"The bails chosen by the Ukrainian courts are shocking" – Nick Bias, Ferrexpo plc

Author

Valery Moiseev

Recently, the media and social networks have been talking a lot about the relations of law enforcement officers with Ukrainian businesses. The reason for this was the recent accusations. But there are companies that have been "communicating" with various law enforcement agencies for a long time, trying to prove themselves right in the language of numbers and laws. One of them is the Ferrexpo plc. Nick Bias, Group Head of Investor Relations and Corporate Communications, told about how the company is affected by its persistent association with the disgraced oligarch Konstantin Zhevago and the case of the head of the Poltava Mining and Processing Plant Viktor Lotous.

You were appointed to a position at Ferrexpo about eight months ago. What are the main tasks set by the Company's Board?

- My main task is information interaction with the Company's shareholders on the London Stock Exchange. I also cooperate with all key divisions of the Group, both at the corporate and operational levels. In other words, Vladyslav, my colleagues in Ukraine, and I work as communicators between the Company and all its external stakeholders (groups of interested parties. — ).

Nick Bias

Who do you identify among these stakeholders?

- When I talk about stakeholders, I am talking about investors, partners, employees, government bodies, analytical and expert centres, media and others. We deliver information by providing it in a form adapted for each consumer. Our task is to ensure that stakeholders and the Company understand each other as best as possible, as the success of Ferrexpo's business depends on this.

What you said is a common task for managers in similar positions. Do you have anything particular in your tasks?

- In Ukraine, we are currently facing a significant number of challenges in the legal field. Therefore, I have to actively explain to our investors what is happening with the Company in Ukraine. They receive information from the mass media, but it is not always reliable and complete. The lack of understanding of the situation worries them a lot, and this is reflected in the Company's share price. Also, a feature of today's work of me and my Ukrainian team is cooperation with various associations, government organizations, and diplomatic missions to convey the position of Ferrexpo on various issues.

The authorities in Ukraine and some media often equate businessman Kostyantyn Zhevago with Ferrexpo. Why does the Company think this is wrong?

- Ferrexpo has a large number of various shareholders, and the family of Kostyantyn Zhevago is one of them. They are no longer the majority shareholders of the Company; that is, their share is less than 50%. Kostyantyn Zhevago does not hold positions in the Company and does not influence the Company's management and its operational activities. In fact, he is one of the shareholders. Yes, big shareholder, but one of many. That is why I believe that the legal claims against Kostyantyn Zhevago, which concern his other businesses, are not relevant to Ferrexpo. And the expression "Ferrexpo of Kostyantyn Zhevago", which is still often heard in Ukraine, I consider incorrect.

Of course, I want to pay tribute to Kostyantyn because he did a lot for this Company. He founded it, took it to the London Stock Exchange, and established relations with institutional investors. Also, thanks to his contribution, Ferrexpo is an international company that has turned into a modern efficient mining company.

In your opinion, how do Ferrexpo investors react to the accusations against Kostyantyn Zhevago in Ukraine?

- We have two categories of investors: private (individuals) and institutional (funds). The latter own large blocks of shares. Before making a purchase, they deeply study the true state of affairs in the Company. They made sure that Mr. Zhevago was actually separated from the Company. This situation is very comfortable for them, so they keep their investments. They not only keep, but also increase them during the last months.

Private investors are more emotional. They have to make decisions based on what they read in media and reports. Sometimes that media can be negative. Therefore, communication with them – almost individually – is very important. This is one of my tasks. In my opinion, most of them understand that Kostyantyn Zhevago is just a shareholder of Ferrexpo. They buy shares of Ferrexpo, not "the company of Kostyantyn Zhevago".

Last year, the authorities of Ukraine brought serious charges against Viktor Lotous, one of the top managers of the Ferrexpo Poltava Mining and Ferrexpo Group. Why does the Company disagree with them?

- Viktor Lotous is a talented and experienced manager. In 37 years, he went from a worker to a top manager of a large enterprise, and the Company appreciates him. The current situation around him, in my opinion, is an example of how certain state structures want to influence Kostyantyn Zhevago in a way that does not comply with the law, namely, through the pressure on Ferrexpo and its employees.

The story with Viktor Lotus develops according to the cascade principle. It has several different cases: administrative and criminal. They are conducted in parallel; one case flows into another, the classification is artificially aggravated, and groundless pretexts are sought for the opening of new proceedings.

For example, in one case, Viktor Lotous is suspected of illicit mining. It is important to note that Ferrexpo Poltava Mining has been mining iron ore for over 50 years, and the mining process itself has not undergone significant changes. However, certain law enforcement agencies claim that the Company mined and sold unfractionated screenings without a license (the investigation calls it crushed stone raw material — ). However, we do not mine it separately — we mine iron ore raw materials. Later, during the production process, a by-product was formed – the screenings. As far as I know, according to Ukrainian legislation, the production and sale of screenings do not require special permits. The inspection reports of the relevant state bodies also confirm compliance with all regulations and standards, and they testify to the absence of violations during the 60 years that we have worked in this way.

Is this a case involving 157 billion hryvnias in losses?

- Yes, this is one of those cases. And, if we delve into the process of calculating losses, taking into account that the losses of the state can be in the form of unpaid tax payments, the logic of the National Police investigators is that the entity should have sold all production waste at an effective price of about 700 US dollars per ton. How can this be if the prices of iron ore did not exceed 120-130 dollars at the best of times? This means that the experts mistakenly valued the waste at about six times the value of the iron ore itself.

The bails chosen by Ukrainian courts are also shocking. In this case, the Pechersk Court of Kyiv imposed an arrest for Viktor Lotous as a measure of restraint with an alternative in the form of bail in the amount of UAH 999 million, which is the second largest bail amount in Ukraine. In general, the prosecutor's office asked for a bail of UAH 157 billion, which is 1/10 of the Ukrainian budget, to be applied to Mr Lotous. In the appeal, the bail amount was reduced to UAH 400 million. It was made by the Company — it is the largest bail made in Ukraine.

And what would you say about the allegations of the Bureau of Economic Security (BES) in the underpayment of royalty for the use of subsoil? They are not grounded either, in your opinion.

- We believe that we paid the royalty in accordance with the legislation and court practice. It is important that the case has been at the investigation stage for over a year and has not brought any tangible results. In the court process, the investigation asked for a second change in the declared amount of losses, reducing it by another billion hryvnias: from 2 billion 200 million hryvnias to 1 billion 200 million. At first, BES investigators estimated the so-called losses at 7.5 billion hryvnias. And in the reports of tax audits, the amounts are generally less than a billion. After consulting with lawyers, we consider this criminal prosecution to be completely groundless and hopeless. And, once again, our investors are shocked by the size of the bail. In this case, the appellate review of the amount of the bail is currently ongoing, but the Shevchenkivsky Court of Kyiv determined it to be 800 million hryvnias.

In your opinion, what are the risks for Ukraine associated with the "Mr. Lotous's cases"?

– The impact of this story can be significant in both the short-term and long-term.

The first is related to the fact that Ferrexpo employs about 8,000 people, and they have families. Our entities form the economic basis of the communities where they are located. Therefore, instability in the Company's operations will inevitably affect the lives of many people. If our people and operations are affected, the budget will not receive taxes, even increasing expenses to support the poor and unemployed and infrastructure.

The long-term consequences are related to the fact that Ferrexpo produces a modern product that is in great demand in Europe in the context of the transition to "green" metallurgy. Ferrexpo can increase pellet production from the current 4 million tons per year and the pre-war 12 million tons to 24 million tons, and the stock market can give us the necessary investments.

But in the presence of such persecution, foreign investors are unlikely to want to invest their money and take risks.

In the media and among communication specialists, one of the most discussed topics is the risks associated with the development of artificial intelligence (AI). Do you have a personal opinion on this issue?

– In general, great opportunities are often associated with risks. We already see many examples of the use of AI bringing a lot of negativity to social relations. Politicians can hold AI accountable for their mistakes. For example, one of the contenders for the position of president of the United States recently said that many of his previous unsuccessful statements on social networks were not written by him but generated by AI.

At Ferrexpo, the approach to the formation of meanings remains traditional. We prefer high-quality communication with people, in the process of which you can evaluate the live reaction of the interlocutor, immediately ask clarifying questions, etc. The managers of our Company give interviews to the media, explain our position and talk about the reasons for what is happening. It is much more effective for solving the Company tasks than generating a large volume of messages with the help of AI and filling social networks with them, for example.

Unfortunately, in Ukraine, we note that Ferrexpo often becomes the object of informational attacks using AI. This can be seen, for example, in how the same patterns are repeated in messages on different platforms. We do not want to react in a similar way because we prefer — I will repeat — high-quality communication.

At the same time, AI is used in the Company to solve various technical tasks, for example, dubbing videos in English. We also use it in production. But working with content is a human prerogative.