Deloitte identifies ‘discrepancies’ in Swiss mining company accounts

Ferrexpo, a Swiss headquartered iron ore company with assets in Ukraine, is to conduct a review of its accounts after auditor Deloitte identified ‘discrepancies’ in bank statements relating to contributions to a charitable foundation

In a statement, the FTSE 250-listed company said Deloitte had received copies of bank statements directly from a charitable foundation called Blooming Land, as part of its process to verify Blooming Land's use of contributions made by Ferrexpo.

Blooming Land is a Ukrainian charity which was established with the primary function of co-ordinating the group's CSR programme and provides medical and social services to local, regional and national communities throughout Ukraine.

The statement said: ‘The copy bank statements from Blooming Land contained as yet unexplained discrepancies. This has caused the board of Ferrexpo to decide to conduct a comprehensive independent review and is in the process of scoping the work.’

According to its first half 2018 results, Ferrexpo donated $9.5m (£7.33m) to Blooming Land over the period and has not made any further donations to the charity since May 2018.

Ferrexpo says it intends to announce its full year 2018 results as planned on 20 March 2019.

The company stated: ‘At the current time, the board cannot guarantee that the review will be complete by then, or complete favourably. Deloitte has indicated that it may qualify or otherwise modify its audit opinion relating to the FY 2018 accounts if this is the case.’

The company said Blooming Land and its sub-funds are separately managed.  According to the notes to its half year results funding is provided solely by one of Ferrexpo’s subsidiaries in Ukraine and Khimreaktiv, an entity connected with Rosava which in turn is controlled by Kostyantin Zhevago, the CEO and ultimate beneficial owner of Ferrexpo.

Blooming Land, and its three sub-funds, are separately managed and accordingly are not controlled and consolidated by the group. There is no agreement or arrangement between Ferrexpo and Khimreaktiv in relation to their contributions to Blooming Land and its sub-funds.

In the six months ended 30 June 2018, Ferrexpo made charitable contributions of $9.5m to Blooming Land. In the year ended 31 December 2017, Ferrexpo made charitable payments to Blooming Land totalling $24m, of which $12m was paid in the six months ended 30 June 2017. Blooming Land’s charitable activities are managed via three related charitable sub-funds which carry out charitable activities by subcontracting individual managers for the specific events they run.

During the period, the board became aware that in the financial year 2017, temporary funding contributions totalling $16m were advanced by Khimreaktiv into one of the sub-funds of Blooming Land. Later during the financial year 2017, those monies were paid to the event managers to conduct their charitable activities and the sub-fund repaid Khimreaktiv using monies subsequently received from Ferrexpo.

According to the commentary to the half year report, based on the advice obtained from the group’s sponsor, those repayments to Khimreaktiv are not considered to be related party transactions for the Ferrexpo Group under the UK listing rules, but are considered related party transactions under IAS 24 Related Parties, that ought previously to have been disclosed. In light of this, the board has made further enquiries about the transactions of Blooming Land and its sub-funds and is satisfied that the related party disclosures are complete.

Report by Pat Sweet

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