzhgorodsky Turbogas in the amount of US$1,032 thousand (2020: US$675 thousand);
c Purchases of spare parts from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) of US$719 thousand (2020: US$353 thousand); and
c Purchases of spare parts from Valsa GTV of US$1,735 thousand (2020: US$878 thousand).
d Insurance premiums of US$2,172 thousand (2020: US$524 thousand) paid to ASK Omega for insurance cover in respect of mining equipment and machinery. The increase in insurance
premiums during the financial year 2022 is due to the increase in the insurance coverage of the insured equipment.
### 197Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Notes to the Consolidated Financial Statements continued
Note 34: Related party disclosures continued
e Purchases of advertisement, marketing and general public relations services from FC Vorskla of US$4,875 thousand (2020: US$4,552 thousand). See page 193 in respect of a loan
relationship between FC Vorskla and another related party.
f Insurance premiums of US$1,341 thousand (2020: US$1,365 thousand) paid to ASK Omega for workmen’s insurance and other insurances; and
f Purchase of marketing services from TV & Radio Company of US$243 thousand (2020: US$237 thousand).
Associated companies
The Group entered into related party transactions with its associated company, TIS Ruda LLC, which were carried out on an arm’s length basis in the normal course of business for the
members of the Group (see Note 33 Investments in associates).
e Purchases of logistics services in the amount of US$18,139 thousand (2020: US$19,073 thousand) relating to port operations, including port charges, handling costs, agent commissions
and storage costs.
Other related parties
The Group entered into various transactions with related parties other than those under the control of a controlling shareholder of Ferrexpo plc. All transactions were carried out on an arm’s
length basis in the normal course of business.
f Legal and administrative services in the amount of US$506 thousand (2020: US$471 thousand) provided by Kuoni Attorneys at Law Ltd., which is controlled by a member of the Board of
Directors of one of the subsidiaries of the Group. The Directors’ fees paid totalled US$100 thousand for the financial year 2021 (2020: US$100 thousand).
Purchases of property, plant and equipment
The table below details the transactions of a capital nature, which were undertaken between Group companies and entities under common
control, associated companies and other related parties during the years presented.
Year ended 31.12.21 Year ended 31.12.20

|  | Entities |  |  | Entities |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | under |  | Other | under |  | Other |
|  | common | Associated | related | common | Associated | related |
| US$000 | control | companies | parties | control | companies | parties |

Purchases in the ordinary course of business 552 – – 2,247 – –
Total purchases of property, plant and equipment 552 – – 2,247 – –
During the year ended 31 December 2021, the Group purchased major spare parts and equipment from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) totalling
US$283 thousand in respect of its regular sustaining capital expenditure programmes (2020: US$1,719 thousand). The Group also procured equipment and materials from CJSC Kyiv
Shipbuilding and Ship Repair Plant (“KSRSSZ”) totalling US$235 thousand for several ongoing projects on its processing facilities (2020: US$510 thousand).
The FPM Charity Fund owns 75% of the Sport & Recreation Centre (“SRC”) in Horishni Plavni and made contributions totalling US$120 thousand during the year ended 31 December 2021
(2020: US$115 thousand) for the construction and maintenance of the building, including costs related to electricity, gas and water consumption. The remaining stake of 25% is owned by JSC
F&C Realty, which is under the control of Kostyantin Zhevago.
Balances with related parties
The outstanding balances, as a result of transactions with related parties, for the years presented are shown in the table below:
As at 31.12.21 As at 31.12.20

|  | Entities |  |  | Entities |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | under |  | Other | under |  | Other |
|  | common | Associated | related | common | Associated | related |
| US$000 | control | companies | parties | control | companies | parties |

g
Prepayments for property, plant and equipment 8,463 – – 133 – –
Total non-current assets 8,463 – – 133 – –
h
Trade and other receivables 101 4,181 1 96 4,473 1
i
Prepayments and other current assets 2,076 – – 1,390 – –
Total current assets 2,177 4,181 1 1,486 4,473 1
j
Trade and other payables 732 489 – 462 2 86
Accrued and contract liabilities – – – 71 – –
Total current liabilities 732 489 – 533 2 86
A description of the balances over US$200 thousand in the current or comparative year is given below.
Entities under common control
g Prepayments for property, plant and equipment totalling US$8,422 thousand were made to FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress) in relation
totheongoing update of pellet lines and work on the concentrate stockyard. No such prepayments were made at the end of the comparative year ended 31 December 2020.
h Prepayments and other current assets totalling US$1,123 thousand related to insurance premiums from ASK Omega (2020: US$1,053 thousand); and
i Prepayments and other current assets totalling US$572 thousand related to spare parts from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress)
(2020:US$279thousand).
j Trade and other payables included US$221 thousand (2020: US$195 thousand) related to the purchase of oxygen, scrap metal and services from Kislorod PCC and US$295 thousand
(2020:US$191 thousand) related to the purchase of spare parts and services from FZ Solutions LLC (formerly OJSC Berdichev Machine-Building Plant Progress).
### 198 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 34: Related party disclosures continued**

# **Associated companies**

1. Trade and other receivables included US$4,161 thousand (2020: US$4,473 thousand) related to dividends declared by TIE/Ruida LLC.

2. Trade and other payables included US$489 thousand (2020: US$2 thousand) related to purchases of logistics services from TIE/Ruida LLC.

# **Note 35: Events after the reporting period**

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 is, as at the date of the approval of these consolidated financial statements, still ongoing. To date, this action has resulted in significant loss of life and the destruction of key infrastructure in a number of regions across Ukraine, but not in close proximity of the Group's mines and processing plant. Military activities to date, however, have impacted the Group's logistics network, with operations at the port of Pindenny in southwest Ukraine formally halted by the port authorities, as announced by the Group on 25 February 2022. The armed conflict in Ukraine continues to pose a threat to the Group's mining, processing and logistics operations within Ukraine.

The situation in Ukraine remains uncertain and unpredictable. 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 the 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 Principal Risks section on pages 57 and 58 for further information.

# **Critical judgements**

The Russian invasion into Ukraine is treated as a non-adjusting post balance sheet event and therefore does not affect the carrying value of the Group's assets and liabilities as at 3 December 2021. This event however poses a material uncertainty in respect of the Group's going concern assessment (see Note 2 Basis of preparation for further details). The Group adjusted its long-term model to reflect the lower sales volume caused by the unavailable seaborne sales to its customers. The anticipated lower sales volume will have an adverse effect on the Group's cash flow generation, which would in turn negatively impact the carrying value of the Group's non-current assets in future periods. Based on the base case of the Group's long-term model, the Group's single cash generating unit's assets, including plant, property and equipment, and goodwill and other intangibles, may become subject to an impairment loss of approximately US$190,000 thousand using assumptions for iron ore prices, production costs as well as production and sales volumes, which are consistent with the conditions experienced after the balance sheet date and up until the date of approval of these financial statements. The impairment loss will, however, depend on a number of factors that will only be known to the Group as at this point of time. As a result of the remaining material uncertainty outside of the Group's control in terms of potential disruption to the supply of key consumables, such as natural gas, electricity and diesel fuel, and equipment in the future and a further interruption to the Group's logistics network currently available, the Group also prepared stress tests with more severe adverse changes, such as a ceasing of its production for 3, 6 and 18 months. Under these stress test scenarios, the impairment loss may increase to an amount between US$320,000 thousand and US$400,000 thousand, again depending on circumstances and macro-economic data, which will only be known to the Group as at the point of time of the preparation of its interim condensed consolidated financial statements for the six month period ended 30 June 2022. In addition to the potential financial impact on the Group's non-current assets in the future and as disclosed in Note 2 Taxation, the recoverability of the recognised deferred tax assets will be re-assessed when the Group is preparing its interim condensed consolidated financial statements for the six month period ended 30 June 2022.

Other than the event disclosed above, there are no material adjusting or non-adjusting events that have occurred subsequent to the year end.

Ferrexpo plc Annual Report & Accounts 2021 199
FINANCIAL STATEMENTS
## Parent Company Statement of Financial Position
Ferrexpo plc (the “Company”) is required to present its separate Parent Company statement of financial position and certain notes to the
statement of financial position on a standalone basis as at 31 December 2021 and 2020, which have been prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). Information on the principal accounting policies is outlined in Note3
Significant accounting policies.
Ferrexpo plc is exempt from presenting a standalone Parent Company profit and loss account and statement of comprehensive income in
accordance with Section 408 of the UK Companies Act 2006.
As at As at
US$000 Notes 31.12 . 21 31.12.20
Fixed assets
Investment in subsidiary undertakings 4 147,496 147,49 6
Total fixed assets 147,496 147,49 6
Current assets
Debtors: amounts falling due within one year 5 176,391 12,202
Debtors: amounts falling due after more than one year 5 156,971 648,292
Cash at bank and in hand 199 208
Total current assets 333,561 660,702
Creditors: amounts falling due within one year 6 3,503 4,270
Net current assets 330,058 656,432
Total assets less current liabilities 477,554 803,928
Creditors: amounts falling due after more than one year 6 − 104
Net assets 477,554 803,824
Capital and reserves
Called up share capital 7 121,628 121,628
Share premium account 185,112 18 5,112

| Treasury share reserve | 7 (77,260) (77, 26 0) |
| --- | --- |
| Employee benefit trust reserve | 7 (1,679) (2,535) |
| Retained earnings | 7 249,753 576,879 |

Total capital and reserves 477,554 803,824
The profit after taxation for the Company, registration number 05432915, was US$293,484 thousand for the financial year ended 31 December
2021 (2020: US$85,817 thousand).
The financial statements were approved by the Board of Directors and authorised for issue on 21 April 2022 and signed on behalf of the Board.
Lucio Genovese Jim North
Non-executive Chair Chief Executive Officer & Executive Director
### 200 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

## Parent Company Statement of Changes in Equity

|  US$000 | Issued capital | Share premium | Treasury share reserve | Employee benefit trust reserve | Retained earnings | Total capital and reserves  |
| --- | --- | --- | --- | --- | --- | --- |
|  **At 1 January 2020** | 121,628 | 185,112 | (77,260) | (2,826) | 685,351 | 912,005  |
|  Profit for the year | – | – | – | – | 85,817 | 85,817  |
|  **Total comprehensive income for the year** | – | – | – | – | 85,817 | 85,817  |
|  Equity dividends paid to shareholders | – | – | – | – | (194,289) | (194,289)  |
|  Share-based payments | – | – | – | 291 | – | 291  |
|  **At 31 December 2020** | 121,628 | 185,112 | (77,260) | (2,535) | 576,879 | 803,824  |
|  Profit for the year | – | – | – | – | 293,484 | 293,484  |
|  **Total comprehensive income for the year** | – | – | – | – | 293,484 | 293,484  |
|  Equity dividends paid to shareholders | – | – | – | – | (620,610) | (620,610)  |
|  Share-based payments | – | – | – | 858 | – | 858  |
|  **At 31 December 2021** | 121,628 | 185,112 | (77,260) | (1,679) | 249,753 | 477,554  |

Ferrisopo plc Annual Report & Accounts 2021 201
FINANCIAL STATEMENTS

# Notes to the Parent Company Financial Statements

## Note 1: Corporate information

The Company is incorporated and registered in England, which is considered to be the country of domicile, with its registered office at 55 St James's Street, London SW1A 1LA, UK. The Company's Ordinary Shares are traded on the London Stock Exchange.

The majority shareholder of the Company is Fevamotinico S.a.r.l. ("Fevamotinico"), a company incorporated in Luxembourg and ultimately owned by The Minco Trust, of which Kostyantin Zhevago, the Group's previous Chief Executive Officer, and two members of his family are the beneficiaries. At the time this report was published, Fevamotinico held 50.3% (2020: 50.3%) of the Company's issued share capital.

## Note 2: Basis of preparation

The financial statements are prepared under the historical cost convention and in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101").

The financial statements are presented in US dollars (US$), the Company's functional currency, and all values are rounded to the nearest thousand, except where otherwise indicated. The functional currency is determined as the currency of the primary economic environment in which the Company operates. The majority of the Company's operating activities are conducted in US dollars.

The Company has taken advantage of the following disclosure exemptions under FRS 101 as the Company is included in publicly available consolidated financial statements, which include disclosures that comply with the standards listed below:

- the requirements of paragraphs 40(b) and 46-52 of IFRS 2 Share-based payments;
- the requirements of IFRS 7 Financial instruments: Disclosures;
- the requirements of paragraphs 91-99 of IFRS 13 Fair value measurements;
- the following paragraphs of IAS 1 Presentation of financial statements:
  - 10 (statement of cash flows);
  - 16 (statement of compliance with all IFRSs);
  - 38A (requirement for minimum of two primary statements, including cash flow statements);
  - 38B-D (additional comparative information);
  - 111 (cash flow statement information); and
  - 134-136 (capital management disclosures).
- the requirements of IAS 7 Statement of cash flows;
- the requirements of paragraphs 30 and 31 of IAS 8 Accounting policies, changes in accounting estimates and errors;
- the requirements of paragraph 17 of IAS 24 Related party disclosures and the requirements to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary, which is a party to the transaction, is wholly owned by such a member of the same standard.

The Company does not have any employees other than the Directors. The requirement to give employee numbers and costs information under Section 411 of the Companies Act 2006 is addressed in the Directors' Remuneration Report of the Group on pages 118 and 119.

## Going concern

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 is, as at the date of the approval of these financial statements, still ongoing. This poses a significant threat to the Group's mining, processing and logistics operations within Ukraine and therefore a material uncertainty in terms of the Company's going concern. Considering the current situation of the war in Ukraine, all identified available mitigating actions and the results of the management's going concern assessment, the Company continues to prepare its financial statements on a going concern basis, although a material uncertainty remains as some of the uncertainties are outside of the Group management's control as the duration and the impact of the war cannot be predicted at this point of time. For further details see Note 2 Basis of preparation of the Group's consolidated financial statements.

## Note 3: Significant accounting policies

### Foreign currencies

The accounting policy is consistent with the Group's policy set out in Note 2 Basis of preparation of the Group's financial statements.

### Investments in subsidiary undertakings

Equity investments in subsidiaries are carried at cost less any provision for impairments. Investments are reviewed for impairment at each reporting date. If indication exists that investments may be impaired, the investments' recoverable amounts are estimated. If the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount, which is the higher of its fair value less costs of disposal and its value-in-use. Impairment losses are recognised in the income statement.

### Financial guarantees

Financial guarantee liabilities issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss, which is incurred because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument.

202 Ferreago plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Note 3: Significant accounting policies continued**

Financial guarantees provided are initially recognised at fair value and subsequently measured at the higher of the loss allowances determined under IFRS 9 Financial Instruments and the amount initially recognised less, when appropriate, cumulative fees recognised as revenue under IFRS 15 Contracts with customers.

# **Treasury share reserve**

Own equity instruments, which are reacquired (treasury shares), are recognised at cost and deducted from equity shown in the treasury share reserve. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in reserves.

# **Share-based payments**

The accounting policy is consistent with the Group's policy set out in Note 28 Share-based payments of the Group's financial statements.

# **Employee benefit trust reserve**

Ferrexpo plc shares held by the Company are classified in capital and reserves as employee benefit trust reserves and recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost taken to revenue reserves. No gain or loss is recognised on the purchase, sale issue or cancellation of equity shares.

# **Dividend income**

Dividend income is recognised to the extent that the Company has the right to receive payment, typically upon declaration by the subsidiary.

# **Taxation**

The accounting policy is consistent with the Group's policy set out in Note 11 Taxation of the Group's financial statements.

# **Changes in accounting policies**

The accounting policies adopted and applied in the preparation of the financial statements are consistent with those of the previous year, except for the adoption of new and amended IFRSs and IFRIC interpretations effective as of 1 January 2021. The new and amended IFRSs and IFRIC interpretations adopted are consistent with the Group's new accounting policies set out in Note 3 New accounting policies of the Group's financial statements and have not had a significant impact on these financial statements.

# **Use of critical estimates and judgements**

The Company has not identified any area involving the use of critical estimates and judgements made by management in preparing the separate Parent Company financial statements.

# **Note 4: Investment in subsidiary undertakings**

Investment in subsidiary undertakings at 31 December 2021 relates to the Company's investment in Ferrexpo AG, which is domiciled in Switzerland and wholly owned by the Company. The subsidiary's registered office is at Bahnhofstrasse 13, 6340 Baar, Switzerland.

|  US$000 | At 31.12.21 | At 31.12.22  |
| --- | --- | --- |
|  Investment in subsidiary undertakings | 147,496 | 147,496  |
|  **Total investment in subsidiary undertakings** | **147,496** | **147,496**  |

See Note 32 Consolidated subsidiaries to the consolidated financial statements for further information on subsidiaries indirectly held by the Company.

# **Note 5: Debtors**

Debtors as at 31 December 2021 related to the following:

|  US$000 | At 31.12.21 | At 31.12.22  |
| --- | --- | --- |
|  Amounts falling due within one year |  |   |
|  Amounts owed by subsidiary undertakings | 175,034 | 10,203  |
|  Prepaid expenses | 600 | 898  |
|  Income tax receivable | 613 | 1,101  |
|  Accrued interest owed by subsidiary undertakings | 144 | -  |
|  **Total amounts falling due within one year** | **176,391** | **12,202**  |
|  Amounts falling due after more than one year |  |   |
|  Amounts owed by subsidiary undertakings | 155,119 | 645,557  |
|  Accrued interest owed by subsidiary undertakings | - | 265  |
|  Deferred tax assets | 1,652 | 2,470  |
|  **Total amounts falling due after more than one year** | **156,971** | **648,292**  |
|  **Total debtors** | **333,362** | **660,494**  |

Ferrexpo plc Annual Report & Accounts 2021 203
FINANCIAL STATEMENTS

# Notes to the Parent Company Financial Statements continued

## Note 5: Debtors continued

The Company's loans are contractually payable on demand but having assessed the expected repayment profile, this balance is presented as falling due after more than one year. Furthermore, taking into account the expected repayment profile, receivables owed by subsidiary undertakings relating to financial guarantee fees in the amount of US$21,928 thousand have been re-presented as falling due after more than one year as at 31 December 2021.

Amounts owed by subsidiary undertakings as at the end of the comparative year ended 31 December 2020 include the financial guarantees provided by the Company relating to the future guarantee fee receivable recorded when the financial guarantees were recognised as a liability. Following the full repayment of the Group's syndicated revolving pre-export facility on 30 June 2021, no amounts in relation to financial guarantees are outstanding as at 31 December 2021.

The table on the previous page includes the impact from the application of the expected credit loss impairment model under IFRS 9 Financial instruments. The balance of impairment gains on debtors included in the profit after taxation is US$2,788 thousand as of 31 December 2021 (2020: US$795 thousand).

## Note 6: Creditors

Creditors as at 31 December 2021 related to the following:

|  USD/£ | At 31.12.21 | At 31.12.20  |
| --- | --- | --- |
|  Creditors: amounts falling due within one year |  |   |
|  Financial guarantees | - | 362  |
|  Other payables and accrued liabilities | 3,503 | 3,908  |
|  Total creditors: amounts falling due within one year | 3,503 | 4,270  |
|  Creditors: amounts falling due after more than one year |  |   |
|  Financial guarantees | - | 104  |
|  Total creditors: amounts falling due after more than one year | - | 104  |

The Company's policy is to provide financial guarantees under limited circumstances only for the benefit of wholly owned or substantially owned subsidiaries.

As at the end of the comparative year ended 31 December 2020, the Company was a guarantor to the major external debt facility of the Group's subsidiary Fennepo Finance plc, a syndicated revolving pre-export finance facility signed in 2018 and with repayment scheduled to take place in quarterly instalments between 2020 and 2022. The remaining outstanding amount of US$140,000 thousand was fully repaid on 30 June 2021 and the facility was subsequently cancelled.

The Company earned guarantee fees from its subsidiaries for the financial guarantees provided in respect of the Group's finance facility aforementioned.

## Note 7: Share capital and reserves

### Share capital

Share capital represents the nominal value on issue of the Company's equity share capital, comprising £0.10 Ordinary Shares. The fully paid share capital of the Company at 31 December 2021 was €13,967,956 Ordinary Shares (2020: €13,967,956 Ordinary Shares) at a par value of £0.10 paid for in cash, resulting in share capital of US$121,628 thousand (2020: US$121,628 thousand) per the statement of financial position.

### Treasury share reserve

In September 2008, the Company completed a buy-back of 25,343,814 shares for a total cost of US$77,260 thousand (2020: US$77,260 thousand). These shares are currently held as treasury shares by the Group. The Companies Act 2006 forbids the exercise of any rights (including voting rights) and the payment of dividends in respect of treasury shares.

### Employee benefit trust reserve

This reserve represents the treasury shares used to satisfy future grants for senior management incentive schemes. As at 31 December 2021, the employee benefit trust reserve included 924,899 shares (2020: 924,899 shares).

### Distributable reserves

The Company is the Group's holding company, with no direct operating business, so its ability to make distributions to its shareholders is dependent on its ability to access profits held in the subsidiaries. The Company's retained earnings shown in the statement of changes in equity as of 31 December 2021 do not reflect the profits that are available for distribution by the Company as of this date. Prior to the dividend proposed as of 31 December 2021 and taking into account relevant film capitalisation rules and provisions of the Companies Act 2006, the total available distributable reserves of Fennepo plc was US$170,890 thousand as of 31 December 2021 (2020: US$317,646 thousand). Details on dividends are disclosed in Note 12 Earnings per share and dividends paid and proposed of the Group's consolidated financial statements.

### Companies Act requirements in respect of dividend payments

During the financial year 2021, the Directors became aware of a technical issue in respect of the interim dividend declared on 4 August 2021 and, following investigations of the issue, of further dividend payments made by the Company in previous years. Further details are included in Directors' Report on page 128.

204

Fennepo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Note 8: Events after the reporting period
On 24 February 2022, Russia began its invasion into Ukraine using direct military force. This has led to an intense armed conflict in Ukraine, which
poses a significant threat to the Group’s mining, processing and logistics operations within the country. This event is treated as a non-adjusting
post balance sheet event and therefore does not affect the carrying value of the Company’s assets and liabilities as at 31 December 2021. This
event however poses a material uncertainty in respect of the Company’s going concern assessment. The anticipated lower sales volume will have
an adverse effect on the Group’s cash flow generation, which may in turn negatively impact the carrying value of the Company’s investment in
subsidiary undertakings in future periods. More details are provided in Note 2 Basis of preparation and Note 35 Events after the reporting period of
the Group’s consolidated financial statements. For further information see also the Principal Risks section of the Group on pages 57 and 58.
Other than the event disclosed above, there are no material adjusting or non-adjusting events that have occurred subsequent to the year end.
### 205Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Additional Disclosures
See Note 32 Consolidated subsidiaries for further information on the Group.
Unless otherwise stated, the equity interest disclosed includes ordinary or common shares, which are owned by subsidiaries of the Group.
Equity interest owned
31.12 . 21 31.12.20
Name Address of consolidated subsidiary’s registered office Principal activity % %
Consolidated subsidiaries
Ferrexpo AG Bahnhofstrasse 13, 6340 Baar, Switzerland Holding company and 100.0 100.0
sale of iron ore pellets and
concentrate
PJSC Ferrexpo Poltava Mining Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining and 100.0 100.0
processing
LLC Ferrexpo Yeristovo Mining Budivelnykiv Street 15, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining 100.0 100.0
LLC Ferrexpo Belanovo Mining Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Iron ore mining 100.0 100.0
Ferrexpo Middle East FZE Office A2207, Jafza One, Jebel Ali Free Zone, Dubai, U.A.E., P.O. Box 18341 Sale of iron ore pellets 100.0 100.0
and concentrate
Ferrexpo Finance plc 55 St James’s Street, London SW1A 1LA, United Kingdom Finance 100.0 100.0
Ferrexpo Services Limited Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Management services 100.0 100.0
and procurement
Universal Services Group Ltd. Naberezna Street 2, 39800 Horishni Plavni, Poltava Region, Ukraine Asset holding company 100.0 100.0
DP Ferrotrans Portova Street 65, 39802 Horishni Plavni, Poltava Region, Ukraine Trade, transportation 100.0 100.0
services
LLC FerroLocoTrans Portova Street 65, 39802 Horishni Plavni, Poltava Region, Ukraine Trade, transportation 100.0 100.0
services
United Energy Company LLC Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Holding company 100.0 100.0
Nova Logistics Limited Budivelnykiv Street 16, 39802 Horishni Plavni, Poltava Region, Ukraine Service company 51.0 51.0
Ferrexpo Singapore PTE Ltd. 1 Fullerton Road, One Fullerton #02-01, Singapore 049213, Singapore Marketing services 100.0 100.0
Ferrexpo Shipping International Ltd. Ajeltake Road, MH-96960 Ajeltake Island – Majuro, Marshall Islands Holding company 100.0 100.0
Iron Destiny Ltd. Ajeltake Road, MH-96960 Ajeltake Island – Majuro, Marshall Islands Shipping company 100.0 100.0
First-DDSG Logistics Holding GmbH Handelskai 348, 1020 Wien, Austria Holding company 100.0 100.0
EDDSG GmbH Handelskai 348, 1020 Wien, Austria Barging company 100.0 100.0
DDSG Tankschiffahrt GmbH Handelskai 348, 1020 Wien, Austria Barging company 100.0 100.0
DDSG Services GmbH Handelskai 348, 1020 Wien, Austria Service company 100.0 100.0
DDSG Mahart Kft. Sukorói út 1., 8097 Nadap, Hungary Barging company 100.0 100.0
Pancar Kft. Sukorói út 1., 8097 Nadap, Hungary Barging company 100.0 100.0
Ferrexpo Port Services GmbH Handelskai 348, 1020 Wien, Austria Bunker business 100.0 100.0
Transcanal SRL Ecluzei Street 1, Agigea, Constanta, Romania Port services 77.6 77.6
Helogistics Asset Leasing Kft. Sukorói út 1., 8097 Nadap, Hungary Asset holding company 100.0 100.0
LLC DDSG Ukraine Holding Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Holding company 100.0 100.0
LLC DDSG Invest Building 4/6, Ioanna Pavla II Street, 01042 Kyiv, Ukraine Asset holding company 100.0 100.0
LLC DDSG Ukraine Shipping Patris Lumumba Street 4/6, 01042 Kyiv, Ukraine Barging company 100.0 100.0
Management
LLC DDSG Ukraine Shipping Radhospna Street 18, 39763 Kamiani Potoky, Kremenchuk District, Poltava Region, Ukraine Asset holding company 100.0 100.0
Ferrexpo Poltava Mining Charity Fund 1 Heroiv Dnipra Street 23-a, 39802 Horishni Plavni, Poltava Region, Ukraine Charity fund 100.0 100.0
Associate
TIS Ruda LLC Alekseya Stavnitzera Street 50, 67543 Vizirka Village, Odesa Region, Ukraine Port development 49.9 49.9
Fair value through OCI 2
PJSC Stakhanov Railcar Company Rail car producer 1.1 1.1
Vostok Ruda LLC Iron ore mining 1.1 1.1
LLC Atol Gas 9.9 9.9
CJSC AMA Gas 9.0 9.0
CJSC Amtek Gas 9.0 9.0
1. Charity fund controlled by the Group through its HSEC Committee.
2. All investments relate to companies incorporated in Ukraine and are fully impaired.
### 206 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
## Alternative Performance Measures
When assessing and discussing the Group’s reported financial performance, financial position and cash flows, management may make reference
to Alternative Performance Measures (“APMs”) that are not defined or specified under International Financial Reporting Standards (“IFRSs”).
APMs are not uniformly defined by all companies, including those in the Group’s industry. Accordingly, the APMs used by the Group may not be
comparable with similarly titled measures and disclosures made by other companies. APMs should be considered in addition to, and not as a
substitute for or as superior to, measures of financial performance, financial position or cash flows reported in accordance with IFRSs.
Ferrexpo makes reference to the following APMs in the 2021 Annual Report.
C1 cash cost of production
Definition: Non-financial measure, which represents the cash cost of production of iron pellets from own ore divided by production volume of own
production ore. Non-C1 cost components include non-cash costs such as depreciation, inventory movements and costs of purchased ore and
concentrate. The Group presents the C1 cash cost of production because it believes it is a useful operational measure of its cost competitiveness
compared to its peer group.
Year ended Year ended
US$000 Notes 31.12 . 21 31.12.20
C1 cash costs 626,561 466,013
Non-C1 cost components 71,339 116,783
Inventories recognised as an expense upon sale of goods 7 697,9 0 0 582,796
Own ore produced (tonnes) 11,220,260 11, 217,926
C1 cash cost per tonne (US$) 55.8 41.5
Underlying EBITDA
Definition: The Group calculates the underlying EBITDA as profit before tax and finance plus depreciation and amortisation, net gains and losses
from disposal of investments and property, plant and equipment, share-based payments and write-offs and impairment losses. The underlying
EBITDA is presented because it is a useful measure for evaluating the Group’s ability to generate cash and its operating performance. See Note 5
Segment information to the consolidated financial statements for further details.
Closest equivalent IFRSs measure: Profit before tax and finance.
Rationale for adjustment: The Group presents the underlying EBITDA as it is a useful measure for evaluating its ability to generate cash and its
operating performance. Also it aids comparability across peer groups as it is a measurement that is often used.
Reconciliation to closest IFRSs equivalent:
Year ended Year ended
US$000 Notes 31.12 . 21 31.12.20
Underlying EBITDA 1,438,759 858,552

| Losses on disposal and liquidation of property, plant and equipment | 7 (4,695) (1,303) |
| --- | --- |
| Share-based payments | 28 (856) (291) |
| Write-offs and impairments | 7 (235,618) (192) |

Depreciation and amortisation (115,112) (102,475)
Profit before tax and finance 1,082,478 754,291
### 207Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Alternative Performance Measures continued
Diluted earnings per share
Definition: Earnings per share calculated using the diluted number of Ordinary Shares outstanding.
Closest equivalent IFRSs measure: Diluted earnings per share.
Rationale for adjustment: Excludes the impact of special items that can mask underlying changes in performance.
Reconciliation to closest IFRSs equivalent:
Year ended Year ended
31.12 . 21 31.12.20
Earnings for the year attributable to equity shareholders – per share in US cents
Basic 148.2 108.1
Diluted 147.9 107. 9
Net cash/(debt)
Definition: Cash and cash equivalents net of interest-bearing loans and borrowings.
Closest equivalent IFRSs measure: Cash and cash equivalents.
Rationale for adjustment: Net cash/(debt) is a measurement of the strength of the Group’s balance sheet. It is presented as it is a useful measure
to evaluate the Group’s financial liquidity.
Reconciliation to closest IFRS equivalent:
As at As at
US$000 Notes 31.12 . 21 31.12.20
Cash and cash equivalents 25 167, 291 270,006
Interest-bearing loans and borrowings – current 26 (48,206) (134,349)
Interest-bearing loans and borrowings – non-current 26 (2,143) (132,129)
Net cash 116,942 3,528
Capital investment
Definition: Capital expenditure for the purchase of property, plant and equipment and intangible assets.
Closest equivalent IFRSs measure: Purchase of property, plant and equipment and intangible assets (net cash flows used in investing activities).
Rationale for adjustment: The Group presents the capital investment as it is a useful measure for evaluating the degree of capital invested in its
business operations.
Reconciliation to closest IFRSs equivalent:
As at As at
US$000 Notes 31.12 . 21 31.12.20
Purchase of property, plant and equipment and intangible assets (net cash flows used in
investingactivities) 13/15 360,869 205,779
### 208 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

# **Total liquidity**

**Definition:** Sum of cash and cash equivalents, available committed facilities and undrawn uncommitted facilities. Committed facilities at the end of the comparative year ended 31 December 2020 include the Group's syndicated revolving pre-export finance facility, while uncommitted facilities include trade finance facilities secured against receivable balances related to these specific trades. See Note 26 Interest-bearing loans and borrowings and Note 27 Financial instruments for further information.

**Closest equivalent IFRSs measure:** Cash and cash equivalents.

**Rationale for adjustment:** The Group presents total liquidity as it is a useful measure for evaluating its ability to meet short-term business requirements.

# **Reconciliation to closest IFRSs equivalent:**

|  US$000 | Notes | As at 31.12.21 | As at 31.12.20  |
| --- | --- | --- | --- |
|  Cash and cash equivalents | 23 | 167,291 | 270,006  |
|  Available committed facilities |  | – | 10,000  |
|  Undrawn uncommitted facilities |  | 97,854 | 80,000  |
|  **Total liquidity** |  | **285,145** | **360,006**  |

Ferrexpo plc Annual Report & Accounts 2021

209
FINANCIAL STATEMENTS
## Glossary

| Act | CIS |
| --- | --- |
| The Companies Act 2006 | The Commonwealth of Independent States |
| AGM | CODM |
| The Annual General Meeting of the Company | The Executive Committee is considered to be the Group’s Chief |

Operating Decision-Maker
Articles
The Articles of Association of the Company Company
Ferrexpo plc, a public company incorporated in England and Wales
Audit Committee
withlimited liability
The Audit Committee of the Company’s Board
Controlling shareholder
Bank F&C
50.3% of Ferrexpo plc shares are held by Fevamotinico S.a.r.l.;
Bank Finance & Credit
Fevamotinico is wholly owned by The Minco Trust. The Minco
Belanovo or Bilanivske Trust is a discretionary trust that has three beneficiaries, consisting
An iron ore deposit located immediately to the north of Yeristovo of Mr Zhevago and two other members of his family. Each of the
beneficiaries of The Minco Trust is considered a controlling shareholder
Benchmark price
of Ferrexpo plc
International seaborne traded iron ore pricing mechanism understood
to be offered to the market by major iron ore producers under long- Corporate Governance Code

| term contracts | 2018 UK Corporate Governance Code |
| --- | --- |
| Beneficiation process | CPI |
| A number of processes whereby the mineral is extracted from the | Consumer Price Index |

crudeore
CRU
BIP The CRU Group provides market analysis and consulting advice
Business Improvement Programme, a programme of projects to intheglobal mining industry (see www.crugroup.com)
increase production output and efficiency atFPM
CSR
Blast furnace pellets Corporate Social Responsibility
Used in Basic Oxygen Furnace (“BOF”) steelmaking and constitute
DAP
about 70% of the traded pellet market
Delivery at place
Board
DFS
The Board of Directors of the Company
Detailed feasibility study
BT
Directors
Billion tonnes
The Directors of the Company
C1 costs
Direct reduction
Represents the cash costs of production of iron pellets from own ore,
Used in Direct Reduction Iron (“DRI”) production
divided by production volume from own ore, and excludes non-cash
costs such as depreciation, pension costs and inventory movements, “DR” pellets
costs ofpurchased ore, concentrate and production cost of gravel In regions where natural gas is cheap and plentiful, such as the
Middle East, DR pellets are mixed with natural gas to produce DRI, an
Capesize
alternative source of metallic to scrap in Electric Arc Furnace (“EAF”)
Capesize vessels are typically above 150,000 tonnes deadweight.
steelmaking. DR pellets are a niche, higher quality product with Fe
Ships in this class include oil tankers, supertankers and bulk carriers
content greater than 67% and a combined level of silica and alumina
transporting coal, ore and other commodity raw materials. Standard
of<2%
capesize vessels are able to transit through the Suez Canal
EBT
Capex
Employee benefit trust
Capital expenditure for the purchase of property, plant and equipment
andintangible assets EPS
Earnings per share
Capital employed
The aggregate of equity attributable to shareholders, non-controlling ERPMC
interests and borrowings Executive Related Party Matters Committee
CFR Europe (including Turkey)
Delivery including cost and freight This segmentation for the Group’s sales includes Austria, Czech
Republic, Germany, Hungary, Romania, Serbia, Slovakia and Turkey
CHF
Swiss franc, the currency of Switzerland Executive Committee
The Executive Committee of management appointed by theBoard
China & South East Asia
This segmentation for the Group’s sales includes China and Vietnam Executive Directors
The Executive Directors of the Company
CID
Committee of Independent Directors FBM
LLC Ferrexpo Belanovo Mining, a company incorporated under
CIF
thelawsofUkraine
Delivery including cost, insurance and freight
### 210 Ferrexpo plc Annual Report & Accounts 2021
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Fe IRR
Iron Internal Rate of Return
Ferrexpo JORC
The Company and its subsidiaries Australasian Joint Ore Reserves Committee – the internationally
accepted code for ore classification
Ferrexpo AG Group
Ferrexpo AG and its subsidiaries, including FPM K22
GPL ore has been classified as either K22 or K23 quality, of which K22
Fevamotinico
oreis of higher quality (richer)
Fevamotinico S.a.r.l., a company incorporated with limited liability
inLuxembourg KPI
Key Performance Indicator
First-DDSG
First-DDSG Logistics Holding GmbH (formerly Helogistics Holding KT
GmbH) and its subsidiaries, an inland waterway transport group Thousand tonnes
operating on the Danube/Rhine river corridor
LIBOR
FOB The London Inter Bank Offered Rate
Delivered free on board, which means that the seller’s obligation to
LLC
deliver has been fulfilled when the goods have passed over the ship’s
Limited Liability Company (in Ukraine)
rail at the named port of shipment, and all future obligations in terms
ofcosts and risks of loss or damage transfer to the buyer from that LSE
point onwards London Stock Exchange
FPM LTI
Ferrexpo Poltava Mining, also known as PJSC Ferrexpo Poltava Mining, Lost time injury
acompany incorporated under the laws of Ukraine
LTIFR
FRMCC Lost time injury frequency rate
Finance, Risk Management and Compliance Committee,
LTIP
a sub-committee of the Executive Committee
Long-term incentive plan
FTSE 250
3
m
Financial Times Stock Exchange top 250 companies
Cubic metre
FYM
Middle East & North Africa
LLC Ferrexpo Yeristovo Mining, a company incorporated under the
This segmentation for the Group’s sales includes Algeria and the United
laws ofUkraine
Arab Emirates
GPL
mm
Gorishne-Plavninske-Lavrykivske, the iron ore deposit being mined
Millimetre
byFPM
MT
Group
Million tonnes
The Company and its subsidiaries
mtpa
HSE
Million tonnes per annum
Health, safety and environment
NBU
HSEC Committee
National Bank of Ukraine
The Health, Safety, Environment and Community Committee
Nominations Committee
IAS
The Nominations Committee of the Board
International Accounting Standards
Non-executive Directors
IASB
Non-executive Directors of the Company
International Accounting Standards Board
NOPAT
IFRIC interpretations
Net operating profit after tax
IFRS interpretations as issued by the IFRS Interpretations Committee
North America
IPO
This segmentation for the Group’s sales includes the United States
Initial public offering
North East Asia
Iron ore concentrate
This segmentation for the Group’s sales includes Japan and Korea
Product of the beneficiation process with enriched iron content
OHSAS 18001
Iron ore pellets
International safety standard “Occupational Health & Safety
Balled and fired agglomerate of iron ore concentrate, whose physical
Management System Specification”
properties are well suited for transportation to and reduction within a
blast furnace Ordinary Shares
Ordinary Shares of 10 pence each in the Company
Iron ore sinter fines
Fine iron ore screened to -6.3mm
### 211Ferrexpo plc Annual Report & Accounts 2021
FINANCIAL STATEMENTS
## Glossary continued
Ore Tolling
A mineral or mineral aggregate containing precious or useful minerals The process by which a customer supplies concentrate to a smelter
insuch quantities, grade and chemical combination as to make and the smelter invoices the customer with the smelting charge, and
extractioneconomic possibly arefining charge, and then returns the metal to the customer
Panamax Ton
Modern panamax ships typically carry a weight of between 65,000 US short ton, equal to 0.9072 metric tonnes
and 90,000 tonnes of cargo and can transit both the Panama and
Tonne or t
Suezcanals
Metric tonne
PPE
Treasury shares
Personal protective equipment
A company’s own issued shares that it has purchased but
PPI notcancelled
Ukrainian producer price index
TSF
Probable reserves Tailings storage facility
Those measured and/or indicated mineral resources which are not
TSR
yet “proved”, but of which detailed technical and economic studies
Total Shareholder Return. The total return earned on a share over a
have demonstrated that extraction can be justified at the time of
period of time, measured as the dividend per share plus capital gain,
determination and under specific economic conditions
divided byinitial share price
Proved reserves
UAH
Measured mineral resources of which detailed technical and economic
Ukrainian hryvnia, the currency of Ukraine
studies have demonstrated that extraction can be justified at the time
ofdetermination and under specific economic conditions UK adopted IFRS
International Financial Reporting Standards adopted for use in the
PXF
United Kingdom
Pre-export finance
Ukr SEPRO
Rail car
The quality certification system in Ukraine, regulated by law to ensure
Railway wagon used for the transport of iron ore concentrate or pellets
conformity with safety and environmental standards
Relationship Agreement
Underlying EBITDA
The relationship agreement entered into among Fevamotinico S.a.r.l.,
The Group calculates the underlying EBITDA as profit before tax
Kostyantin Zhevago, The Minco Trust and the Company
andfinance plus depreciation and amortisation, net gains and losses
Remuneration Committee from disposal of investments and property, plant and equipment,
The Remuneration Committee of the Board share-based payments and write-offs and impairment losses
Reserves Underlying EBITDA margin
Those parts of mineral resources for which sufficient information is Underlying EBITDA (see definition above) as a percentage of revenue
available to enable detailed or conceptual mine planning and for which
US$/t
such planning has been undertaken. Reserves are classified as either
US dollars per tonne
proved orprobable
Value-in-use
Resources
The implied value of a material to an end user relative to other options,
Concentration or occurrence of material of intrinsic economic interest
e.g.evaluating, in financial terms, the productivity in the steelmaking
inor on the earth’s crust in such form, quality and quantity that there
process of a particular quality of iron ore pellets versus the productivity
arereasonable prospects for eventual economic extraction
ofalternative qualities of iron ore pellets
Sinter
VAT
A porous aggregate charged directly to the blast furnace which is
Value added tax
normally produced by firing fine iron ore and/or iron ore concentrate,
other binding materials and coke breeze as the heat source WAFV
Weighted average fair value
Spot price
The current price of a product for immediate delivery WMS
Wet magnetic separation
Sterling/£
Pounds sterling, the currency of the United Kingdom Yeristovo or Yerystivske
The deposit being developed by FYM
STIP
Short-Term Incentive Plan
Tailings
The waste material produced from ore after economically recoverable
metals or minerals have been extracted. Changes in metal prices
and improvements in technology can sometimes make the tailings
economic to process at a later date
### 212 Ferrexpo plc Annual Report & Accounts 2021
## Useful contact information
### Registered office
55 St James’s Street
London SW1A 1LA
### Company Secretary’s office
Company Secretary
Ferrexpo Plc
55 St James’s Street
London SW1A 1LA
Tel: +44 (0) 207 389 8300
Email: info@ferrexpo.com
### Share registrar
Equiniti Group Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel: 0371 384 2030 (+44 121 415 7047 from outside UK)
https://equiniti.com/uk/
### Advisers
Auditor
MHA Macintyre Hudson
2 London Wall Place
London EC2Y 5AU
Solicitors
Herbert Smith Freehills
Exchange House
Primrose Street
London EC2A 2EG
Corporate broker
Liberum Capital
25 Ropemaker Street
London EC2Y 9LY
Sponsor
BDO LLP
55 Baker Street
London W1U 7EU
## WWW.FERREXPO.COM
### Ferrexpo plc Annual Report & Accounts 2021
### FERREXPO PLC
### 55 ST JAMES’S STREET, LONDON SW1A 1LA
### T +44 (0)20 7389 8300