Deloitte Quit as Ferrexpo Auditor Over Charity Probe Delays

(Bloomberg) -- Deloitte LLP said it resigned as Ferrexpo Plc’s auditor over delays by the Ukrainian iron-ore producer in investigating its own charitable donations.

While Deloitte said it called for a forensic investigation to start last November -- after charitable foundation Blooming Land failed to cooperate fully with Ferrexpo requests -- the probe only began in February. With the investigation incomplete, Deloitte said it could only express a qualified opinion on aspects of Ferrexpo’s annual report published last week.

“We consider that the company’s response to the situation, including its delay in conducting an independent forensic investigation,” is incompatible with us continuing as auditor, Deloitte said in a statement published by Ferrexpo on Monday.

Ferrexpo plunged the most in three years on Friday as its auditor and two directors resigned amid the money laundering investigation at Blooming Land. Last week, the company disclosed a disagreement between Deloitte and Ferrexpo’s board over the role of majority shareholder and Chief Executive Officer Kostyantin Zhevago at the charity.

Ferrexpo said it initiated the review of the charitable foundation at the appropriate time. Starting the investigation sooner would have risked causing Blooming Land to stop cooperating with the company.

Strong Conviction

“We had a strong conviction that the route we were taking was better,” Chairman Steve Lucas said in an interview Monday. “No one likes to fall out with their auditors, but we just had a fundamental difference. We’re talking about a third party here and we had no ability to compel Blooming Land to provide Deloitte with the information they were looking for.”

Ferrexpo shares climbed 6.3 percent by 12:06 p.m. in London. The stock fell 28 percent on Friday, wiping out more than $500 million in market value.

Chairman Lucas said that they company wanted the review concluded as soon as possible, without giving a definitive timeline.

“I would hope that we are talking about no more than one or two months,” Lucas said. “It may be that given the fact that we are trying to exercise influence over a third party to help with documentation that we make no further progress. In which case the findings will be inconclusive.”

Trading Strongly

Ferrexpo reiterated on Monday that Blooming Land “is not considered a related party of the group.” The interim findings of its independent review committee established that neither the CEO nor the company’s executive management control or exercise significant influence over Blooming Land, Ferrexpo said.

That clashed with Deloitte’s assessment. The auditors have been "unable to conclude" whether the CEO has significant control, according to Ferrexpo.

For Ferrexpo, the investigation into the charity is fueling worries about governance and financial controls at the company. Ukrainian authorities are probing whether the charitable foundation was used to launder money and evade taxes. There are indications that some funds may have been “misappropriated,” Ferrexpo said again on Monday.

The iron ore company said on Monday that it continues to trade strongly, with realized prices for Ferrexpo pellets in 2019 staying at high levels. Ferrexpo said it remains a competitive producer in a favorable segment of the iron ore market, underpinning near-record margins for earnings before interest, taxes, depreciation and amortization and strong cash generation.

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