Afarak Group Plc Afarak Publishes Auditor's Report
March 31 2021 - 10:50AM
UK Regulatory
TIDMAFAGR
16:30 London, 18:30 Helsinki, 31 March 2021 - Afarak Group Plc ("Afarak"
or "the Company") (LSE: AFRK, OMX: AFAGR)
AFARAK PUBLISHES AUDITOR'S REPORT
Stock Exchange release
The Auditor of Afarak Group has today issued the following Auditor's
Report for the financial period 1 January - 31 December 2020. The
Auditor's report includes so called emphasis of matter on material
uncertainty related to going concern.
The opinion of the Auditor's Report is as follows:
"AUDITOR'S REPORT (Translation of the Finnish original)
To the Annual General Meeting of Afarak Group Plc
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of Afarak Group Plc (business
identity code 0618181-8) for the year ended 31 December, 2020. The
financial statements comprise the consolidated balance sheet, income
statement, statement of comprehensive income, statement of changes in
equity, statement of cash flows and notes, including a summary of
significant accounting policies, as well as the parent company's balance
sheet, income statement, statement of cash flows and notes.
In our opinion
-- the consolidated financial statements give a true and fair view of the
group's financial position as well as its financial performance and its
cash flows in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU.
-- the financial statements give a true and fair view of the parent
company's financial performance and financial position in accordance with
the laws and regulations governing the preparation of financial
statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submitted to the
Audit Committee.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in
Finland. Our responsibilities under good auditing practice are further
described in the Auditor's Responsibilities for the Audit of Financial
Statements section of our report.
We are independent of the parent company and of the group companies in
accordance with the ethical requirements that are applicable in Finland
and are relevant to our audit, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we
have provided to the parent company and group companies are in
compliance with laws and regulations applicable in Finland regarding
these services, and we have not provided any prohibited non-audit
services referred to in Article 5(1) of regulation (EU) 537/2014. The
non-audit services that we have provided have been disclosed in note 5
to the consolidated financial statements and in note 2.6 to the
financial statements of the parent company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We want to draw attention to the note "1.3 Going concern" in the
financial statements in which the management describes the uncertainties
related to the group's operations and funding facilities. These matters
indicate a material uncertainty relating to the company's ability to
continue as going concern. Our opinion is not modified in respect of
this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements of
the current period. 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 fulfilled the responsibilities described in the Auditor's
responsibilities for the audit of the financial statements section of
our report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial
statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for
our audit opinion on the accompanying financial statements.
We have also addressed the risk of management override of internal
controls. This includes consideration of whether there was evidence of
management bias that represented a risk of material misstatement due to
fraud.
In addition to matter described in the section Material uncertainty
related to going concern we have identified the following matters below
as Key Audit Matters to be addressed in our report.
Key Audit Matter How our audit addressed the Key
Audit Matter
------------------------------------------ -------------------------------------------------------------
Valuation of Goodwill Our audit procedures to address
We refer to accounting principles the risk of material misstatement
and notes 1.5 and 11. in respect of valuation of goodwill
The value of goodwill at the date included among others:
of the financial statements amounted
to 42,1 million euro representing -- We involved valuation specialists to assist us in
29,5 % of total assets and 141,1 evaluating and comparing to the relevant peer group
% of equity.. the assumptions and methodologies used by the Group,
Valuation of goodwill was a key in particular those relating to the weighted average
audit matter because the assessment cost of capital.
process is based on numerous judgmental
Management estimates and because -- We compared the market expectations management used
the amount of goodwill is significant to the external market forecast providers to gain an
to the financial statements. understanding of the assumptions used.
Valuation of goodwill is based
on management's estimate about -- We focused on the sensitivity in the available
the value in use calculations headroom by Cash Generating Unit and whether any
of the cash generating units. reasonably possible change in assumptions could cause
There are a number of underlying the carrying amount to exceed its recoverable amount.
assumptions used to determine
the value in use, including used -- We assessed the Group's disclosures in notes 1.5 in
by the Group management in respect the financial statements about the assumptions to
of future market growth, discount which the outcome of the impairment tests were more
rates, expected inflation rates, sensitive.
revenue and margin developments.
The valuation of goodwill is based
on the value-in-use calculations
of the cash generating units.
Estimated values-in-use may vary
significantly when the underlying
assumptions are changed and the
changes in above-mentioned individual
assumptions may result in an impairment
of goodwill.
Valuation of goodwill was determined
to be a significant risk of material
misstatement referred to in EU
Regulation No 537/2014, point
(c) of Article 10(2).
------------------------------------------ -------------------------------------------------------------
Valuation of intangible and tangible
assets Our audit procedures to address
We refer to accounting principles the risk of material misstatement
and notes 1.4, 1.5 and 1.7/10, in respect of valuation of intangible
11. and tangible assets included among
The value of tangible and intangible others:
assets at the date of the financial
statements amounted to 67,8 million -- We involved valuation specialists to assist us in
euro representing 47,6 % of total evaluating and comparing to the relevant peer group
assets and 227,6 % of equity. the assumptions and methodologies used by the Group,
An impairment of 21,5 million in particular those relating to the weighted average
euro was recognized in the accounting cost of capital.
period.
Valuation of tangible and intangible -- We compared the market expectations management used
assets was a key audit matter to the external market forecast providers to gain an
because the assessment process understanding of the assumptions used.
is based on numerous judgmental
estimates and because the amount -- We focused on the sensitivity in the available
of tangible and intangible assets headroom by Cash Generating Unit and whether any
is significant to the financial reasonably possible change in assumptions could cause
statements. the carrying amount to exceed its recoverable amount.
The valuation of tangible and
intangible assets is based on -- We assessed the Group's disclosures in notes 1.5
management's estimate about the financial statements about the assumptions to which
value in use calculations of the the outcome of the impairment tests were more
cash generating units. There are sensitive.
a number of underlying assumptions
used to determine the value in
use, including used by the Group
management in respect of future
market growth, discount rates,
expected inflation rates, revenue
and margin developments.
The valuation of tangible and
intangible assets is based on
the value-in-use calculations
of the cash generating units.
Estimated values-in-use may vary
significantly when the underlying
assumptions are changed and the
changes in above-mentioned individual
assumptions may result in an impairment
of tangible and intangible assets.
Valuation of tangible and intangible
assets was determined to be a
significant risk of material misstatement
referred to in EU Regulation No
537/2014, point (c) of Article
10(2).
------------------------------------------ -------------------------------------------------------------
Our audit procedures to address
Environmental Obligations the risk of material misstatement
We refer to the accounting principles in respect of valuation of environmental
and the note 21. obligation included among others:
The provision for rehabilitation -- We assessed the assumptions used by management in
and decommissioning costs relates their calculations and inspected the calculations.
to mines and processing facilities. -- We also recalculated the provision based on these
At the balance sheet date 31 December assumptions used by management for the discount rates,
2020, the value of the provision areas to be rehabilitated, the nature of expenses to
amounted to 9,1 MEUR. be incurred (i.e. related to asset or expense).
The environmental obligations -- We assessed the Group's disclosures in the financial
were a key audit matter because statements in respect of environmental and
the provisions requires significant rehabilitation provisions.
management's judgment because
of the inherent complexity in
estimating future costs. These
costs are provided at the present
value of expected costs to settle
the obligation using estimated
cash flows. The provisions are
subject to the effects of any
changes in local regulations,
management's expected approach
to decommissioning and discount
rates, along with the effects
of changes in exchange rates.
Environmental obligation was determined
to be a significant risk of material
misstatement referred to in EU
Regulation No 537/2014, point
(c) of Article 10(2).
------------------------------------------ -------------------------------------------------------------
Valuation of Inventory Our audit procedures to address
We refer to accounting principles the risk of material misstatement
and note 15. in respect of valuation of valuation
The total value of inventory as of inventory included among others:
of December 31, 2020 amounted
to 13,5 MEUR representing 9,5 -- We assessed the Group's accounting policies over
% of the total assets. Inventories recognizing inventory in compliance with applicable
are measured the lower of cost accounting standards.
and net realizable value, taking
into consideration also the usage -- We tested the costing of the inventory and performed
based depreciation of the mineral net realizable value testing to assess whether the
resources originating from the cost of the inventory exceeds net realizable value
business combination. and whether the variable and fixed costs are
The inventory is material to our allocated to the inventory based on normal capacity
audit because the inventory is of the production.
exposed to price and exchange
rate fluctuation due to which -- We performed analytic audit procedures on inventory.
the net realisable value of inventory
can fluctuate significantly, increasing -- We assessed the Group's disclosures in the financial
the risk of inventory overvaluation. statements in respect of inventory.
Inventory costing was considered
a significant risk also because
variable and fixed costs are allocated
to inventory.
Valuation of inventory was determined
to be a significant risk of material
misstatement referred to in EU
Regulation No 537/2014, point
(c) of Article 10(2).
------------------------------------------ -------------------------------------------------------------
Responsibilities of the Board of Directors and the Managing Director for
the Financial Statements
The Board of Directors and the Managing Director are responsible for the
preparation of consolidated financial statements that give a true and
fair view in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU, and of financial statements that give a
true and fair view in accordance with the laws and regulations governing
the preparation of financial statements in Finland and comply with
statutory requirements. The Board of Directors and the Managing Director
are also responsible for such internal control as they 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 Board of Directors and the
Managing Director are responsible for assessing the parent company's and
the group's ability to continue as going concern, disclosing, as
applicable, matters relating to going concern and using the going
concern basis of accounting. The financial statements are prepared using
the going concern basis of accounting unless there is an intention to
liquidate the parent company or the group or cease operations, or there
is no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of Financial Statements
Our objectives are to obtain reasonable assurance on 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 good
auditing practice will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis
of the financial statements.
As part of an audit in accordance with good auditing practice, we
exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control.
-- Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the parent company's or the group's internal control.
-- Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
-- Conclude on the appropriateness of the Board of Directors' and the
Managing Director's use of the going concern basis of accounting and
based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on
the parent company's or the group's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to the related
disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However, future
events or conditions may cause the parent company or the group to cease
to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events so that the
financial statements give a true and fair view.
-- Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we
have complied with relevant ethical requirements regarding independence
and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of
the financial statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor's report unless
law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits
of such communication.
Other Reporting Requirements
Information on our audit engagement
We were first appointed as auditors by the Annual General Meeting on
7.5.2009, and our appointment represents a total period of uninterrupted
engagement of 12 years.
Other information
The Board of Directors and the Managing Director are responsible for the
other information. The other information comprises the report of the
Board of Directors and the information included in the Annual Report but
does not include the financial statements and our auditor's report
thereon. We have obtained the report of the Board of Directors prior to
the date of this auditor's report and the Annual Report is expected to
be made available to us after that date.
Our opinion on the financial statements does not cover the other
information.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated. With respect
to the report of the Board of Directors, our responsibility also
includes considering whether the report of the Board of Directors has
been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors
is consistent with the information in the financial statements and the
report of the Board of Directors has been prepared in accordance with
the applicable laws and regulations.
If, based on the work we have performed on the other information that we
obtained prior to the date of this auditor's report, 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.
Helsinki, March 31, 2021
Ernst & Young Oy
Authorized Public Accountant Firm
Erkka Talvinko
Authorized Public Accountant "
Guy Konsbruck
CEO
For additional information, please contact:
Afarak Group Plc
Guy Konsbruck, CEO, +356 2122 1566,
https://www.globenewswire.com/Tracker?data=ILV9rm60yfmSOuiH49FSkEqRoBRWRSQMYdLwbpS55rjBkQYjNyrlg5xz5BW3Kxt2APO17OLhwaPvqd9AuWeBqqGBy1XxDTlzyZzzbyS8xSwKtHeCo5LjA8kGvA7uaOUH
guy.konsbruck@afarak.com
Financial reports and other investor information are available on the
Company's website:
https://www.globenewswire.com/Tracker?data=BYQ9meIeb4LHHNDtebgKJlh8nRxLi33JkAst3DhHYnWhWAWUjAppaitLyzhYRY70LNkBgi2y87STMYylU6DbsQ==
www.afarak.com.
Afarak Group is a specialist alloy producer focused on delivering
sustainable growth with a Speciality Alloys business in southern Europe
and a FerroAlloys business in South Africa. The Company is listed on
NASDAQ Helsinki (AFAGR) and the Main Market of the London Stock Exchange
(AFRK).
Distribution:
NASDAQ Helsinki
London Stock Exchange
Main media
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www.afarak.com
Attachment
-- Afarak Group 2020 audit report EN
https://ml-eu.globenewswire.com/Resource/Download/f92d7755-a2dd-4f07-a28f-a2aebc749f61
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