Ferrexpo : 2021 Annual Report and Accounts (PDF)

Ferrexpo plc Annual Report & Accounts 2021

STRATEGIC REPORT

Chair's Statement02

A Significant Heritage 04

Ferrexpo: Strategic Priorities 06

CEO's Review 08

Response to Covid-19 11

Market Review 12

Business Model 16

Strategic Framework 18

Key Performance Indicators 20

Financial Review 22

Operational Review 26

HSEC Committee Chair's Review 30

Health and Safety 32

Environment 35

TCFD Reporting 38

Workforce Development and Inclusion 40

Community Engagement 42

Corporate Governance 44

Non-Financial Information Statement 45

Stakeholder Engagement Activities 46

Section 172 Statement 50

Risk Management 54

Principal Risks 56

Viability Statement 73

CORPORATE GOVERNANCE

Chair's Introduction

Board of Directors Executive Committee

Corporate Governance Compliance Corporate Governance Report Audit Committee Report Nominations Committee Report Remuneration Report Directors' Report Statement of Directors' Responsibilities

FINANCIAL STATEMENTS

76 Independent Auditor's Report to the

78 Members of Ferrexpo plc 135

80 Consolidated Income Statement 147 81 Consolidated Statement of

83 Comprehensive Income 148 94 Consolidated Statement

100 of Financial Position 149

106 Consolidated Statement of Cash Flows 150 128 Consolidated Statement of Changes

in Equity 151 133 Notes to the Consolidated

Financial Statements 152 Parent Company Statement of

Financial Position 200 Parent Company Statement of

Changes in Equity 201 Notes to the Parent Company

Financial Statements 202

Additional Disclosures 206

Alternative Performance Measures 207

Glossary 210

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.

STANDING WITH UKRAINELooking 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

to date1. 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.

Chair's Statement

REFLECTING ON RECENT EVENTS

Events of 2022 will have a significant impact on the Ukrainian people, their communities and their future generations.

At Ferrexpo, we had expected the year 2022 to be the year where we celebrated 15 years since the Group listed in 2007. Instead, we are focused on the safety and wellbeing of our Ukrainian workforce and communities across Ukraine, following Russia's invasion, and look to a future of helping to rebuild a country. Our assets have more than 50 years of operating history in Ukraine, through our workforce, local communities and suppliers located throughout Ukraine. We stand with Ukraine, and look forward to the future, whereby Ukraine remains united and can look towards a more positive future for the next generation. To help in the near term, we have established a Humanitarian Fund to help direct funding to humanitarian projects both in our local communities, as well as across Ukraine, with details of this fund available on our website.

Looking back at 2021 in my second annual review as Chair, this was a year of positioning our business for the future. Despite the lingering impact of the global Covid-19 pandemic, we retained our focus in 2021 on safety, growth and reducing carbon emissions. Through investing in high grade production, we can contribute more to the Ukrainian economy, growing our business to represent 4% of Ukraine's export revenues in 2021 (2020: 3%). Through financial resilience, we have been able to provide additional support to our local communities throughout both the global Covid-19 pandemic and more recently during Russia's invasion of Ukraine.

We continue to evolve our management and Board to fit our next phase of development. In management changes announced in February 2022, we appointed Jim North as permanent CEO having successfully transitioned the Group into a new phase of its corporate culture and overall growth ambitions. In August 2021, we also appointed Nikolay Kladiev as CFO of the Group having worked as our CFO at our largest operation in Ukraine for over 15 years.

As a Board, we continue to look to strengthen our corporate governance.

In February 2022, we rotated the position of Senior Independent Director to

Fiona MacAulay, and I would like to thank Vitalii Lisovenko for his efforts with stakeholder engagement, who continues to provide a strong presence in Ukraine as a Non-executive Director of the Group. During 2021, we also appointed two additional Independent Non-executive Directors, taking the total number of independent Directors to five. These appointments comprised of Ann-Christin Andersen, who specialises in digital technologies and business transformation, and the appointment of Natalie Polischuk, who is an economist based in Kyiv, and who provides further balance to our Board in terms of regional expertise. Furthermore, as part of our initiative to increase our engagement with the market, I travelled to London in October 2021 to host a corporate governance roadshow and engage directly with our shareholders.

We recognise the importance of climate change, and in October 2021, we announced our inaugural carbon targets, effectively moving to align ourselves to our peer group. To further develop this position, we announced our collaboration with environmental consultants Ricardo plc ("Ricardo") to model and review our decarbonisation pathway for Ferrexpo and the role of iron ore pellets in a low carbon economy - see page 37 for more information. Having set our inaugural medium-term target in line with peers, we have now achieved a 30% reduction in our Scope 1 and 2 emissions combined against our baseline year, demonstrating the progress being made at our operations, and ahead of our peers. See page 36 for details of progress made, and page 34 for the external assurance process we are undertaking on our 2021 reporting for carbon emissions, as well as safety.

We also took steps in 2021 to formalise our approach to shareholder returns. We have maintained a consistent approach to shareholder returns since listing in 2007, but we felt it important to outline our approach to help engagement with shareholders. We have structured this policy on the basis of free cash flow to ensure that our investments in growth can continue, targeting a payout of 30% of the Group's

GOVERNANCE

FIVE

Number of Independent Non-executive Directors increased to five out of eight Directors (31 December 2020: three of six).

CLIMATE CHANGE TARGETS

30% REDUCTION

Carbon targets set to reduce carbon emissions by 30% by 2030, with this level achieved in 2021, and a net zero goal for 2050.

See Environment section on p35-39 for details of progress made.

DELIVERING VALUE TO UKRAINE

4% EXPORTS

Ferrexpo's role in Ukraine increased to represent 4% of exports in 2021 (2020: 3%).

free cash flow as dividends going forward, and to date the Group has distributed 37% of free cash flow in respect of 2021.

Looking ahead, Ukraine has shown resilience to date in 2022 and we have every confidence that this will continue in the years to come. The country now faces a significant task ahead to first defend itself, and then to rebuild and repair. As a key part of Ukraine's economy, we will play our part in helping Ukrainians realise a brighter future, through continued investment and development, as we have done for the past 15 years since Ferrexpo listed on the London Stock Exchange. With over US$3.0 billion of investment since listing, we now have a strong platform on which to launch our next phase of growth and details of our progress since 2007 are provided on pages 4 to 5, with future growth plans outlined on pages 28 to 29.

As a final note, on behalf of the Board, I would like to thank all of Ferrexpo's stakeholders for their resilience and teamwork in exceptional circumstances to date in 2022, as well as thank the Group's workforce for its collective effort in producing the Group's result for 2021. I would also like to thank those that are involved in protecting Ukraine's borders, with every community in Ukraine, including our own, suffering at this difficult time.

Lucio Genovese

Chair, Board of Directors

CASE STUDY:

THE IMPORTANCE OF STEEL

Steel is crucial for modern life. Iron ore, the primary ingredient for steel, represents 94% of the total metals mined in the world today9 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)

Per capita usage (kg per person per year)

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 power generation, representing up to 79% of the mass of a wind turbine10, and steel demand is expected to grow by 31% by 2050 to meet the needs of the transition to a low carbon future11. 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.

• 1. World Steel Association (link).

• 2. USGS (link), Worldometer (link).

• 3. USGS (link), Worldometer (link).

• 4. USGS (link), Worldometer (link).

• 5. USGS (link), Worldometer (link).

• 6.www.europeancoatings.com (link).

• 7. Henckens & Worrell (2020) (link).

• 8. USGS (link), Worldometer (link).

• 9. Visual Capitalist (link).

• 10. National Renewable Energy Laboratory (link).

• 11. International Renewable Energy Agency (link).

Steel1	228
Aluminium2	12
Copper 3	3
Zinc4	2
Lead5	2
Titanium6	1
Nickel7	0.4
Lithium8	0.01