Evercore Annual Report 2007

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Evraz Group S.A.
annual report
and accounts
2007

making
the world
stronger

Evraz Group S.A.
annual report
and accounts
2007

making
the world
stronger

54US$12,808

mln
US$8,292
mln

2006

2007

Revenues
Growth,%

MAKING THE WO RLD ST RO NGER

5 At a Glance

6 Our Results
8 Interview with the Chairman and CEO
12 Our Presence in the World
14 Highlights 2007

17 Our Business

17 Corporate Structure
18 Strategy
19 Economic and Industry Overview
22 Business Overview

35 Outlook 2008

37 Corporate Governance

38 Board of Directors
43 Committees
44 Senior Management
46 Board and Management Remuneration
48 Remuneration Committee Report
50 Risk Management
51 Internal Control
52 Audit Committee Report
55 Share Capital

57 Sustainable Development

57 Overview
58 Our People
61 Social Responsibility
64 Environmental Protection

66 Information for Shareholders

67 Financial Calendar

70 Selected Consolidated Financial Information

77 Management’s Discussion and Analysis

of Financial Condition and Results of Operations

115 Consolidated Financial Statements

Year Ended December 31, 2007

222 Abbreviations

223 Glossary

224 Reference Information

Annual Report 2007

Evraz Group S. A.

61US$4,254

mln
US$2,642
mln

2006

2007

EBITDA
Growth,%

MAKING THE WO RLD ST RO NGER

At a Glance

❘❚ Welcome to 2007 Annual Report of Evraz
Group S.A. It has been another excellent year
at Evraz Group, and we are proud to present
our achievements in this Report.

OUR VALUES
Evraz Group always endeavours to demonstrate ethical be-
haviour.

All directors, officers and other employees of Evraz Group
adhere to fundamental values worldwide:

❘❚ We respect internationally proclaimed occupational

human rights

❘❚ We recognise our environmental responsibility

❘❚ We are committed to our communities

❘❚ We strive to comply with all applicable laws and regula-

tions

❘❚ We consider all forms of fraud and corruption totally un-

acceptable and intolerable

❘❚ We promote open and honest public communications

❘❚ We strive to provide equal-opportunity employment

❘❚ We act with integrity

❘❚ We encourage our employees to raise concerns

OUR BUSINESS
Evraz Group includes steel works, iron ore, coal and vana-
dium facilities.

Our assets in Russia, Europe, North America, Asia and
South Africa give us a global presence.

All this allows us to deliver exceptional returns to our share-
holders.

OUR OBJECTIVE
Our objective is to maintain Evraz’s position as one of the
most cost-efficient integrated steel producing and mining
groups in the world, expanding its global presence through
strategic acquisitions.

Annual Report 2007

Evraz Group S. A.

AT A GL ANCE

MAKING THE WO RLD ST RO NGER

Our Results

Revenues
(US$ million)

EBITDA
(US$ million)

Net Profit*
(US$ million)

Steel Sales Volumes
(million tonnes)

12,808

8,292

6,508

5,933

14,000

12,000

10,000

8,000

6,000

4,000

2,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

4,254

2,642

2,017

1,859

2,500

2,000

1,500

1,000

500

1,377

1,180

918

2,144

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

15.9

16.4

13.1

12.9

2004

2005

2006

2007

2004

2005

2006

2007

2004

2005

2006

2007

2004

2005

2006

2007

*Net profit attributable to equity holders of Evraz Group S.A.

Operating Cash Flow
(US$ million)

Total Debt/Net Debt
(US$ million)

Legend: ■ Total Debt ■ Net Debt

Net Debt / EBITDA

3,500

3,000

2,500

2,000

1,500

1,000

500

2,957

2,084

1,496

946

7,000

6,000

5,000

4,000

3,000

2,000

1,000

500

1.5

6,632

6,280

0.9

0.7

0.5

1,318

1,025

2,350

1,693

2,596

1,730

Revenues by Region 2007

2.8% 0.1%

4.5%

Earnings per GDR
(US$, 1 share = 3GDRs)

Legend:
46.5% Russia
14.7% Asia
16.7% Americas
14.8% Europe
4.5% CIS (excl. Russia)
2.8% Africa
0.1% RoW

14.8%

16.7%

46.5%

14.7%

7.00

6.00

5.00

4.00

3.00

2.00

1.00

6.05

3.67

2.71

3.92

2004

2005

2006

2007

2004

2005

2006

2007

2004

2005

2006

2007

Annual Report 2007

Evraz Group S. A.

Annual Report 2007

Evraz Group S. A.

AT A GL ANCE

Interview with
Alexander Frolov,
Chairman and CEO

❘❚ We are proud to report another strong
financial year for Evraz Group. Together with
the successful integration of our new assets
and the organic growth of our existing plants
we have achieved record results in our
business. At the same time Evraz continued
to build its global business model.
We expanded our geographic reach through
several milestone acquisitions in line with
our strategy of a continued growth through
the acquisition and the development
of high-value downstream facilities.

How would you describe 2007 from the
financial and operational points of view?
Evraz managed to achieve significant growth in key
financial indicators in 2007 in comparison with
2006: the growing world steel markets, and in
particular the booming Russian market, supported by
our strong product pricing, and our improved
product mix contributed to an increase in revenue to
US$12,808 million, US$4,516 million or 54.5 %
more than in 2006. Net profit was US$2,144
million, compared with US$1,377 million in 2006.
EBITDA equalled US$4,254 million in 2007, which
was 61 % higher than in 2006.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Alexander Frolov,
Chairman of the Board and CEO

Yet another step in the realisation of our strategy is the
purchase of majority shareholdings in selected
production assets in Ukraine in December, including
the Sukha Balka iron ore mining and processing
complex, the Dnepropetrovsk Iron and Steel Works
and three coking plants. These acquisitions will allow
us to increase our iron ore self-sufficiency and ensure
further upstream integration. It will also create captive
intra-group demand for coking coal for the surplus
production of Evraz Group’s coal mines in Siberia.
With this transaction Evraz Group also aims to enter
one of the lowest cost steel producing regions, and
thus to further diversify Evraz Group’s asset
geography.

Operational results were in line with the impressive
production pace achieved in 2006: 16.4 million
tonnes of crude steel and 12.6 million tonnes of pig
iron were produced in 2007. This, together with the
successful integration of our new assets and the
organic growth of our existing plants, allowed us to
record another successful financial year.

Which of the 2007 acquisitions do you
consider the most important?
Our business continued to grow, and we made
several significant acquisitions. The acquisition of
Claymont Steel at the end of the year represents yet
another substantial step in the implementation of our
global strategy. It will expand our presence in North
America, one of the most important steel markets
globally. We laid the foundation of our American plate
business by acquiring Oregon Steel Mills at the
beginning of last year, and we intend to continue to
strengthen it now with Claymont Steel’s steel plate
production.

I would also point to the acquisition of Highveld Steel
and Vanadium Corporation. Through Highveld, Evraz
is gaining valuable access to the expanding South
African steel and construction sectors, which are
driven by strong demand growth and supported by
new mining, infrastructure and industrial projects. In
addition, Evraz Group also becomes an important
player in the worldwide vanadium market. Our
current goal is to fully integrate vanadium assets into
the Group.

Annual Report 2007

Evraz Group S. A.

AT A GL ANCE

We also increased our ownership of Yuzhkuzbassugol,
a Russian coking and steam coal producer, to 100%,
established a full operative control over it, stabilised
its operations which were affected by serious
accidents at its two mines earlier in the year and
restored rigid standards of work safety at all the mines
of the Group. This transaction goes in line with our
strategy to build a vertically integrated steel business
self-sufficient in key raw materials – coal and iron ore.

Which projects and areas of production
development are of note within the investment
programme?
In 2007 we addressed a few operational issues and
matters related to safety performance and
environmental compliance at our Russian facilities.
We completed a scheduled major reline of blast
furnace No.1 at Zapsib and brought it back to the
level of production at the end of last year. This was a
very successful project, with the reconstruction
lasting for less than four months, which is even faster
than we had planned under the original tight
schedule.

A second major project is the reconstruction of the
converter shop at NTMK. The first converter has
already been replaced. Two converters will be
replaced in 2008, and one more in 2009.

We completed an important project that entailed
shutting down an inefficient and highly air polluting
open hearth production at NKMK. We realised
a number of restructuring and cost saving initiatives
at our business units including the outsourcing of
non-core services and operations, including the
continuing programme for the optimisation of the
Group’s headcount and de-bottlenecking
operational processes in order to maximise existing
plants’ productivity, resulting in increased iron ore
production at our Russian iron ore mines of an
additional 3% and increased vanadium slag
production at NTMK of 7%.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Evraz Group has completed the buyout of all
outstanding minority common stock of its
major Russian production companies. How
important was this event for Evraz?
This corporate initiative was an important step in the
simplification and optimisation of Evraz’s ownership
and management structures, making it possible for us
to more effectively align all business processes and
strategic management decisions within the Group.
As Chairman and CEO, I am also very pleased with
the fact that Evraz’s management made every effort
to organise and carry out the buyout process in
compliance with international best practices of
corporate governance.

What changes have taken place in corporate
governance in 2007?
Bearing in mind our ongoing commitment to the
highest standards of business conduct and corporate
governance, the Board approved corporate codes
and a set of internal policies governing inter alia
general shareholders meetings and the activities of
the Board. Moreover, based on a complete
rethinking of our image, Evraz Group successfully
launched a new corporate website that now offers
interactive tools for investors and other stakeholders,
as well as more visibility and easier navigation. These
activities further enhanced the overall transparency
and accountability of our business, and were greeted
favourably by the investment community.

Additionally, we appointed a new independent
director, Philippe Delaunois, who joined the Board in
the beginning of 2007, and hired several highly
qualified senior managers, strengthening our results-
driven international management team even further.
I am proud to note the continued realisation by Evraz
Group of its extensive social programme, aimed at
contributing to the wellbeing of our personnel and
local communities. The Board has approved the
Social Investment Guidelines, which confirms Evraz’s
adherence to corporate citizenship principles.

Where do you expect Evraz to be in 2008?
Despite the global challenges following on the
uncertainties in the world’s financial markets, Evraz is
confident about its prospects for 2008.
The market outlook for steel appears robust: the
global demand for steel products is growing amid
capacity constraints and structurally limited supply in
some regions and as a consequence steel products
prices are strong. Raw materials cost increases create
additional opportunities for Evraz. Being a vertically
integrated producer, Evraz is largely protected from
increasing costs of raw materials.

We have leveraged the operations in our key market,
Russia, where we continue to grow. Our goal is to
transform Evraz into a truly global business with a
diversified geographic structure.

Our solid platform positions the Company for an
even better performance in 2008. We strongly
believe that Evraz Group will continue to increase
value for our shareholders and generate outstanding
results in 2008.

Annual Report 2007

Evraz Group S. A.

AT A GL ANCE

MAKING THE WO RLD ST RO NGER

Our Presence
in the World

Legend:
S Steel Mills
I Iron Ore Mining
C Coal Mines and Processing
V Vanadium
D Distribution

North America

S1 Evraz Oregon Steel Mills
S2 Claymont Steel
S3 IPSCO Canada
V1 Stratcor

Africa

V1 Highveld
V2 Stratcor

Europe

S10

S9
C2

I7
S8

S4 Evraz Vitkovice
Steel
S5 Dnepropetrovsk
Metal Works
S6 Palini e Bertoli
S7 NTMK
I1 Kachkanarsky GOK

I2 Vysokogorsky GOK
C3 Bagley Coke
C4 Dneprodzerzhinsk
Coke
C5 Dnepropetrovsk
Coke
I6 Sukha Balka

Asia

S8 Zapsib
S9 NKMK
S10 Delong
I7 Evrazruda
C1 Yuzhkuzbassugol
C2 Mine 12
C3 Raspadskaya
D1 Nakhodka Sea Port

Annual Report 2007

Evraz Group S. A.

Annual Report 2007

Evraz Group S. A.

AT A GL ANCE

Highlights 2007

❘❚ Geographical expansion along with
the buyout of all outstanding minority
common stock of our major Russian
production companies that simplifies and
optimises Evraz’s ownership and management
structure stand out as key events of 2007.

JANUARY
Changes to the Board
❘❚ The extraordinary general meeting of shareholders,
held on 18 January, approved a change to the composition
of the Board. Philippe Delaunois was elected independent
director of Evraz Group S.A.

Completion of the acquisition
of Oregon Steel
❘❚
quisition of Oregon Steel Mills, Inc. in the USA.

Evraz Group S.A. announced the completion of the ac-

MARCH
Acquisition of 93.35% in West Siberian Heat
and Power Plant
❘❚
Evraz Group S.A. acquired 93.35% of shares in West
Siberian Heat and Power Plant (ZapsibTETs) at the price of
US$231 million. This transaction provided Evraz Group with
opportunity to manage steel production costs more effi-
ciently and also to enhance significantly the power inde-
pendence of its Russian steel mills.

APRIL
The Board approves a set of new corporate
documents
❘❚ As part of a company-wide initiative to improve gover-
nance, the Board approved corporate codes, i.e. the Code
of Corporate Governance, Code of Ethics, Code of Business
Conduct and the Social Investments Guidelines.

MAY
Acquisition of 29.2% in Highveld Steel
and Vanadium Corporation
❘❚
Evraz Group S.A. acquired a 29.2% shareholding in
Highveld Steel and Vanadium Corporation from Anglo
American plc for US$238 million, thus increasing its stake
in Highveld to 54.1%.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

JUNE
An offer to acquire the entire share capital
of Highveld
❘❚
Evraz Group S.A. made a mandatory offer to acquire
the entire issued share capital of Highveld Steel and Vana-
dium Corporation other than those shares already held by
Evraz. Under South African law, Evraz was required to make
such an offer to all shareholders of Highveld after its own-
ership position had exceeded 35%.

Completion of the acquisition
of Yuzhkuzbassugol
❘❚
maining 50% stake in Yuzhkuzbassugol.

Evraz Group S.A. completed the deal to buy out the re-

SEPTEMBER
Evraz increased its stake in Highveld to 80.9%
❘❚
Evraz Group S.A. executed the option to acquire the re-
maining Credit Suisse shares in Highveld Steel and Vana-
dium Corporation. The consideration paid for the 24.9%
stake was US$219 million. As a result, Evraz became the
owner of 80.9% of the entire issued share capital of High-
veld.

OCTOBER
Completion of the acquisition
of Palini e Bertoli
❘❚
Evraz Group S.A. executed a call option in respect of
remaining 25% less one share in Palini e Bertoli. The con-
sideration paid for the stake was set at approximately
US$107 million.

Completion of the acquisition of Russian
production subsidiaries
❘❚
Evraz Group S.A. announced the completion of the buy-
out of all outstanding common stock of the NTMK and
Zapsib steel mills, KGOK and VGOK iron ore mining and
processing complexes, and the Nakhodka Commercial Sea
Port (NMTP). As a result of the buyout, Zapsib, NTMK,
KGOK, VGOK and NMTP have become wholly owned sub-
sidiaries of Evraz.

Renewed blast furnace No. 1 at Zapsib starts
production
❘❚
Evraz brought blast furnace No. 1 at Zapsib back into
production with a new capacity of 7,000 tonnes per day.
The investments in this project amounted to US$110 million.

NOVEMBER
Evraz signs US$3.2 billion loan agreement
❘❚
Evraz Group signed a US$3,214 million structured multi-
tranche credit facility. The loan facility has an interest rate
of LIBOR+1.8% and consists of a US$2,714 million 5-year
tranche secured on assignment of trade receivables and a
US$500 million 3-year unsecured tranche. The facility is
guaranteed by Mastercroft Ltd.

Credit ratings upgrade by Moody’s
❘❚ Moody’s Investor Service upgraded the corporate fam-
ily rating of Evraz Group S.A. from Ba3 to Ba2. Moody’s
also upgraded the rating for the Guaranteed Notes issued
by Evraz Group S.A. totalling US$750 million due in 2015
from B2 to Ba3 and the Guaranteed Notes issued by
EvrazSecurities S.A. totalling US$300 million due in 2009
from Ba3 to Ba2.

S&P named Evraz among the most transpar-
ent companies in Russia
❘❚
Evraz Group S.A. was ranked the 8th in the list of most
transparent companies in Russia according to the “Trans-
parency and Disclosure by Russian Companies 2007: High
Turnover In the Top 10” report published by Standard and
Poor’s Governance Services. Evraz’s disclosure of its finan-
cial and operational information yielded the maximum
80%, the best among the companies under survey.

DECEMBER
Evraz to acquire production assets in Ukraine
❘❚
Evraz Group announced the signing of an agreement to
acquire majority shareholdings in selected production as-
sets in Ukraine (including a 99.25% shareholding in the
Sukha Balka iron ore mining and processing complex, a
95.57% shareholding in the Dnepropetrovsk Iron and Steel
Works, and three coking plants (Bagleykoks – 93.74%,
Dneprkoks – 98.65%, and Dneprodzerzhinsk Coke Chem-
ical Plant – 93.83% of outstanding shares)). Payment for
the acquired assets will be made with a combination of cash
and new equity.

Evraz Commenced Tender Offer to Acquire
Claymont Steel
❘❚
Evraz commenced a cash tender offer to purchase all
outstanding shares of common stock of Claymont Steel.
Following the purchase of shares in the tender offer, Clay-
mont Steel became a subsidiary of Evraz.

Annual Report 2007

Evraz Group S. A.

56US$2,144

mln
US$1,377
mln

2006

2007

Net Profit
Growth,%

Our Business

6 MAKING THE WO RLD ST RO NGER

Evraz Vitkovice Steel

IRON ORE

Palini e Bertoli

STEEL

Evrazruda

100%

NKMK

NTMK

VGOK

Zapsib

KGOK

Corporate Structure
(As of 31 December 2008)

100%
Evraz Oregon Steel Mills

80.9%

Highveld*

EVRAZ GROUP

COAL

VANADIUM

SALES, SERVICES
& LOGISTICS

80.9%

100%

Highveld *

Nakhodka Sea Port

Mine 12

100%

72.8%

Yuzhkuzbassugol

Stratcor

Ferrotrade

40.0%1
Raspadskaya

TH EvrazHolding

TK EvrazHolding

TH EvrazResource

ZapsibTETs

100%

Metallenergofinance

100%

EvrazEK

Sinano

76.0%2

Evraztrans

100%

Evraz Overseas

East Metals

* Highveld Steel and Vanadium Corporation performs both steel and vanadium production.

1 40% interest in Raspadskaya is held by its management and 20% is free float.

2 Remaining 24% in Evraztrans is held by its management.

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Strategy

❘❚ Evraz remains focused on its primary
objective of maintaining the Company’s
position as one of the most cost-efficient
integrated steel producing and mining groups
in the world, expanding its global presence
through strategic acquisitions.

Evraz Group’s strategy implementation highlights were

❘❚
the following:

Advance long product leadership position in Russia and
the CIS
❘❚
in Russia and CIS

Strong growth by 69% in construction products sales

❘❚

11% increase of rails shipments in Russia

❘❚ De-bottlenecking at Russian plants

❘❚ Acquisition of Dnepropetrovsk Metal Works in Ukraine

Expand presence in international flat and tubular markets
❘❚ Development of strong US plate business through ac-
quisitions of Evraz Oregon Steel Mills and Claymont Steel

❘❚ Acquisition of control in Highveld

❘❚ Acquisition of a stake in Delong Holdings

❘❚ Agreement to acquire IPSCO Canada

Enhance cost leadership position
❘❚ Acquisition of ZapsibTETs to increase energy self-suffi-
ciency

❘❚ Open hearth furnaces shutdown at NKMK

❘❚ Zapsib blast furnace No. 1 relining in 106 days in line
with world best practices

❘❚ Commencement of NTMK converter shop modernisa-
tion

Complete vertical integration and grow competitive min-
ing platform
❘❚ Acquisition of Yuzhkuzbassugol, a leading Russian coal
producer

Iron ore production up by 10%, increasing self-coverage

❘❚
to 88%

❘❚ Coking coal pro forma coverage of 100% of iron mak-
ing needs of Russian operations

❘❚ Acquisition of Sukha Balka iron ore mine and three coke
chemical plants in Ukraine

Achieve world leadership in vanadium business
❘❚ Acquisition of controlling stake in Highveld Steel and
Vanadium, a global leading vanadium producer

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Economic and Industry
Overview

Steel
According to the International Iron and Steel Institute (IISI),
world crude steel output reached 1,343.5 million tonnes for
the year 2007, representing a growth of 7.5% on 2006.
Among the top crude steel producers were China with 489
million tonnes (a 15.7% increase on 2006), Japan (120.2
million tonnes), the USA (97.2 million tonnes) and Russia
(72.2 million tonnes). Other BRIC countries also main-
tained relatively high growth, with India and Brazil record-
ing 7.3% and 9.3% increases, respectively.

According to the Boston Consulting Group, global steel

production may reach 1.55 billion tonnes in 2015.

Global consumption of finished steel products was pro-
jected to increase by 6.8% to 1.20 billion tonnes in 2007,
and by 6.8% in 2008, driven by high demand in Brazil,
China, India, and Russia, which together accounted for
about 41% of global steel consumption in 2006*. Con-
sumption was expected to increase in 2007 and 2008 in
the United States by 5.0% and 6.7%, respectively; in India
by 13.7% and 11.8%, respectively; in Brazil by 15.7% and
5.1%, respectively; and in the Commonwealth of Inde-
pendent States by 8.9% in 2007 and 2008.

Nevertheless, world demand growth decelerated in
2007, in line with declining consumption in North America
and moderating trends in Europe**. Consumption remains
robust in the rapidly expanding emerging economies. BRIC
countries are leading the growth of world demand. Steel
consumption in China reached 408 million tonnes in 2007,
up 47 million tonnes or 13.0% from the year before. Indian
consumption is also increasing at a double-digit pace,
though from a much lower level of around 45 million
tonnes. Brazilian steel demand is being fuelled by dynamic
growth in steelusing industries such as construction, ma-
chine-building, and automotive manufacturing. In Russia,
the booming oil and gas industry and growth in household
income continues to stimulate demand for steel. Steel de-
mand in these economies is expected to continue displaying
strong growth in 2008, though some moderation will be
felt from the global economic slowdown.

World Crude Steel
Production 2007

BRIC
(48.3%)

Legend:
48.3% BRIC
3.8% South Korea
3.2% Ukraine
8.9% Japan
15.7% EU 27
7.2% USA
12.9% RoW

12.9%

7.2%

15.7%

48.3%

8.9%

3.2%

3.8%

5.4%

4.0%

2.5%

Legend:
36.4% China
5.4% Russia
4.0% India
2.5% Brazil

36.4%

* Source: International Iron and Steel Institute.

** Source: Steel Committee of Organisation for Economic Co-operation

and Development (OECD).

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Iron Ore
World iron ore mine production rose 5.3% to 1.9 billion
tonnes in 2007 (estimated by US Geological Survey). Top
iron ore producers – China with 600 million tonnes, Brazil
with 360 million tonnes and Australia with 320 million
tonnes – accounted for 67% of world iron ore production.

Major iron ore mining companies continue to reinvest
profits in mine development, but increases in capacity have
not been keeping pace with demand growth, which is dom-
inated by China. It is estimated that China increased pro-
duction of mostly lower grade ores by about 40% in 2006.
Estimates of Chinese imports of higher grade ores, mostly
from Australia and Brazil, show an increase of about 15%
compared with those of 2006, a slowdown from the 19%
growth rate between 2005 and 2006.

China is also the biggest buyer of iron ore on the global
market, with its imports set to reach 370 million tonnes by
the end of 2007.

World Iron Ore Production

Legend:
32% China
19% Brazil
17% Australia
8% India
6% Russia
4% N. America
4% Ukraine
2% South Africa
8% RoW

32%

17%

19%

Source: US Geological Survey, Mineral Commodity sum-
maries, January 2008.

International iron ore trade and production of iron ore
and pig iron — key indicators of iron ore consumption —
clearly show that iron ore consumption in China is the
major factor on which the expansion of the international
iron ore industry depends. China has become more active
in pursuing overseas joint ventures, increased iron ore im-
ports, and expanded domestic production of low-grade
ores — all of which indicate continued growth of iron ore
consumption.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

World Vanadium Production
(tonnes of vanadium content)

Legend: ■ 2006 ■ 2007

Coal
Industry research company the McCloskey Group consid-
ered coking coal to be a rather deficient product in 2007
due to significant consumption growth. Coke production
rose 8% to 540 million tonnes while coke export by sea re-
mained at the same level of 230–235 million tonnes in
2007. The coking coal deficit in Russia was aggravated by
a number of production stoppages that resulted in a decline
in coal market supply.

25,000

20,000

15,000

10,000

5,000

23,000

22,000

18,500

17,500

15,100

16,000

1,100

China

Russia

South Africa

RoW

The outlook for vanadium consumption through 2010
is optimistic. World consumption may show short-term fluc-
tuations in line with steel production, but is forecast to
show underlying growth of 5–6% through 2010.

For 2008 major steel producers have announced their
expectations of a 200% year-over-year increase in coking
coal price (average price in 2007 was US$95). The reason
for strong increase in coal prices relates to production is-
sues in Australia and continued strong demand from the
steel industry, especially in India and Brazil, both of which
are totally reliant on imported coking coals.

Vanadium
The world output of vanadium in 2007 is estimated at 58.6
thousand tonnes, an increase of 5% compared to 2006.

In 2007 vanadium pentoxide prices ranged from
US$12.50 to US$18.30, averaging US$16.30 per kilo-
gramme for the year, about 6% lower than in 2006*. Fer-
rovanadium prices ranged from US$28.50 to US$42.00,
averaging an estimated US$37.20 per kilogramme of V for
the year, about 3% lower than in 2006. Stable demand in
the steel and aerospace industries and increased produc-
tion of vanadium in Russia and China kept world supply and
demand in balance in 2007.

* US Geological Survey, Mineral Commodity summaries, January 2008.

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Business Overview

Evraz’s principal business is divided into three main seg-
ment:

Mining segment
Produces, enriches and markets iron ore and produces coal.

Steel segment
Produces and markets semi-finished and finished steel pro-
duction, vanadium slag, coke and refractory products.

❘❚ Nizhny Tagil Iron and Steel Plant (NTMK), Russia

❘❚ West Siberian Iron and Steel Plant (Zapsib), Russia

❘❚

Evrazruda, Russia

❘❚ Kachkanarsky Ore Mining and Processing Enterprise
(KGOK), Russia

❘❚ Vysokogorsky Ore Mining and Processing Enterprise
(VGOK), Russia

❘❚ Novokuznetsk Iron and Steel Plant (NKMK), Russia

❘❚ Yuzhkuzbassugol, Russia

❘❚ Palini e Bertoli, Italy

❘❚

Evraz Vitkovice Steel, Czech Republic

Evraz Oregon Steel Mills, USA

❘❚ Claymont Steel, USA*

❘❚ Mine 12, Russia

❘❚ Raspadskaya, Russia

❘❚

Sukha Balka, Ukraine*

❘❚ Highveld Steel and Vanadium Corporation Limited
(Highveld), South Africa

❘❚ Dnepropetrovsk Metal Works, Ukraine*

❘❚ Delong Holdings Limited, China*

❘❚

IPSCO, Canada*

❘❚ Bagley Coke, Ukraine*

Vanadium segment
Produces and markets ferrovanadium, Nitrovan vanadium,
vanadium alloys and chemicals, long steel, ferroalloys and
carbonaceous products.

❘❚ Nizhny Tagil Iron and Steel Plant (NTMK), Russia

Strategic Minerals Corporation (Stratcor Inc. and

❘❚
Vametco), USA and South Africa

❘❚ Highveld, South Africa

❘❚ Dnepropetrovsk Coke, Ukraine*

❘❚ Nikom, Czech Republic

❘❚ Dneprodzerzhinsk Coke, Ukraine*

Annual Report 2007

Evraz Group S. A.

* The acquisition was announced in 2008.

MAKING THE WO RLD ST RO NGER

Pavel Tatyanin
Senior Vice President,
Corporate Affairs and CFO

Consolidated Group revenues were US$12,808 million
in 2007, up from US$8,292 million, an increase of 54.5%.
This record level of revenues generated consolidated
EBITDA of US$4,254 million, a 61% increase compared to
2006 level of US$2,642 million. Net profit attributable to
equity holders of Evraz Group S.A. totalled US$2,144 mil-
lion that represents a 55.7% increase compared to
US$1,377 million in 2006. Higher profit margins and con-
tinuing focus on working capital management contributed
a lot to the record operating cash flow of US$2,957 mil-
lion, up from US$2,084 in 2006.

Capex
In general, Evraz’s investment plans targeted increasing ef-
ficiencies at ongoing projects in 2007, including the Zapsib
blast furnace reline. Total capital expenditures in 2007 were
US$740 million, a 14% increase compared to 2006 level of
US$651 million. This figure includes US$499 million with
respect to the Steel segment and US$187 million with re-
spect to the Mining segment.

CAPEX
(US$ million)

1,200

1,000

800

600

400

200

1,068

740

651

2006

2007

2008 (planned)

Revenues and EBITDA Growth
(US$ million)
Legend:

Revenues

EBITDA

14,000

12,000

10,000

8,000

6,000

4,000

2,000

6,508

5,933

2,017

1,859

8,292

2,642

12,808

4,254

2004

2005

2006

2007

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Steel Segment Sales by Product, 2007
(US$ million)

Legend:
2,480 Semi-finished products
3,670 Construction products
1,697 Railway products
1,968 Flat-rolled products
702 Tubular products
496 Other steel products
583 Vanadium products
837 Other products

583

496

837

2,480

702

1,968

3,670

1,697

* Sales to third parties.

STEEL SEGMENT
Financial Performance and Production
In 2007 the Steel segment of Evraz Group showed spec-
tacular revenue growth of 52.3% – US$12,433 million com-
pared to US$8,161 million in 2006, generating EBITDA of
US$3,585 million (up from US$2,223 million in 2006).

One of the factors promoting the Company’s growth
during 2007 was favourable price dynamics for steel prod-
ucts (with an average steel price of US$668/t), with a mix
shift in favour of higher margin products. Acquisitions of
Stratcor in 2006 and Evraz Oregon Steel Mills together with
Highveld in 2007 also had a very positive impact on Steel
segment revenue growth adding approximately US$2,760
million to Evraz’s revenues in 2007. Auspicious Russian mar-
ket conditions, such as the construction boom, resulted in
a 37% growth in sales of Russian construction products and
almost doubled construction revenues. A major trend in the
product mix in 2007 was a considerable (29%) decrease in
semi-finished products in favour of construction, railway
and flat-rolled products.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Maxim Kuznetsov
Vice President,
Metallurgy Russia

Steel Segment
Sales Volumes
(thousand tonnes)

Legend: ■ Semi-finished products
■ Construction products ■ Railway products
■ Flat-rolled products ■ Tubular products
■ Other steel products

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

15,904
914
1,61 1

1,626

4,152

7,601

16,426
741

664

2,163

2,285

5,116

5,457

2006

2007

In the US market Evraz’s sales jumped to US$2,140 mil-
lion as a result of the Oregon Steel Mills and Stratcor acqui-
sitions. Post-acquisition EBITDA of Evraz Oregon Steel Mills
reached US$349 million, for Stratcor — US$55 million.

The proportion of revenues attributable to sales of rail-
way products increased as a result of the acquisition of Ore-
gon Steel Mills, which contributed 457,000 tonnes to the
volumes of railway products, totalling US$379 million in
revenues. Essentially, Evraz Oregon Steel Mills is the only
Evraz facility producing tubular products with sales volumes
in 2007 amounting to US$694 million.

Steel segment operations in Europe were supported by
considerable growth of average plate and slab prices.
EBITDA of Palini e Bertoli and Evraz Vitkovice Steel reached
the level of US$119 and US$225 million, respectively.

Total crude steel production in 2007 was 16.4 million
tonnes, with a year-on-year growth of 1.9%. Total steel sales
volumes increased by 3.2% and reached 16.4 million
tonnes.

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Every year Evraz fulfils lots
of various projects dedicated
to equipment reconstruction.
Which of them were crucial
for the Steel segment in 2007?

Maxim Kuznetsov:
The repair of blast furnace No. 1, with
capex of US$140 million, was the most
significant project of the Steel segment
in 2007, and it was realised in full con-
formity with best practices of project
management.

Will Evraz be capable to meet new
RZD needs for railway products
with regard to its perspective
plans on modernisation of Russian
railway system?

Maxim Kuznetsov:
We have no doubt that we are able to
meet this RZD need since Evraz developed
two-stage modernisation programme of
quality improvement. Upon completion of
the first stage, the quality of Evraz’s rail-
way products will fully satisfy RZD quality
requirements. The second stage provides
for further modernisation that will result
in production of 50-metre rails (present
standard length is 24 metres).

Costs
In 2007, Steel segment cost of revenues rose 50.2% to
US$8,248 million compared with US$5,493 million in
2006. Among primary causes of this increase are the
growth in raw materials prices and the shift in steel prod-
uct mix toward higher value added products. Thus, raw ma-
terial costs were 57.4% higher as a result of iron ore, coking
coal, scrap and ferroalloys price increase both in Russia and
overseas. Staff costs increased by 63.6% mostly due to
Evraz’s 2007 acquisitions, while growth of electricity and
natural gas tariffs led to a 38.1% increase in energy costs.

Steel Segment Costs

Legend:
61% Raw materials
5% Transportation
10% Staff costs
5% Depreciation
8% Energy
11% Other

11%

10%

61%

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Giuseppe Mannina
Vice President, International
Operations and Logistics

❘❚ Reconstruction of the wheels-rolling shop at NTMK.
At the end of 2007 Evraz completed the second stage of
modernisation of its wheel-rolling mill at NTMK. This proj-
ect included the installation of a modern heating furnace,
an ultrasonic quality check system and certain other sys-
tems for strengthening and special mechanical treatment
of wheels. This investment is expected to improve the
quality of railway wheel production, thereby fulfilling the
requirements set by Russian Railways, decrease produc-
tion costs and broaden product range.

❘❚
Shutdown of the inefficient and air polluting open-
hearth production at NKMK – a complex restructuring proj-
ect of the facility with more than 2,500 employees.

Several projects were also approved in 2007 for non-
Russian Evraz facilities. Evraz Oregon Steel Mills is going to
perform an increase in the production volume of heat
treated plates and an overall performance enhancement of
Spiral Pipe Mill (with US$15 million in capital expenditures),
while the Open Slag Bath No. 1 and Slag Crushing Plant
projects are underway at Highveld Steel and Vanadium.

Highlights
Steel segment Highlights in 2007
In 2007, Evraz got underway several important recon-
struction projects in Russia as well as in other countries
where Evraz has a presence with some of them successfully
finished within the year. Among them there are:

❘❚ Reline of blast furnace No. 1 at Zapsib – one of the most
ambitious and successful projects in 2007. With capital ex-
penditures of more than US$140 million, the project was ful-
filled within the budget in a record-setting time of 106 days.
As a result of the project, the furnace’s consumption of coke
decreased by 5%, and its productivity increased by 25%.

❘❚ Revamp of the oxygen-converter plant at NTMK.
Evraz is in the process of improving its oxygen converters
to increase their annual steel output to 4.3 million tonnes.
Evraz plans to spend approximately US$320 million from
2006 through 2009 on this project, resulting in an ap-
proximate 20% increase in production capacity of the
BOF shop, decreased emissions and reduced production
costs. In 2007 the first one of four converters was re-
placed.

❘❚ Vacuum degasser at NTMK. As part of its quality up-
grade programme, in 2007 Evraz commissioned a vacuum
degasser at NTMK that will allow Evraz to produce high
quality slabs to be supplied to Evraz’s non-Russian sub-
sidiaries.

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

MINING SEGMENT
Financial Performance and Production
Mining segment revenues grew by 65.7% to US$ 1,901 mil-
lion in 2007 reflecting mainly the growth in iron ore aver-
age prices and an increase in volumes of coal sold after the
consolidation of Yuzhkuzbassugol in June 2007. The divi-
sion generated EBITDA of US$633 million, 52.5% up from
US$415 million in 2006. Sales volumes of iron ore showed
a growth of 2.7%. Mining segment sales to the Steel seg-
ment in 2007 totalled US$1,527 million that represents
80.3% of total Mining segment sales.

Mining Segment
Perfomance
(US$ million)

Legend: ■ Revenue ■ EBITDA

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

1,901

1,147

989

633

314

415

2005

2006

2007

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Vladimir Bruev
Vice President, Mining

Total iron ore production reached 18.9 million tonnes
representing a considerable increase of 10.6% in compari-
son with 2006.

Aiming at gaining full self-sufficiency in raw materials, in
2007 Evraz’s iron ore output covered 87% of total ore con-
sumption while coking coal production fully covered Steel
segment requirements for coal.

Iron Ore Production
(thousand tonnes)

Legend: ■ Highveld ■ VGOK
■ Evrazruda ■ KGOK

20,000

15,000

10,000

5,000

17,047
2,415

5,683

18,850
1,350

2,737

5,506

8,949

9,257

2006

2007

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Costs
In 2007, Mining segment cost of revenues totalled
US$1,241 million which represents a growth of 75.3% com-
pared to US$708 million in 2006. Depreciation and trans-
portation costs showed the most significant growth of
175.4% and 114% respectively that is mostly accounted for
post-acquisition depreciation and transportation costs of
Yuzhkuzbassugol.

What are the key highlights of the
Mining segment in 2007?

Vladimir Bruev:
One of the Mining Division highlights is
the commencement of the Izykhgol field
development which is destined to com-
pensate for retired ore facilities.

Are there any certain leaders
among Mining segment plants?

Vladimir Bruev:
It is VGOK who finished 2007 with the
best operational and financial results: our
challenging production plan has been ful-
filled, costs have been reduced, the plant
structure has been optimised and staff
has been cut.

Can you emphasise any strategic
goals for Mining segment for the
year to go?

Vladimir Bruev:
Among the top Mining segment priorities
for 2008 are the integration of new
Ukrainian assets and further growth
of self-sufficiency in iron ore raw materials.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

One of the key highlights of 2007 in mining operations
was the commencement of iron ore production at the
Izykhgol and Burluk mines in Siberia. Another strategic
event was the acquisition of a licence for the Sobstvenno-
Kachkanarskoye field. Development of new fields such as
Sobstvenno-Kachkanarskoye will allow Evraz to replenish
retired facilities.

In July 2007, Evraz started to develop a new under-
ground ore-bearing horizon with a capacity of 3.5 million
tonnes of iron ore at the Magnetitovaya mine of VGOK.

For the year 2008 Evraz’s capital expenditure pro-
gramme provides for construction of the Erunakovskaya-8
new mine and reconstruction of the Alardinskaya mine in
Yuzhkuzbassugol.

Highlights
Several important reconstruction projects were realised by
Evraz Group in the Mining segment in 2007 such as:

❘❚ Reconstruction of dry magnetic separation at Evrazruda
subsidiaries (with capex of US$1.6 million).

❘❚ Completion of the first stage of the energy saving pro-
gramme at VGOK, KGOK and Evrazruda with prospective
savings of US$2 million.

❘❚ Replacement of mine-lifting equipment at Estuninskaya
mine (VGOK).

❘❚ Modernisation of the crushing and concentration fac-
tory at VGOK.

Implementation of two cascades of Sandvik Rock Pro-

❘❚
cessing crushing equipment at KGOK.

❘❚ Putting into operation of the modern weight measure-
ment equipment at pellet workshop of KGOK in May 2007.

❘❚ Putting of Derrick Corporation fine screen into opera-
tion at Evrazruda.

Annual Report 2007

Evraz Group S. A.

O U R B U S I N E S S

Vanadium Production
(tonnes)

Legend: ■ Vanadium in slag
■ Vanadium in alloys and chemicals

VANADIUM SEGMENT
Financial Performance and Production
The vanadium business contributed US$583 million to
Evraz’s revenues in 2007. Due to the consolidation of
Stratcor and Highveld, vanadium products output totalled
11,934 tonnes* compared to 1,415 tonnes in 2006. Addi-
tionally, Russian production of vanadium slag reached
11,752 tonnes with a marginal growth of 0.8%. Sales of
vanadium slag produced in Russia increased by 9% to
10,840 tonnes.

24,000

20,000

16,000

12,000

8,000

4,000

23,686

13,068

2006

2007

* Of pure vanadium equivalent.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Daniel Harris
Vice President, Vanadium

What is essential for Evraz’s
Vanadium segment strategy
implementation?

Daniel Harris:
At the moment, our main task is technical
integration of all new assets (Stratcor,
Highveld) into the Group creating maxi-
mum value for Evraz.

Highlights
In November 2007 Daniel Harris was appointed Vice Pres-
ident of Evraz Vanadium Business. With 30 years of vana-
dium business experience with Strategic Minerals
Corporation he will form Evraz vanadium assets into one
consolidated business unit. In July 2007, Walter Ballandino
was appointed as Chief Executive Officer of Highveld Steel
and Vanadium Corporation Limited. Mr. Ballandino has a
broad international knowledge and experience related to
the steel sector and is expected to contribute greatly to the
further development of the vanadium production at High-
veld. He succeeded Andre de Nysschen who left Highveld
after three and a half years in which he led the Corporation.

The Vanadium segment also approved and realised a
few projects during the reporting year. Highveld Steel and
Vanadium launched a slag crushing plant and open slag
bath No. 1. Stratcor projects included a new product sizing
and packaging facility in the USA and new filtration circuits
in South Africa.

Annual Report 2007

Evraz Group S. A.

54US$6.05

US$3.92

2006

2007

Earning
per GDR,%

Outlook 2008

354 MAKING THE WO RLD ST RO NGER

❘❚ Evraz Group is confident in its ability to close
successfully the three transactions announced
recently, i.e. the acquisitions of Delong
Holdings, of IPSCO Canada plate and tubular
business and of a number of assets in Ukraine,
as well as successfully integrating mentioned
assets into the Group’s business.

We expect that our 2008 annual crude steel and steel
products output will reach 18.9 million tonnes and 18.7
million tonnes, respectively. It is anticipated that Evraz’s
coal companies will produce approximately 15.1 million
tonnes of coal, including 10.5 million tonnes of coking
coal, in 2008.

The Company will stay focused on improving operating
performance and managing costs. US$1,068 million are
budgeted for capital investments, including US$545 mil-
lion for investment projects and US$523 million for main-
tenance.

In the first half of 2008 Evraz’s consolidated revenues
are expected to increase by 60–65% vs. US$6,023 million
in the first half of 2007, and EBITDA is expected to grow to
approximately US$3,050 million compared to US$2,050
million in the first half of 2007.

2008 Expected Production
(thousand tonnes)

23,000

20,600

18.900

18,700

25,000

20,000

15,000

10,000

5,000

Coal

Iron Ore

Crude Steel

Steel Products

Coal production includes 10.5 mln tonnes of coking coal, 4.6 mln

tonnes of steam coal and 40% of Raspadskaya 2008F output.

Iron ore output includes Sukha Balka ¾ 2008F production.

Crude steel and steel products includes output from existing assets, im-

pact from consolidation of Claymont Steel and ¾ of Dnepropetrovsk
Metal Works 2008F output. Steel products also includes pig iron
sales from Russian mills.

Annual Report 2007

Evraz Group S. A.

3.216.4

mln tonnes
15.9
mln tonnes

2007

2006

Steel
Sales,%

MAKING THE WO RLD ST RO NGER

and Investor Relations2 Corporate

Introduction
Evraz Group S.A. is committed to the highest standards
of corporate governance and, in particular, strives to com-
ply with the main principles of the Combined Code.

Governance

The main corporate governance objectives of Evraz

Group S.A. are:

Irina Kibina
Vice President, Corporate Affairs

❘❚
to achieve the goal of a proper balance between en-
trepreneurship and control, as well as between perform-
ance and compliance with the rules and standards of
corporate governance;

❘❚
to facilitate performance-driven management, but
also to provide mechanisms for leadership ensuring in-
tegrity and transparency in the decision-making process;

❘❚
to encourage and enable the Board and management
to pursue objectives in the best interests of Evraz Group S.A.,
its shareholders and other stakeholders, and particularly
to create long-term value for shareholders.

First and foremost Evraz Group implements strict inter-
nal rules and procedures compliant with all rigorous legis-
lation requirements. In 2007 Evraz Group launched a whole
new set of corporate codes and internal policies. This
process manifested Evraz’s continuous efforts to improve
its corporate governance system and rethink its approach to
corporate responsibility.

Taking this into consideration, in April 2007 the Board
approved the Code of Corporate Governance, the Code of
Business Conduct, and the Code of Ethics, as well as the
Dividend Policy, the policy governing general shareholders
meetings, the policy governing the Board and the manage-
ment remuneration policy later that year. These documents
serve as a supplement to applicable laws and regulations
and the Articles of Association.

All these documents are available via Evraz Group’s web-

site at www.evraz.com.

First and foremost Evraz Group
implements strict internal rules
and procedures compliant with
all rigorous legislation require-
ments. In 2007 Evraz Group
launched a whole new set of
corporate codes and internal
policies that manifested Evraz’s
continuous efforts to improve its
corporate governance system.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

Board of Directors

During 2007 the Board consisted of nine members, three
of whom are deemed to be independent pursuant to the
criteria defined by the Corporate Governance Code and in
compliance with the Combined Code.

❘❚ The members of the Board are elected by
a majority vote of shareholders at the annual
general meeting, and the general meeting of
shareholders may revoke their mandate at any
time. Directors are appointed for one-year
terms and may be re-elected an unlimited
number of times. In the event of a vacancy on
the Board, the remaining directors may fill the
vacancy on a provisional basis, with the next
general meeting of shareholders to make a
permanent appointment. Since 2005 the
personal director’s liability has been insured.
This policy applies to all Board’s members.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Members
of the Board
of Directors

As of 1 April 2008

Alexander Frolov
Chairman
of the Board & CEO
Born in 1964

Member of the Remuneration
Committee

Joined EvrazMetal* in 1994, and subsequently held various positions at
EvrazMetal. Appointed to the Board in 2005.
Graduated with honours from the Moscow Institute of Physics and Tech-
nology in 1987, and received a Ph.D. in Physics and Mathematics in 1991
from the Moscow Institute of Physics and Technology.
A Director of OAO Raspadskaya and ZAO Raspadskaya Coal Company.

Alexander Abramov
Non-executive director
Born in 1959

Founded EvrazMetal* in 1992.

Otari Arshba
Non-executive director
Born in 1955

Appointed to the Board in April 2005 (Chairman of the Board and CEO
until 1 January 2006; Chairman of the Board until 1 May 2006).
A Director of OOO Invest AG, CEO of Evraz Invest, a member of the Bu-
reau of the Board of Directors and a member of the Board of Directors of
the Russian Union of Industrialists and Entrepreneurs, an independent
non-governmental organisation.
Graduated with honours from the Moscow Institute of Physics and Tech-
nology in 1982, and holds a Ph.D. in Physics and Mathematics.

Joined Evraz in 1998, and until December 2003 served as Evraz’s Senior
Vice President for Corporate Communications. Appointed to the Board in
2005.
A deputy of the State Duma of the RF Federal Assembly.
Graduated with distinction from the Felix Dzerzhinsky KGB Higher School,
and holds a Ph.D. in political science from the Russian Academy of Gov-
ernment Service.

* A company, predecessor of Evraz.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

James W. Campbell
Independent director
Born in 1949

Chairman of the Strategy
Committee, member
of the Remuneration Committee

Olga Pokrovskaya
Non-executive director
Born in 1969

Member of the Audit
Committee

Appointed to the Board in 2005.
From 1975 until 2002 served in various positions with Anglo American
PLC, including various positions with Amcoal, then in the Coal division of
Anglo American from 1984 through 2002. From 1999 through 2002
served as an Executive Director of Anglo American PLC; Chairman of
Anglo Coal (formerly Amcoal) and AngloBase Divisions; and a non-execu-
tive director of Anglo Platinum, AngloGold and Anaconda Nickel Ltd.
A Director of Highveld Steel and Vanadium, and Chairman of Minara Re-
sources Ltd.
Received a B.Sc. in Mathematical Physics from Queen’s University, Belfast, and
an M.A. in Engineering Management from Cambridge University, England.

Appointed to the Board in 2006.
Previously held several key finance positions in Sibneft since 1997, includ-
ing serving as head of corporate finance from 2004. From 1991 until 1997
worked as a senior audit manager at Arthur Andersen.
Graduated with honours from State Financial Academy in 1991.
A Director of Highland Gold Mining Ltd.; Head of Corporate Finance, Mill-
house LLC.

Philippe Delaunois
Independent director
Born in 1941

Chairman of the Remuneration
Committee

Appointed to the Board in January 2007.
Had been involved in the Belgian steel industry for 35 years, starting as a field
engineer in the long products mills. From 1981 till 1999 held management po-
sitions (CEO, 1987–1999) at Cockerill Sambre, a Belgian steel group.
Previously served on the boards of several Belgian and international com-
panies, including CFE (construction and dredging), Mobistar (cellular tele-
phones), Cumerio (copper), Shanks plc (waste management) etc.
In 1990–1993 – President of Union Wallonne des Entreprises. Honorary
Consul of Austria for the Province of Hainaut and Namur. Order of
Leopold (Belgium), Chevalier de la Légion d’Honneur (France).
Chairman of the Boards of CFE, Mediabel, Alcopa; a Director of Cumerio
SA, Shanks plc (UK), Mobistar, ING Belgium, Suez Energie Services (France).
Received a degree in engineering from State University at Mons, Belgium,
and studied business at Harvard Business School.

Terry Robinson
Independent director
Born in 1945

Chairman of the Audit Committee,
member of the Strategy
Committee

Appointed to the Board in 2005.
Served for 20 years at Lonrho PLC, the international mining and trading
group; and the last 10 years as a main board director. Since 1998 has been
variously occupied with international business recovery engagements and
investment projects including natural resources in the UK, Russia, the CIS
and Brazil.
Independent non-executive director of the Toronto listed Katanga Mining
Limited with copper and cobalt mining operations in the DRC and until re-
cently was Managing Director of Interactive Records Management Ltd.,
a private equity controlled investment.
A Fellow of the Institute of Chartered Accountants of England and Wales.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Eugene Shvidler
Non-executive director
Born in 1964

Appointed to the Board in 2006.
Worked as senior vice president of Sibneft beginning in 1995 and served
as president of the company from 1998 through 2005.
A Director of Highland Gold Mining Ltd.; Head of Millhouse LLC.
Graduated from the I.M. Gubkin Moscow Institute of Oil and Gas with a
masters degree in applied mathematics and holds an MBA in finance and
M.Sc. in international tax from Fordham University.

Dmitry Melnikov
serves as the Secretary of the Board

Eugene Tenenbaum
Non-executive director
Born in 1964

Member of the Remuneration
Committee

Appointed to the Board in 2006.
Served as the head of corporate finance for OAO Sibneft in Moscow from
1998 through 2001. Joined Salomon Brothers in 1994 as a director for cor-
porate finance, where he worked until 1998. Prior to that, spent five years
in corporate finance with KPMG in Toronto, Moscow and London, includ-
ing three years (1990–1993) as national director at KPMG International in
Moscow. He was an accountant in the Business Advisory Group at Price
Waterhouse in Toronto from 1987 until 1989.
A Director of Highland Gold Mining Ltd.; а managing director of Mill-
house Capital UK Ltd. and a director of Chelsea FC PLC.
А chartered accountant and holds a Bachelor’s degree in commerce and fi-
nance from the University of Toronto.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVERNA NCE

The role of the Board
The Board is vested with broad powers to effectively lead
Evraz Group S.A., map out its strategic aims and review
management performance. The Board serves as the ulti-
mate decision-making body, except on those issues ex-
pressly reserved by law or by the Articles of Association to
the general shareholders’ meetings.

The Board exercises its powers based on what the direc-
tors believe to be in the best interests of Evraz Group S.A.
and its shareholders, and is accountable to shareholders.

Board performance
The Board held 11 meetings in 2007. The directors’ atten-
dance is presented in the table below.

Going concern
Directors have access to all information necessary to exer-
cise their duties. They receive a comprehensive monthly up-
date, or more often, if necessary, on changes in Evraz
Group’s cash flow and EBITDA. Directors have the reason-
able expectation that Evraz Group has adequate resources
in place to continue operations for the foreseeable future.
Consequently, they continue to use the going concern as-
sumption when preparing accounts.

Alexander Frolov

Alexander Abramov

Otari Arshba

James Campbell

Philippe Delaunois

Olga Pokrovskaya

Terry Robinson

Eugene Shvidler

Eugene Tenenbaum

d
e
d
n
e
t
t
A

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Committees

To date, the Board has created the following standing com-
mittees: the Audit Committee, Remuneration Committee
and Strategy Committee. All committees are chaired by in-
dependent directors. Committees shall consist of directors
and may include external experts determined by the Board
(as the Audit Committee does).

The reports of the the Remuneration Committee and the
Audit Committee can be found on pages 48 and 52, re-
spectively.

Strategy Committee
The Strategy Committee’s principal responsibilities are:

❘❚ development of the strategy of Evraz Group;

assessment of existing assets, as well as consideration of

❘❚
future investment in growth assets;

❘❚

technical development of management and training.

As of 1 April 2008, the Strategy Committee consisted of
the following individuals: James W. Campbell (Chairman),
Terry Robinson, Pavel Tatyanin and Timur Yanbukhtin.

Ivan Osadchiy served as the Committee’s Secretary.

Four meetings were held by the Committee in 2007 to
discuss such matters as corporate strategy, implementation
of the strategic planning process, coal business strategy and
railway product strategy, as well as key strategic issues of
overseas assets.

As a result of deliberations, the Committee approved
Evraz’s corporate strategy, railway product strategy, and de-
veloped procedures for strategies preparation/update, im-
plementation and monitoring.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVERNA NCE

Senior Management
(As of 31 December 2007)

As of 31 December 2007, Evraz Group had the following
senior management team:

Alexander Frolov
Chief Executive Officer
Born in 1964

Biographical details can be found in the section on the
Board on page 39.

Giacomo Baizini
Vice President, Product and Resource
Management
Born in 1970

Vladimir Bruev
Vice President, Mining
Born in 1955

Natalia Cheltsova
Vice President, Legal
Born in 1974

Joined Evraz Group in 2005; previously held various
positions with McKinsey’s, JMAC. Received a degree
in physics from Oxford University.

Joined Evraz Group in 2004; previously held various
positions with MGOK and Sokolov-Sarbajsk GOK.
Graduated from Industrial University in Kazakhstan.

Joined Evraz Group in 2006; previously held various
positions with Ilim Pulp Group. Received a Ph.D. de-
gree in law from St. Petersburg State University.

Igor Gaponov
Vice President, Information Technologies
Born in 1974

Daniel Harris
Vice President, Vanadium
Born in 1954

Natalia Ionova
Vice President, Human Resources
Born in 1966

Joined Evraz Group in 2002; previously held various
positions with UNICON/MS Consulting Group and
Deltek Systems Inc. Graduated from Moscow State
Academy of Management.

Joined Evraz Group in November 2007; previously
held various positions with Strategic Minerals Corpo-
ration (USA), Vametco Minerals Corporation (South
Africa). Received a B.Sc. degree in chemical engineer-
ing from the University of Nevada.

Joined Evraz Group in 2006; previously held various
supervisory positions in HR with the NDK Merkury
and Russian Gold. Received a degree in management
from the University of Sports and Tourism. Holds a
Ph.D. degree in psychology.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Leonid Kachur
Senior Vice President, Business Security
Born in 1961

Joined Evraz Group in 1993. Mr. Kachur holds a mas-
ter’s degree in engineering.

Irina Kibina
Vice President, Corporate Affairs
and Investor Relations
Born in 1964
Joined Evraz Group in 2005; previously held the posi-
tion of Vice President of Corporate Affairs, SUN Inter-
brew Ltd., and Vice Mayor of Novgorod. Received an
EMBA and graduated from the Pew Program at
Georgetown University.

Maxim Kuznetsov
Vice President, Metallurgy Russia
Born in 1968

Joined Evraz Group in May 2007. Previously held the
position of CEO of OAO OGK-3 and OAO Vol-
gogradenergo, held various positions with RAO UES
of Russia, and until 1998 was the head of Evroazmetall
International. Graduated from Moscow Institute of
Physics and Technology.

Giuseppe Mannina
Vice President, International Operations
and Logistics
Born in 1952
Joined Evraz Group in 2002; previously held various
positions with East Metals S.A. and Duferco S.A. and
Siderius, Inc. Received a degree in Business Adminis-
tration from the University of Palermo.

Vyacheslav Pavlov
Vice President, Technical Development
Born in 1949

Joined Evraz Group in 2003 as Managing Director at
NKMK. In March 2007 was appointed Vice President
of Technical Development. Previously held various po-
sitions with Stal KMK and Kuznetsk Iron and Steel
Plant. Graduated from Urals Polytechnic University.

Pavel Tatyanin
Senior Vice President, Corporate Affairs
and Chief Financial Officer
Born in 1974
Joined Evraz Group in 2001; previously held various
positions with Adamant Financial Corporation. Re-
ceived a master’s degree in economics from Moscow
State University.

Timur Yanbukhtin
Vice President, Strategy and Corporate
Development
Born in 1964
Joined Evraz Group in 2002; previously held various
positions with Yandex LLC, Alfa Bank, Salomon Broth-
ers and Pioneer Investments. Received a master’s de-
gree in economics from Yale University.

Changes to the senior manage-
ment
The following changes were made to the
senior management of Evraz Group in
2007:

Joiners
Daniel Harris
Maxim Kuznetsov
Vyacheslav Pavlov

Departures
Andrey Mokrinsky
Alexander Sorokin

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

Board and Management
Remuneration

Independent directors serve on the Board pursuant to
agreements. These agreements have a term of one year and
provide for identical terms for payment and level of com-
pensation and reimbursement of certain expenses.

KPIs for the annual bonus depend on the particular func-
tions of a senior manager. For vice presidents responsible
for production segments (steel, mining, vanadium) the
main KPIs are the following:

Remuneration of Evraz Group’s senior management

❘❚

EBITDA;

consists of:

a fixed base salary according to the unified scale, with

❘❚
grades defined for all job categories;

❘❚

a variable performance-based compensation;

a bonus paid semi-annually (for the 1st half year in an

❘❚
amount not exceeding 40% of the annual bonus);

❘❚

an annual bonus.

❘❚ net profit;

❘❚

cost per tonne of production;

capex.

The bonus for vice presidents leading various corporate
(non-production) functions depends on EBITDA, share price
performance, as well as on meeting of project-related tar-
gets (so-called MBO (management by objectives)).

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Senior managers are also entitled to long-term incen-
tives, including the Evraz Stock Option Plan (ESOP) for key
employees who have worked in Evraz Group for more than
a year, and variable benefits depending on a job grade, e.g.
life and medical insurance, cell phones, cars (the service is
outsourced).

The CEO of Evraz Group is not granted any specific non-

material remuneration.

Evraz Group’s key management personnel totalled 48,
46 and 33 persons as at December 31, 2007, 2006 and
2005, respectively. Total compensation to these individuals
consisted of the following:

US$ million

Salary

Performance bonuses

Social security taxes

Share-based payments

Termination benefits

Other benefits

Total

Other details regarding the remuneration of directors
and managers are provided in the Remuneration Commit-
tee Report below.

7
0
0
2

6
0
0
2

–

5
0
0
2

–

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

Remuneration Committee Report
(As of 1 April 2008)

More detailed information on the remuneration policy
and the committee’s duties and responsibilities can be
found on the Company’s website in the section on cor-
porate governance:

The Committee seeks to ensure that management are
rewarded fairly, taking into account all elements of their re-
muneration package and in the light of the Group’s per-
formance.

The Remuneration Committee met six times in 2007.

It took a decision on the severance conditions when the

former CEO resigned and left the Company.

It decided to nominate Alexander Frolov as Chairman and
Chief Executive Officer and determined his contractual terms.

Mr. Frolov abstained from voting in all matters related to

his package.

The Committee decided on the bonuses of the CEO-1

level for the year 2006, as well as for the chairman.

Articles of Association as at 23 May 2007: article 10

Corporate Governance Code: article 6.4 and 6.5

The Committee also defined the key performance indi-
cators (KPIs) for the CEO-1 level for the year 2007. Those
KPIs have been reduced to three in most cases.

Policy governing the Board of Directors: article 6 and 7

The Committee defined to appoint a new CEO at High-

Management Remuneration Policy

Since 19 January 2007 the Remuneration Committee

consists of the following members:

Independent chairman: Philippe Delaunois

Independent director: James W. Campbell

Non-executive director: Eugene Tenenbaum

veld and discuss his contractual terms.

Whenever necessary due to resignations or transfers,
the Committee has decided on the appointment of new
managers.

Given the expansion of the group through worldwide
acquisitions, the Committee has begun to consider the gen-
eral strategies which should be followed by the Company’s
subsidiaries.

The Committee has also begun to consider the future

Chairman and CEO: Alexander Frolov

long-term incentive plan for top management.

Vice President Human Resources: Natalia Ionova

Mr. Dmitry Melnikov, Secretary of the Board, acts as the

Secretary of the Committee.

The main objectives are to attract, retain and motivate
high quality senior management with a competitive pack-
age of incentives and awards linked to performance and in-
terests of shareholders.

As far as the remuneration of the independent directors
is concerned, the Chairman of the Board is responsible and
makes recommendations on the amount of their remuner-
ation to the annual general meeting of shareholders.

A director’s remuneration consists of an annual salary of
US$150,000 and a payment for Committee’s membership
(US$30,000) or chairmanship (US$50,000). Mr. Arshba is
not entitled to any remuneration as a member of the Russ-
ian Parliament.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

In 2005 Evraz Group introduced a long-term incentive

programme for independent directors.

Under the 2006 arrangement, the option must be exer-
cised within one year after the 14th day after the an-
nouncement of Evraz Group’s results for the previous
financial year; otherwise it lapses.

The table below provides details regarding the options

granted as at 31 December 2007.

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James W. Campbell

7 June 2005

25 May 2006

21 June 2006

10 May 2007

Terry Robinson

7 June 2005

25 May 2006

21 June 2006

10 May 2007

55,173

36,714

55,173

36,714

14.5

21.79

14.5

21.79

3 June 2008

9 May 2008

55,173 (19.02.2007)

3 June 2008

36,714 (23.01.2008)

9 May 2008

Philippe Delaunois who was appointed on 19 January

2007 does not participate in this programme.

It should be noted that the Remuneration Committee,
which usually meets before the Board’s meeting, always
presents its conclusion to the Board for final approval.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

Risk Management

The Group’s business and investment activities result in
exposure to a wide variety of business risks, material and
not so material. Certain risks are inherent in the nature
and jurisdiction of the Group’s business sector activities,
and other risks are related to fluctuations in the global
economy and other risks largely outside management con-
trol and power.

In respect of risk management, the Group’s executives
seek to have management capability in their goal to ensure
oversight, transparency, management consideration and
action through an Enterprise Risk Management process
(ERM). The ERM process is a structured and coordinated
entity-wide governance approach to identify, quantify, re-
spond to, and monitor the consequences of potential
events. This includes both internal and external risks. This
process is consistent with the LSE, Turnbull Guidance on In-
ternal Control and as the basis for a risk management
process.

The ERM process has the support of the Board, the Audit

Committee and management.

At this time, the initial phase of the ERM process has
largely involved the Group’s senior management in defining
key risk elements, the process and risk management ac-
countability or ownership of the senior management for the
key risk areas. The Group is making progress in identifying
middle and junior management who will share accounta-
bility with senior management for unit or business elements
of the Group’s key risks profile. The primary business ob-
jective is to develop a risk management framework which
has at its centre a strong group-wide risk management cul-
ture, supported by an enterprise-wide set of policies and
procedures.

This partnership is designed to ensure that there is an
ongoing alignment of business strategies and performance
delivery with the Group’s risk appetite.

We apply the following core principles in the identifica-
tion, monitoring and management of risk throughout the
organisation:

❘❚ Risks are identified, documented, assessed, moni-
tored, tested and the risk profile communicated to the rel-
evant risk management team on a regular basis.

❘❚ Business management and the risk management team
are primarily responsible for ERM and accountable for all
risks assumed in their operations.

❘❚ The Board and Audit Committee have an oversight
role, to determine that appropriate risk management
processes are in place and that these processes are ade-
quate and effective.

❘❚ The Board is responsible for assessing the optimum
balance of risk through the alignment of business strategy
and risk appetite on an enterprise-wide basis.

In 2007, the Group’s management identified, assessed
and documented the key business or enterprise risks, to-
gether with agreed judgements as to enterprise impact and
probability, providing the framework for the ERM process.

The Group’s key business risk areas are defined and man-

aged under the following framework:

//external compliance (including environment);

//reputation;

//operational;

//financial;

//human resources;

//political;

//market volatility; and

//cost competitiveness.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Internal Control

The Company, through its governance policies, continues
to refine the process by which the effectiveness of the sys-
tem of internal control can be regularly reviewed as re-
quired by provision C.2.1 of the Combined Code. The
process enables the Board of Directors and the Audit
Committee to assess the system of internal controls being
operated in order to manage significant risks (including
social, environmental, safety and ethical risks) through-
out the year.

This process has the normal limitations, in that any such
process can only manage rather than eliminate the risk of
failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material mis-
statement or loss.

The annual audit programme in 2007 incorporated the
work of existing and local internal audit teams in respect of
assignments and priorities agreed by the Audit Committee
and the work of newly acquired subsidiaries, largely acting
according to the defined audit programmes of previous
management.

In 2007, the Internal Audit team was augmented and re-
structured on a regional basis, reflecting the widening geo-
graphic spread and the introduction of common internal
audit practices throughout the Group. Also, with key ele-
ments of the Group’s enterprise risk now having fuller defi-
nition, the rolling six-month internal audit of internal control
has been amended to incorporate the increasing audit time
commitment to internal audit under the ERM approach.

The internal auditor of Evraz attended the meetings of
the Audit Committee and addressed, as necessary, any re-
ported deficiencies of internal control as required by audit
committee members. The Audit Committee engages with
executive management during the year to monitor the man-
agement of risks. Deficiencies that occurred and manage-
ment’s response to them were considered by the Audit
Committee during the year.

In 2007, the Internal Audit team met with Evraz’s ex-
ternal auditor and agreed to coordinate their efforts to
avoid duplication of procedures performed during the
audits. The intention was expressed on both sides that dur-
ing 2008 the Internal Audit team and Evraz’s auditor will
review the existing Internal Audit scope, approach and
audit documentation to identify work that can be used by
Evraz’s auditors in their audit of the financial statements.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

Audit Committee Report
(As of 1 April 2008)

This report of the Audit Committee to the shareholders of
Evraz Group S.A. covers the Committee’s activities since
the last report as at 24 April 2007 to 31 January 2008.

Following up on the key priorities identified in earlier
reports of the Audit Committee, the Company has made
significant progress in establishing Turnbull compliant, En-
terprise Risk Management processes and procedures, in-
cluding the initiation of a group-wide risk register. In
addition, significant financial process improvements have
been initiated to deliver earlier closing and publication of
interim and final accounts and a detailed fraud incident
and analysis reporting process has been instigated. These
initiatives have been delivered within the dynamic acqui-
sition growth environment since the Company’s listing,
leading to enhanced internal audit functionality and scope.

The Audit Committee has had an oversight role and a
leadership function in these internal control enhancements.

Role of the Committee
The Board has delegated to the Committee the responsi-
bility for oversight over Evraz Group’s financial controls
and reporting, oversight over the planning, process and
reports of appropriate reviews of the Group’s financial and
operational internal controls and the risk management
systems conducted by an internal audit function that is
wholly independent of management and reports to the
Audit Committee (as provided in the Group’s internal
audit charter).

The Committee is also responsible for managing the
Company’s relationship with the Company’s external audi-
tor.

In relation to these responsibilities, the Committee has:

❘❚

reviewed its board mandate;

❘❚
reviewed the form, content and integrity of the Com-
pany’s and Group’s published financial statements (within
the period of this report the interim results to 30 June
2007), including the 2007 press release;

❘❚ monitored and reviewed arrangements to ensure the
objectivity, scope and effectiveness of both the external and
internal audit functions, including the proposed and re-
spective programmes of audit work, the quality and inde-
pendence of provision of the respective audit functions and
of the costs or fees for the separate audit functions; and

❘❚
after these reviews, the Audit Committee recom-
mended to the Board that the external auditors be reap-
pointed.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The Composition of the Committee
During the period the members of the Audit Committee
were:

❘❚ Terry Robinson (Chairman) a financially qualified, in-
dependent non-executive director;

❘❚ Olga Pokrovskaya, a financially qualified, non-execu-
tive director;

❘❚
John Heywood, a financially qualified, the Evraz’s
Board nominated member (not being a Evraz’s director) of
the Audit Committee. In addition to the papers of the
Audit Committee, John also receives copies of all Board’s
minutes and has access to all Board’s papers.

The composition of the Audit Committee is not compli-
ant with the Combined Code, since the members of the
Committee are not drawn wholly from the Board’s inde-
pendent non-executive directors. The Board continues to
ensure independence through a rigorous regard of the
Audit Committee’s mandate and independent authority.

Report of the Committee’s Activity in 2007
Meetings and attendance: four meetings were held dur-
ing the 9-month period, which all Audit Committee’s
members attended. In addition, there was a special Audit
Committee meeting attended by the Company’s senior
executives together with the Group’s chief executive, at
which a review of the response to the Group-wide Enter-
prise Risk Management questionnaire was performed
and, through a working Group session, the structure, own-
ership and management action for the Group’s risk regis-
ter and score card was established. This working
Committee meeting did not include Olga Pokrovskaya.

The external auditor, Ernst & Young, internal auditors,
the Group’s Senior Vice President and Chief Financial Of-
ficer attended all four regular meetings. In addition, sen-
ior members of the Group’s finance team, the Group Vice
President Evraz Metallurgy, the Group’s IT Vice President,
the Group’s Vice President of Corporate Affairs and In-
vestor Relations, the director of taxes of Evraz and vari-
ous senior members of the Group’s operational
management team were present at various meetings of
the Committee.

The principal issues considered during the period from

24 April 2007 to 31 January 2008 were:

❘❚ Review of the external auditor’s management letter
following their full year audit for 2006, together with
the Company’s management response and intended ac-
tion.

❘❚ Review of the interim financial results and accounts
presentation.

❘❚
In connection with the review of the full year and in-
terim accounts, the Committee carefully enquired as to
related-party transactions. These transactions have been
materially reduced and the Company continues to make
the objective of reducing related-party transactions to a
level of immateriality a priority.

❘❚ Review of the scope and process for the Group-wide
Enterprise Risk Management questionnaire and the sub-
sequent executive response.

❘❚ Maintaining oversight over the Group’s Fast close
project intended to introduce modified, robust and com-
prehensive financial consolidation processes for earlier
closing of the Group’s IFRS accounts.

❘❚ Review of the Group’s tax management processes.

❘❚ Review of the Group’s incidences of fraud and ac-
tivity in hand to manage and reduce such future inci-
dences.

❘❚ Review of the actions instigating the Group’s whistle-
blowing facility.

Annual Report 2007

Evraz Group S. A.

CO R PORAT E GOVE RNA NCE

❘❚ Review of the revised manning, organisation and in-
ternal audit programme of the internal audit function to
increase its scope to accommodate the expanded Group’s
operations through acquisitions.

❘❚ Review of the internal audit report on the effective-
ness and process in delivering monthly management in-
formation and Board’s reports.

❘❚ Review of the Group’s plans for the consolidation and
rationalisation of the Group’s IT infrastructure; given the
numerous legacy IT platforms in existence through acqui-
sitions.

In addition, the Audit Committee reviewed and dis-
cussed all the programmed internal audit reports con-
cerned with the business and financial internal controls
and processes; in particular, the Audit Committee re-
viewed the Group’s treasury function report, the report
on the greatly expanded Vanadium operational unit and
initial reviews of the functional internal controls at ac-
quired subsidiaries.

The Committee has met with the external auditors, man-
agement and with the internal audit team separately for in-
dividual discussions.

Non-audit Services
As reported in previous years, it is the Group’s policy to
engage accountancy firms for due diligence work in con-
nection with acquisitions and for tax advice. The Com-
mittee has given prior written approval to all such
engagements and mandate fees where such engagements
have involved the Company’s external auditor.

In 2007, the audit fees on the interim review and year-
end audit approved by the Committee were US$4.35 mil-
lion, and non-audit fees were US$1.2 million.

Audit Committee Self-assessment
The Audit Committee has conducted a self-assessment
questionnaire.

External Auditor
Ernst & Young continues to serve as Evraz Group S.A. ex-
ternal auditor for the fifth consecutive year. According to
internal procedures, the Lead Audit Partner will be rotated
starting from 1 January 2008.

Annual Report 2007

Evraz Group S. A.

s
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Lanebrook Limited

BNY (Nominees) Limited (free float)

Total

72.9

27.1

100

Evraz Group management is not aware of any other
shareholder or shareholders which own more than 5% of
share capital.

Evraz Group S.A. expects any current or potential share-
holder who envisages acquiring by whatever means, di-
rectly or indirectly, more than 5% of the shares issued by
Evraz Group S.A. to inform the Chairman of the Board.

We are proud to mention that investors trust grew even
further last year. In the course of 2007, Evraz’s GDRs
demonstrated exceptional results and appreciated three
times, outperforming both the MSCI index and FTSE-250
growth rate.

Legend: ■ Evraz GDR ■ RTS
■ MSCI

MAKING THE WO RLD ST RO NGER

Share Capital

The subscribed share capital of Evraz Group S.A. is fixed at
€236,619,306.

As of 31 December 2007, the total number of shares is-
sued by Evraz Group S.A. amounted to 118,309,653 shares
with a nominal value of €2 each. 96,210,081 global de-
positary receipts (GDRs), representing 27.1% of issued share
capital, are listed and traded on the London Stock Exchange
under the symbol EVR. Each GDR represents an interest in
one-third of a share.

(%)

350

325

300

275

250

225

200

175

150

125

100

January

February

March

April

May

June

July

August

September October

November

December

Annual Report 2007

Evraz Group S. A.

1118,850

mln tonnes
17,047
mln tonnes

2007

2006

Iron Ore
Production,%

MAKING THE WO RLD ST RO NGER

Sustainable
Development
Overview

❘❚ 2007 was a year of successful economic,
ecological and social growth for Evraz Group.
We are on a straight and perspective way
to further development, based on
sustainability principles now.

We act in strict compliance with all applicable laws, regula-
tions and professional standards and make every effort to
identify how these may vary by local conditions. The struc-
turing of our valuable experience allows us to organise the
system of various risks evaluation, assessment and mitiga-
tion and gives the perspective of sustainable growth not for
our Company only but for the whole industry as well.

As an international and multinational company, we ad-
here to crucial international standards, principles and best
practices. Evraz endeavours to uphold widely recognised
principles of human rights and fully endorses the provisions
of the Universal Declaration of Human Rights, especially
those which are relevant to it as a corporate entity.

Additionally Evraz is committed to the relevant provi-

sions of:

❘❚

the UN Global Compact;

the UN Convention against Corruption;

❘❚
the OECD Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions; and

❘❚
the EU Convention on the Fight against Corruption In-
volving Officials of the European Communities or Offi-
cials of Member States.

Irina Kibina
Vice President, Corporate Affairs
and Investor Relations

We rigorously stick to the concept of conducting busi-
ness in an ethical and responsible fashion. In April 2007, the
Board approved the Code of Business Conduct and the
Code of Ethics designed to ensure that Evraz meets the
highest ethical standards in its business.

The Code of Ethics declares the core principles of re-
sponsible business, such as respect and observance of
human rights, safe work conditions, open and honest com-
munication with communities and government.

The Code of Business Conduct embodies the primary
principles which Evraz Group and its employees and stake-
holders seek to uphold. Being a guiding statement of prin-
ciple, this Code implements the framework for effective and
ethical operation, sets the principles of both external and
internal stakeholders relationships, discloses the principles
designed to ensure sustainable development.

The codes implementation has already started from No-

vember 2007 in all Russian subsidiaries and abroad.

The year 2007 was a breakout in
terms of approach to ethics,
business conduct and corporate
responsibility. As a result of suc-
cessful implementation of the
corporate codes, Evraz Group
operates in compliance with the
highest principles of ethical be-
haviour and business conduct.

Annual Report 2007

Evraz Group S. A.

S U STA I N A B L E D E V E L O P M E N T

Our People

All of our accomplishments to date would not have been
possible without the dedication and hard work of our tal-
ented employees. Together we will definitely continue to
grow as one of the largest global steel companies.

The Code of Ethics, adopted by the Board in 2007, de-
clares respect of everyone’s right to free choice of employ-
ment and supports the elimination of all forms of forced,
compulsory and child labour. Evraz will not employ forced
or compulsory labour or employ any persons under legal
working age.

In 2007, we conducted an analy-
sis of our staff quality, identified
and assessed personnel related
risks, including the risk of highly
qualified employees lack and
the risk of inefficient middle-
level management. Upon this
assessment we developed a pro-
gramme on such risks mitiga-
tion that is to be implemented
in the course of 2008.

Evraz operates on the principle of equal opportunity em-
ployment based on ability and without regard to age, race, gen-
der, religion, disability, national or social origin, trade union
membership, marital status, sexual orientation or political views.
Evraz’s policy does not tolerate any forms of discrimination or
harassment. The scope of our production activity compels us to
pay particular attention to geographical and national specificity.
But all subsidiaries’ independent projects and management poli-
cies adhere to the mainstream of corporate strategy.

Evraz strives to be the employer of choice. Our success de-
pends on more than 127,000 people all over the world. To-
gether we stand for innovation and development, trying to
operate on the principles of efficiency, safety and responsibility.

Geographical Breakdown of Evraz Group’s
Employees, 2007*

Legend:
90% Russia
10% Outside Russia

10%

90%

* Includes only production facilities.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Natalia Ionova
Vice President, Human Resources

Considerable changes took place in the number of em-
ployees of Russian subsidiaries in 2007. This was due to
the realisation of the outsourcing programme as a step of
our strategic plan. The outsourcing programme aims to:

❘❚ make our business activities more effective and trans-
parent;

❘❚ make our staff costs more comprehensible and lower
through specialisation of subsidiaries on auxiliary and sup-
port processes.

In 2007, the programme involved 23,089 employees,
12,793 of them employed at the wholly owned support
subsidiaries, and 10,296 of them – outside the Group.

Our initiative for outsourcing and implementation of the
personnel optimisation programme is based on the experi-
ence of our non-Russian subsidiaries, like Palini e Bertoli and
Evraz Oregon Steel Mills.

High Level of Health and Safety Standards
Steel and mining industries are fraught with a high level of
industrial injuries, and a number of operational life cycle
stages involve difficult and risky work conditions. Due to
this fact, occupational health and safety matters are of
the highest priority for corporate management and our
key stakeholders.

All Evraz Group’s subsidiaries develop and introduce oc-
cupational health and safety policies, pursuant to the re-
quirements of Russian
international
certificate standards like OHSAS 18000.

legislation and

Two-way Dialogue
As one of the main groups of stakeholders, our employees
are involved in an active discussion of corporate culture.
The rollout of any new policy or guidelines includes a
number of activities, such as a series of employees meet-
ings held at each Evraz’s site to discuss what the new poli-
cies mean for the business. In addition, the rollout is
supported by various internal communications including
newsletters and information posted on the Company’s
and subsidiary’s intranet sites. Special posters and
brochures devoted to the policies are also distributed to
employees.

Our labour policy is based on
the principle of open two-way
communication: Evraz Group
provides its employees with
possibilities for professional
and personal development
through progressive education,
medical and retirement arrange-
ments, social programmes, a
competitive level of remunera-
tion and non-material incen-
tives. But, in return, we expect
our employees to be high-level
professionals, proactive and re-
sponsible people.

Annual Report 2007

Evraz Group S. A.

S U STA I N A B L E D E V E L O P M E N T

Professional Education
Evraz pays special attention to education and profes-
sional skills training programmes, as well as mastering al-
lied trade, because of the middle and elementary
education levels of almost half of its employees. The
most important professional education projects are
aimed at production engineers of the steelmaking, blast-
furnace production, rolling, coking, repair and electro-
mechanical services. As part of the quality monitoring
system for the purpose, the Company attracts skilled spe-
cialists from first-rate training centres to teach the courses
at the plants.

Evraz also provides education possibilities to temporary

employees and working pensioners.

We realise the necessity for training and professional de-
velopment of our personnel. Evraz estimates and tries to ef-
fectively control the risks of a lack of qualified employees
and the risks of inefficient personnel management.

In September 2007 two regional personnel training cen-
tres in Siberia and the Urals were established on the foun-
dation of existing training centres of subsidiaries. The
project is aimed at raising the quality of educational pro-
grammes, optimising educational expenses, developing and
systematising unified educational and professional skills
standards, and extra financing of training centres.

The heads of Evraz’s Personnel Departments regularly
render assistance to educational institutions. For example,
Evraz took part in financing 1/3 of the governmental grant
programme, which is part of the “Education” National proj-
ect supported by the President of the Russian Federation.
This grant was awarded to College No. 19 in Novokuznetsk
that won an all-Russian contest.

The College trains professionals in rare metallurgy pro-

fessions that Evraz’s subsidiaries are very interested in.

The effectiveness of the project will lead to a consider-
able reduction in expenses connected with training profes-
sionals to use modern equipment.

In Russia 42,731 employees participated in the profes-

sional education programmes in 2007.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Social Responsibility

Employee Social Programmes
Close cooperation with our internal and external stake-
holders had an essential effect on the social policy devel-
opment processes. When developing our internal social
programmes, we try to take into consideration such im-
portant factors as:

❘❚ geographic and national differentiation;

❘❚ work experience (almost half of Evraz Group employ-
ees possess over 10 years of experience, and 25% of em-
ployees – over 20 years of experience);

regional development peculiarities, such as demo-

❘❚
graphic matters.

Evraz performs the following corporate social insurance pro-
grammes:

❘❚

voluntary retirement insurance programmes;

voluntary medical insurance programmes;

voluntary accident and occupational illness insurance

❘❚
programmes;

❘❚ mortgage programmes.

Evraz Group operates strictly in compliance with all ap-
plicable international, national and local labour laws and
regulations, regardless of the region where a particular sub-
sidiary is located.

With 90% of its employees working in Russia, Evraz
Group implemented various social programmes which ex-
ceed local legislation requirements.

In 2005, the Company developed and introduced a re-
tirement benefits programme, which was a novelty for the
subsidiaries, but became prevalent among employees. The
pension plan is carried out on a principle of matching em-
ployees’ contributions, and provides for a unified system of
management of retirement benefits governed by the Na-
tional Metallurgist’s Private Pension and Social Security
Fund.

We provide a healthy and safe work environment and
make every effort to identify, evaluate and mitigate poten-
tial health and safety risks. We believe that safety is a re-
sponsibility that is shared by everyone, and seek to improve
our health and safety systems. Our employees are provided
with all necessary safety equipment and are trained regu-
larly to raise their awareness of safe behaviour and to en-
sure their familiarity with all safety procedures and
protocols.

The Company’s partners in the sphere of social insurance
are chosen on a tender basis. Russian medical insurance and
accident and occupational illness insurance programmes
are realised in cooperation with reliable local insurance
companies.

Voluntary medical insurance programmes are financed
through co-financing, 37% of the insurance coverage is fi-
nanced by the employer and 63% – by the employee. In
2007, the total amount of Evraz Group’s payments totalled
US$517,600.

Voluntary accident and occupational illness insurance
programmes are financed at the expense of the employer;
the amount of insurance coverage is up to the double an-
nual salary of the employee.

Bearing in mind that healthy living conditions are the
basis of the region’s stable economic and demographic de-
velopment, Evraz Group continued to implement its cor-
porate mortgage programmes, which cover half of an
employee’s interest payments. In 2007, the mortgage pro-
gramme had 1,034 participants, which is 616 people more
than in 2006. The total amount of financing was
US$949,900.

Annual Report 2007

Evraz Group S. A.

S U STA I N A B L E D E V E L O P M E N T

Evraz strives to demonstrate its respect and value for in-
dividuals by making direct and meaningful social invest-
ments in local communities. All of the Group’s social
investments are made on a voluntary basis. They are aimed
at strengthening and further developing Evraz’s business
and community partnerships.

We strongly believe that we can make a positive differ-
ence in the lives of the people in the communities in which
our companies operate. We remain committed to investing
in local community projects and developing long lasting
partnerships with local communities and governments.

Corporate charitable programmes address social and po-
litical issues relevant to the business. They try to effectively
meet social goals and stakeholder expectations for better-
ing living conditions in the regions where the Company’s
plants, facilities and offices are located. The main aim of
our social investments is to create long-term competitive
benefits.

The coordination and management of local social pro-
grammes is provided through local charitable foundations
established by Evraz Group in 2007 and managed by their
supervisory boards. Each year Evraz Group approves the
Social Investment Programme, which sets out the social in-
vestment priorities and budgets for the year ahead.

Evraz Group has organised two corporate charity funds:

in Siberia and in the Urals.

Evraz pays special and sincere attention to the prosper-
ity of children and young people in its regions of operation.
We are truly convinced that investments in the develop-
ment of youth will provide our country with a healthy and
talented generation, eager to make the economy function
effectively.

In 2007, the funds in Siberia and the Urals began to re-
alise several projects in this area. The most important of
them are “City of Friends – City of Ideas”, “Yards” and “The
Beloved Children”.

Social Investment Programmes
In order to systematise our activities in the sphere of social
investment projects, in April 2007 the Board approved the
Social Investments Guidelines which set the following main
priority areas for investment:

❘❚ Youth: initiatives and projects which assist in the de-
velopment of young people.

Education: enabling individuals of all ages to gain new

❘❚
knowledge, abilities and skills.

❘❚ Citizenship: fostering favourable neighbourhood values
and safe environments in local communities.

Social Investment
by Area, 2007

Legend:
16% Youth
11% Education
73% Citizenship

73%

16%

11%

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

“City of Friends – City of Ideas”
The programme “City of Friends – City of Ideas” was
launched by Evraz in September 2006 in three Russian cities
where Evraz has operations. It is aimed at encouraging
young people to start up community projects. For the first
competition, approximately 350 community project ideas
were submitted to a special screening committee. The com-
mittee reviewed the ideas and chose 26 for funding. The
projects that were awarded grants included plans to build
sports grounds, create employment opportunities for the
disabled, set up youth centres, and various ecological ini-
tiatives.

In May 2007 Evraz announced a second “City of
Friends—City of Ideas” competition. This competition will
once again encourage young people to promote educa-
tional and ecological initiatives, as well as develop support
programmes for socially disadvantaged groups.

In 2007, the contest budget doubled to US$234,600.

The development of local communities was imple-
mented through a number of activities on acquisition of
equipment, maintenance of social institutions, and build-
ing of a church and schools to support the “Kachkanar –
My Native Town” project.

The slogan of the volunteer project in 2007 in No-
vokuznetsk was “The Town Needs You”. The idea is to join
the efforts of different non-commercial funds, municipal
and private educational, medical, social, cultural, and sports
institutions of Novokuznetsk.

The grant budget amounted to US$97,700.

“Yards”
We fulfil our yards redevelopment project in Novokuznetsk
with the cooperation of the local government. This charity
initiative has redeveloped 50 yards in different parts of the
town to make it possible for people to live in modern and
comfortable conditions.

The project financing in 2007 was US$3.5 million.

Evraz’s social policy prohibits the Group from supporting
organisations and programmes designed to influence legis-
lation or elect candidates to state or local public offices. In
addition, Evraz Group doesn’t invest in political, military,
religious, or governmental organisations and projects.

In 2008, Evraz Group plans to launch similar social pro-

grammes in the Czech Republic and the USA.

“The Beloved Children”
As a part of all-Russian campaign “Charity instead of sea-
sonal greetings”, this project aims to provide information
and to organise assistance for children with infantile cere-
bral paralysis and their parents in Novokuznetsk, Nizhny
Tagil and Kachkanar.

The main priority of our investment is to assist the chil-
dren’s integration into society, creating possibilities for their
physical, psychological, intellectual, emotional and creative
development and growth. The project will give an oppor-
tunity for 397 children to have individual convalescent fa-
cilities.

The project will continue through 2008, with a total

two-year budget of US$195,500.

Annual Report 2007

Evraz Group S. A.

S U STA I N A B L E D E V E L O P M E N T

Environmental
Protection

Evraz Group’s assets are located in different regions all over
the world. Understanding that its performance has a great
impact on ecosystems, Evraz Group is on the way to de-
velop sound environmental management system.

The Code of Ethics declares the principle of reducing the
impact of Evraz’s operations on the environment and striv-
ing to develop our business without compromising the
needs of future generations. It represents a significant step
for us in assessing our climate change challenges and ap-
plication of safe and pollution-free technologies.

As Evraz Group strives to support innovations and tech-
nical progress, many of the Group’s subsidiaries are in-
volved in in-house research activities cooperate with the
local research institutes.

In May 2007, we established a centralised Department
of Environmental and Health Protection in order to create
a system of environmental control at all subsidiaries in order
to discover, monitor and limit environmental and health
risks. The main objectives of the initiative are the creation
of a significant environmental impact register in order to
manage and mitigate the main groups of ecological risks.

The key principles of Evraz Group’s environmental policy
are based on Russian and international experience and best
practice and include:

❘❚

compliance with legislative requirements;

❘❚ harmful impacts prevention and decrease;

❘❚ development of safe production;

❘❚

efficient use of environmental assets;

efficient ecological risks management;

❘❚ development of ecological education;

active partnership and open dialogue with Company’s

❘❚
stakeholders.

Our main targets in the sphere of environmental protec-
tion are based on the particularities of the mining and steel
industry, as it is considered to be potentially dangerous and
harmful for the environment. They include the following:

❘❚ decrease in wastes and emissions;

❘❚

application of ecological industrial engineering;

atmospheric emissions and waste water purification,

❘❚
disposal and decontamination;

❘❚ waste processing.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Technology in Action
Every Evraz subsidiary has its own long-term environmental
programmes aimed at water and air conservation, waste
processing and other nature conservation measures. In
2007 the total amount of expenses on environmental proj-
ects equalled US$120 million.

Development and realisation of various innovative tech-
nological programmes allow us to improve the technology
of a blast-furnace production process. It results in the de-
crease of silicon in the cast iron, which causes a decrease in
coke consumption and an increase in blast furnace produc-
tivity. The new technology also permits us to decrease waste
generation by 30%. Today the percentage of waste utilisa-
tion equals 20–95% per year depending on the subsidiary.

Zapsib specialists have developed an advanced tech-
nology for processing waste tires in the oxygen converter.
This achievement earned the “National Environmental
Award” in the nomination of “Town ecology (Clean town)”.

Development of ore-bearing deposits involves consi -
derable water consumption. Evraz Group’s subsidiaries
withdraw water from surface and subsoil springs. In 2007
the water consumption of Russian subsidiaries equaled
314,931 thousand cubic metres, a 2,521 cubic metres de-
crease compared to 2006.

The most important part of improvement of technology
processes is the consistent decrease in water consumption,
which has the goal of creating a closed water-supply cycle
as at Palini e Bertoli and Evraz Vitkovice Steel.

In order to decrease waste emissions, Evraz’s subsidiaries
use filters at the tailings dam. Our environmental policy also
stipulates measures to improve the water reuse system, put-
ting a splash block into operation, and implementation of
innovative technologies. The significant decrease in air emis-
sions was observed in the Steel segment and amounted to
7.6% in spite of growing business geography.

As a responsible citizen, Evraz Group will continue its ef-
forts to measure and minimise its environmental impact
and contribute to sustainable development of the regions
in which the Company operates. Evraz Group strives to de-
velop modern ecological management systems. Among
Evraz’s subsidiaries NTMK, Zapsib, Evraz Vitkovice Steel
and Highveld Steel obtained ISO14001 certification.

Air Emissions per Tonne,
Steel Segment
(kg)

0.6

0.5

0.4

0.3

0.2

0.1

2005

2006

2007

Air Emissions per Tonne,
Mining Segment
(kg)

0.035

0.030

0.025

0.020

0.015

0.010

0.005

2005

2006

2007

Annual Report 2007

Evraz Group S. A.

INF ORMAT ION FO R SH AREH OL DE RS

Information
for Shareholders

Dividend per Share
(US$)

9.0

5.25

2005

2006

2007

Annual General Meeting
The 2008 annual meeting will be held in Luxembourg, at a
place to be specified in the convening notices, on 15 May
2007 at 12:00.

Resolutions to approve the reappointment of Ernst &
Young LLC as external auditor will be submitted to the An-
nual General Meeting. Ernst & Young LLC has expressed its
willingness to continue an office and the Audit Committee
and the Board have recommended that they be reap-
pointed.

Dialogue with Shareholders and Investors
The Board is responsible for ensuring a successful dialogue
with shareholders. The Chairman regularly discusses the
governance and strategy of Evraz Group S.A. with major
shareholders and ensures that other directors, in particular
non-executive directors, have an understanding of the
views of major shareholders.

Presentations given by Evraz Group to the investor com-

munity are available at www.evraz.com.

Dividends
Evraz Group S.A. has a dividend policy in place that was ap-
proved by the Board in July 2007.

Shareholders are entitled to receive dividends on their
shares paid by Evraz Group S.A. The Board may also au-
thorise the payment of interim dividends. The annual share-
holders meeting shall approve the decision to pay year-end
dividends.

Evraz Group S.A. strives to pay dividends of at least 25%
of its consolidated annual net income, as calculated under
IFRS, throughout the business cycle.

The Board has recommended that the annual general
meeting approve a year-end dividend of US$4.20 per com-
mon share or of US$1.40 per GDR for the year ended 31 De-
cember 2007, payable to shareholders on the share register
record date of 14 May 2008. When added to the interim
dividend this will make a total dividend for the year of
US$9.00 per common share, or US$3.00 per GDR.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Financial
Calendar

Evraz Group S.A. financial calendar for the second half of
2008 looks as follows:

15 JULY
Publication of Q2 2008 Operational Results

29 AUGUST
Publication of 2008 Interim Results

15 OCTOBER
Publication of Q3 2008 Operational Results

14 NOVEMBER
Publication of the 2nd Interim Management
Statement

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

70 Selected Consolidated Financial Information

77 Management’s Discussion and Analysis of Financial

Condition and Results of Operations
78 Overview
78 Reorganisation and Formation of the Company
79 Business Structure
79 Summary of Acquisitions
83 Factors Affecting Evraz’s Results of Operations
84 Results of Operations for the Years

Ended 31 December 2007 and 2006

103 Summary Results of Operations for the Years

Ended 31 December 2006 and 2005

103 Liquidity and Capital Resources
108 Inflation
108 Seasonality
108 Quantitative and Qualitative Disclosures

in Respect of Market Risk

113 Operational Outlook

Annual Report 2007

Evraz Group S. A.

S E L E C T E D CO N S O L I DAT E D F I N A N C I A L I N F O R M AT I O N

Selected Consolidated
Financial Information

The selected consolidated financial information set forth below shows Evraz’s historical consolidated financial information
and other operating information as of 31 December 2007, 2006 and 2005 and for the years then ended. The selected con-
solidated financial information has been extracted without material adjustment from, and should be read in conjunction
with, the consolidated financial statements as of 31 December 2007, 2006 and 2005 and for the years then ended, pre-
pared in accordance with IFRS. IFRS differs in certain significant respects from US GAAP. The selected consolidated fi-
nancial information should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” below.

Evraz’s operating results for the periods presented were significantly affected by certain acquisitions. These acquisi-
tions include the following: Mine 12 in March 2005; Palini in August 2005; Vitkovice Steel in November 2005; Yuzhkuzbas-
sugol in which Evraz acquired a 50% stake in December 2005 and the remaining 50% stake in June 2007; Highveld in
which Evraz acquired a 24.9% stake in July 2006, increasing it to 80.9% in September 2007; Stratcor in which Evraz ac-
quired a 72.84% stake in August 2006 and Oregon Steel in January 2007. The operating results of businesses acquired
are, in the majority of instances, included in Evraz’s consolidated financial statements for the periods post their respective
dates of acquisition.

However, certain acquisitions, including principally Evrazruda (as defined below), which was acquired in March 2005,
represent reorganisations under common control and are therefore accounted for using the uniting of interests method
(pooling of interests). As a result, these acquisitions (including the acquisition of Evrazruda) are consolidated with effect
from the beginning of the first period presented as if they had occurred at such date. Accordingly, as a result of these ac-
quisitions, the presentation of Evraz's historical consolidated financial condition and results of operations for all periods
following such acquisitions differs from this information as previously published, in order to reflect the retrospective con-
solidation of these entities. See “Management’s Discussion and Analysis of Financial Condition and Results of Opera-
tions—Summary of Acquisitions”.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

millions of US dollars, except share and per share data and as noted
Consolidated Income Statement Data

Year ended December 31,

Revenues

Cost of revenues

Gross profit

Selling and distribution expenses

General and administration expenses

Other operating expenses, net

Profit from operations

Non operating income and expense, net.

Profit before tax

Income tax expense

Net profit

Net profit attributable to equity holders of the parent entity

Net profit attributable to minority interests

Basic earnings per share

Diluted earnings per share

7
0
0
2

12,808

(7,875)

4,933

(539)

(681)

(190)

3,523

(322)

3,201

(984)

6
0
0
2

8,292

(5,163)

3,129

(243)

(494)

(94)

2,298

(211)

2,087

(637)

5
0
0
2

6,508

(4,172)

2,336

(181)

(467)

(106)

1,582

(54)

1,528

(475)

2,217

1,450

1,053

2,144

18.16

18.02

1,377

11.76

11.68

918

135

8.14

8.13

Weighted average number of ordinary shares outstanding

118,076,909

117,073,156

112,731,997

Steel segment income statement data

Revenues(1)

Cost of revenues(1)

Gross profit

Selling and distribution expenses

General and administration expenses

Other operating (expenses) income, net

Profit from operations

Mining segment income statement data

Revenues(1)

Cost of revenues(1)

Gross profit

Selling and distribution expenses

General and administration expenses

Other operating expenses, net

Profit from operations

Other operations income statement data

Revenues(1)

Cost of revenues(1)

Gross profit

Selling and distribution expenses

General and administration expenses

Other operating expenses, net

Profit from operations

12,433

(8,248)

4,185

(554)

(432)

(130)

3,069

1,901

(1,241)

660

(26)

(130)

(46)

458

838

(592)

246

(63)

(152)

(1)

8,161

(5,493)

2,668

(288)

(316)

(102)

1,962

1,147

(708)

439

(1)

(73)

(14)

351

604

(376)

228

(84)

(106)

(12)

6,221

(4,316)

1,905

(202)

(319)

(76)

1,308

989

(640)

349

(7)

(70)

(13)

259

645

(462)

183

(43)

(98)

(8)

Annual Report 2007

Evraz Group S. A.

S E L E C T E D CO N S O L I DAT E D F I N A N C I A L I N F O R M AT I O N

millions of US dollars, except share and per share data and as noted

Year ended December 31,

Consolidated Balance Sheet Data (at period end)

Total assets

Equity attributable to equity holders of the parent entity

Minority interests

Long term debt, net of current portion

Consolidated Cash Flows Data

Net cash flows from operating activities

Net cash flows used in investing activities

Net cash flows from (used in) financing activities

Other Measures
Consolidated Adjusted EBITDA(2)

Steel segment Adjusted EBITDA(2)

Mining segment Adjusted EBITDA(2)

Other operations Adjusted EBITDA(2)

Net Debt(3)

Selected Ratios
Total Ratio Debt to Consolidated Adjusted EBITDA(2)(4)

Net Ratio Debt to Consolidated Adjusted EBITDA(2)(4)

7
0
0
2

16,380

5,986

371

4,653

2,957

(5,636)

2,135

4,254

3,585

633

6,280

1.6x

1.5x

6
0
0
2

8,510

4,066

169

1,855

2,084

(1,569)

(341)

2,642

2,223

415

1,730

1.0x

0.7x

5
0
0
2

6,754

2,708

179

1,515

1,496

(1,753)

607

1,859

1,509

314

1,693

1.3x

0.9x

Notes:

(1) Segment revenues and cost of revenues include inter-segment sales and purchases.

(2) Adjusted EBITDA represents profit from operations plus depreciation, depletion and amortisation, impairment of assets and loss (gain) on disposal
of property, plant and equipment. Evraz presents Adjusted EBITDA because Evraz considers Adjusted EBITDA to be an important supplemental
measure of its operating performance and Evraz believes Adjusted EBITDA is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in the same industry. Adjusted EBITDA is not a measure of financial performance under IFRS and it should
not be considered as an alternative to net profit as a measure of operating performance or to cash flows from operating activities as a measure of
liquidity. Evraz’s calculation of Adjusted EBITDA may be different from the calculation used by other companies and therefore comparability may
be limited. Adjusted EBITDA has limitations as an analytical tool, and potential investors should not consider it in isolation, or as a substitute for
analysis of our operating results as reported under IFRS. Some of these limitations include:
❘❚ Adjusted EBITDA does not reflect the impact of financing or financing costs on Evraz’s operating performance, which can be significant and could
further increase if Evraz were to incur more debt.
❘❚ Adjusted EBITDA does not reflect the impact of income taxes on Evraz’s operating performance.
❘❚ Adjusted EBITDA does not reflect the impact of depreciation, depletion and amortisation on Evraz’s operating performance.
The assets of Evraz’s businesses which are being depreciated and/or amortised will have to be replaced in the future and such depreciation, deple-
tion and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from Adjusted EBITDA, Ad-
justed EBITDA does not reflect Evraz’s future cash requirements for these replacements. Adjusted EBITDA also does not reflect the impact of a loss
on disposal of property, plant and equipment.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Reconciliation of Adjusted EBITDA to profit from operations is as follows :

millions of US dollars

Consolidated Adjusted EBITDA reconciliation

Profit from operations

Add:

Depreciation, depletion and amortisation

Impairment of assets

Loss (gain) on disposal of property, plant & equipment

Consolidated Adjusted EBITDA

Steel segment Adjusted EBITDA reconciliation

Profit from operations

Add:

Depreciation and amortisation

Impairment of assets

Loss (gain) on disposal of property, plant & equipment

Steel segment Adjusted EBITDA

Mining segment Adjusted EBITDA reconciliation

Profit from operations

Add:

Depreciation, depletion and amortisation

Impairment of assets

Loss (gain) on disposal of property, plant & equipment

Mining segment Adjusted EBITDA

Other operations Adjusted EBITDA reconciliation

Profit from operations

Add:

Depreciation and amortisation

Impairment of assets

Loss (gain) on disposal of property, plant & equipment

Other operations Adjusted EBITDA

7
0
0
2

6
0
0
2

5
0
0
2

Year ended December 31,

3,523

2,298

1,582

698

303

245

4,254

2,642

1,859

3,069

1,962

1,308

496

227

183

—

3,585

2,223

1,509

458

165

633

351

259

415

314

—

Annual Report 2007

Evraz Group S. A.

S E L E C T E D CO N S O L I DAT E D F I N A N C I A L I N F O R M AT I O N

(3) Net Debt represents long-term loans, net of current portion, plus short-term loans and current portion of long term loans less cash and cash equiva-
lents and short term bank deposits (excluding restricted deposits). Net Debt is not a balance sheet measure under IFRS and it should not be con-
sidered as an alternative to other measures of financial position. Evraz’s calculation of Net Debt may be different from the calculation used by
other companies and therefore comparability may be limited.

Net Debt is a measure of Evraz’s operating performance that is not required by, or presented in accordance with, IFRS. Although net debt is a non-
IFRS measure, it is widely used to assess liquidity and the adequacy of a company’s financial structure. Evraz believes net debt provides a useful in-
dicator of its ability to meet its financial obligations, represented by gross debt, from its available cash. Net debt allows Evraz to show investors
the trend in its net financial condition over the periods presented. However, the use of Net debt effectively assumes that gross debt can be re-
duced by cash. In fact, it is unlikely that Evraz would use all of its cash to reduce its gross debt all at once, as cash must also be available to pay
employees, suppliers and taxes, and to meet other operating needs and capital expenditure requirements. Net debt and its ratio to equity, or
leverage, are used to evaluate Evraz’s financial structure in terms of sufficiency and cost of capital, level of debt, debt rating and funding cost, and
whether Evraz’s financial structure is adequate to achieve its business and financial targets. Evraz’s management monitors the Net debt and lever-
age or similar measures as reported by other companies in Russia or abroad in order to assess Evraz’s liquidity and financial structure relative to
such companies. Evraz’s management also monitors the trends in its Net debt and leverage in order to optimise the use of internally-generated
funds versus funds from third parties.

Net Debt has been calculated as follows:

millions of US dollars

Net Debt Calculation

Add:

Long-term loans, net of current portion

Short-term loans and current portion of long-term loans

Short-term loans from related parties

Less:

Short term bank deposits

Cash and cash equivalents

Net Debt

7
0
0
2

6
0
0
2

5
0
0
2

Year ended December 31,

4,653

1,958

(25)

(327)

6,280

1,855

741

(24)

(842)

1,730

1,515

835

(16)

(641)

1,693

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

(4) Total Ratio Debt and Net Ratio Debt have been calculated as follows :

millions of US dollars

Total Ratio Debt and Net Ratio Debt calculation

Add:

Long-term loans net of current portion

Finance lease liabilities

Other long-term liabilities

Short-term loans and current portion of long-term loans

Restructured taxes payable

Short-term loans from related parties

Current portion of finance lease liabilities

Current portion of other long-term liabilities

Total Ratio Debt

Less:

Short term bank deposits

Cash and cash equivalents

Net Ratio Debt

5
0
0
2

1,515

835

—

Year ended December 31,

7
0
0
2

4,653

1,958

—

6
0
0
2

1,855

741

—

6,784

2,697

2,396

(25)

(327)

6,432

(24)

(842)

1,831

(16)

(641)

1,739

Total Ratio Debt and Net Ratio Debt are measures of Evraz’s operating performance that are not required by, or presented in accordance with, IFRS.
Although Net Ratio Debt is a non-IFRS measure, it is widely used to assess liquidity and the adequacy of a company’s financial structure. Evraz be-
lieves Net Ratio Debt provides a useful indicator of its ability to meet its financial obligations, represented by Total Ratio Debt, from its available
cash. Net Ratio debt allows Evraz to show investors the trend in its net financial condition over the periods presented. However, the use of Net
Ratio debt effectively assumes that Total Ratio Debt can be reduced by cash. In fact, it is unlikely that Evraz would use all of its cash to reduce its
Total Ratio Debt all at once, as cash must also be available to pay employees, suppliers and taxes, and to meet other operating needs and capital
expenditure requirements. Net Ratio Debt and its ratio to equity, or leverage, are used to evaluate Evraz financial structure in terms of sufficiency
and cost of capital, level of debt, debt rating and funding cost, and whether Evraz’s financial structure is adequate to achieve its business and fi-
nancial targets. Evraz’s management monitors the trends in its Net Ratio debt and leverage in order to optimise the use of internally-generated
funds versus funds from third parties.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Management’s Discussion
and Analysis of Financial
Condition and Results
of Operations

❘❚ The following discussion of Evraz’s financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements as of 31 December 2007, 2006 and 2005 and for the years then
ended, the notes thereto and the other information included elsewhere in this
Report. This section contains forward-looking statements that involve risks and
uncertainties. Evraz’s actual results may differ materially from those discussed in
such forward-looking statements due to various factors.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Overview
Evraz is a large vertically integrated steel, mining and vanadium businesses with operations in the Russian Federation, Eu-
rope, the United States, Canada and South Africa and interests in China. Evraz produced approximately 16.4 million tonnes
and 16.1 million tonnes of crude steel in 2007 and 2006, respectively. Management estimates that Evraz ranks as one of the
top three producers of steel and steel products by volume in Russia, is the largest Russian producer of long products such as
beams, rebars and rails, by volume, and is among the 16 largest steel producers in the world by volume. Evraz also produces
significant quantities of iron ore and coal (after its acquisition of Yuzhkuzbassugol in June 2007). Most of Evraz’s iron ore and
coking coal products are used in its steel making operations. Evraz also sold 22,100 tonnes of vanadium equivalent in 2007.

Evraz listed GDRs, representing approximately 8.3% of its issued share capital, on the Official List of the London Stock Ex-
change on 2 June 2005, thereby raising US$422 million from new investors. Each GDR represents an interest in one-third of
one share. In January 2006, Crosland Global Limited (“CGL”), a former major shareholder in the Company, placed further
GDRs, equivalent to approximately 6% of the Company’s issued share capital, on the London Stock Exchange. The total num-
ber of GDRs listed on the LSE represented approximately 27.1% of Evraz’s issued share capital as of 31 December 2007.

Evraz’s principal assets at 31 January 2008 comprised seven integrated steel plants: NTMK, Zapsib, NKMK, Evraz
Vitkovice Steel (acquired in November 2005), Evraz Oregon Steel Mills (acquired in January 2007), Highveld Steel and
Vanadium Corporation (acquisition completed in September 2007), which is also a leading vanadium producer and Clay-
mont Steel (acquired in January 2008); a steel rolling mill, Palini e Bertoli (acquired in August 2005); three iron ore min-
ing and processing facilities: Evrazruda, KGOK and VGOK; two coal mining assets: Mine 12 and Yuzhkuzbassugol (acquired
in June 2007); one of the world’s leading producers of vanadium alloys and chemicals for the steel, chemical, and titanium
industries, Strategic Minerals Corporation (acquired in August 2006); Nikom (acquired in December 2007), a ferrovana-
dium producer; and various trading and logistical assets including Nakhodka Sea Port and Evraztrans. Evraz also owns a
40% equity interest in coking coal producer Raspadskaya. In 2007, Evraz’s consolidated revenues amounted to US$12,808
million and profit from operations totalled US$3,523 million.

Since 2005, Evraz has made a number of significant acquisitions, as a result of which its asset base has increased substan-
tially, as have the geographic scope of its assets and operations and the international diversity and magnitude of its revenues,
among other changes in its business. Accordingly, Evraz believes that its results of operations and financial condition in 2005
are of relatively low comparative utility, compared to an analysis of its results of operations and financial condition for more re-
cent periods. Thus, only a summary discussion of certain line items in a comparison of 2006 to 2005 is provided herein.

Reorganisation and Formation of the Company
The Company was incorporated, under the laws of the Grand Duchy of Luxembourg, on 31 December 2004 as the hold-
ing company for Evraz’s assets. Prior to 3 August 2006, the Company’s parent was CGL, an entity under control of Mr.
Alexander Abramov. On 3 August 2006, CGL transferred all its ownership interest in the Company to Lanebrook Limited
(Cyprus) which became the ultimate controlling party from that date.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The Company was formed through a reorganisation in which 95.83% of the shares in Mastercroft Limited (“Master-
croft”), a limited liability company registered in Cyprus, directly owned by Crosland Limited (“Crosland”), the parent of
CGL, were contributed into the Company in April 2005. As Evraz has been formed through a reorganisation of entities
under common control, its consolidated financial statements have been prepared using the pooling of interests method
and, as such, the financial statements have been presented as if the transfers of Evraz’s interest in Mastercroft had oc-
curred from the beginning of the earliest period presented.

The Company’s interests in the majority of its subsidiaries are held indirectly through its ownership of Mastercroft, excep-
tions being Palini e Bertoli, Evraz Vitkovice Steel, Evraz Oregon Steel Mills, Claymont Steel, Highveld and Stratcor which are
owned directly by the Company. Claymont Steel is a wholly-owned subsidiary of Evraz Oregon Steel Mills and Nikom is a
wholly-owned subsidiary of Evraz Vitkovice Steel.

Business Structure
Segments
Evraz’s business is divided into two principal segments:

❘❚ the steel production segment, comprising the production and sale of semi-finished and finished steel products; vana-

dium slag and vanadium ferroalloys; and coke and coking products; and

❘❚ the mining segment, comprising the production, enrichment and sale of iron ore and coal.

The mining segment does not meet the criteria of a reportable segment under IFRS, due to the fact that the majority
of its revenues are earned in inter-segment transactions. However, Evraz’s management has designated the mining seg-
ment as a reportable segment based on Evraz’s plans for the further development of its mining business.

Other operations include management, logistics (including the Nakhodka Sea Port) and supporting activities.

Inter-segment sales
Evraz is a vertically integrated steel and mining group. In 2007, Evraz’s mining segment supplied approximately 77% and
94% of the total iron ore and coal requirements, respectively, of Evraz’s Russian steel making operations. The coal supplies
include purchases from Yuzhkuzbassugol (prior to its acquisition by Evraz in June 2007) and Raspadskaya. (See “—Sum-
mary of Acquisitions” below). The steel segment supplies grinding balls, mining uprights and coke to the mining segment
for use in operations. Evraz considers that inter-segmental product sales are generally based on prices equivalent to those
that could be commanded from unrelated third parties. These inter-company transactions are eliminated for the purposes
of Evraz’s consolidated financial statements but not in the respective segment presentation of these data.

Summary of Acquisitions
Evraz has sought to develop an integrated steel and mining business through the purchase of undervalued assets that it
believes offer significant upside potential, particularly in light of Evraz’s implementation of improved working practices and
operational methods.

The following is a summary of the terms of Evraz’s principal steel and mining acquisitions. Unless otherwise stated, each
acquisition was accounted for using the ‘purchase method’ of accounting. Accordingly, the operational results of each
such acquisition are included in Evraz’s consolidated income statements from the date Evraz acquired control. In certain
cases, where Evraz acquired its interests over a period of time, the relevant businesses were accounted for using the eq-
uity method until such interests amounted to a controlling financial interest. Evraz’s investment in Raspadskaya is cur-
rently accounted for under the equity method.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Summary of Acquisitions (Continued)

Acquisitions/start-ups prior to 2006
❘❚ Nizhny Tagil Iron and Steel Plant (“NTMK”). NTMK is an integrated steel plant that primarily produces railway and
construction long products, pipe blanks and semi-finished products. During 1997–2005, Evraz acquired a 92.38% in-
terest in NTMK for a total consideration of US$379 million. Evraz acquired a further 2.62% interest for a consideration
of US$79 million in 2006. Evraz’s effective interest in NTMK as of 31 December 2007 amounted to 100.00%.

❘❚ West Siberian Iron and Steel Plant (“Zapsib”). Zapsib is an integrated steel plant that primarily produces construction
long products and semi-finished products. During 2001–2005, Evraz acquired a 96.67% interest in Zapsib for a total
consideration of US$139 million. Evraz’s effective interest in Zapsib as of 31 December 2007 amounted to 100.00%.

❘❚ Novokuznetsk Iron and Steel Plant (“NKMK”). NKMK is an integrated steel plant that specialises in the production of
rolled long metal products for the railway sector as well as semi-finished products. NKMK, formed in May 2003, com-
menced steel operations in October 2003 having acquired certain property, plant and equipment from KMK for a con-
sideration of US$45 million subsequent to the dissolution of the latter in bankruptcy proceedings in June 2003. Evraz’s
effective interest in NKMK as of 31 December 2007 amounted to 100.00%.

❘❚ Vysokogorsky Mining and Processing Integrated Works (“VGOK”). VGOK is an iron ore mining and processing com-
plex that produces sinter from its iron ore resources and from iron ore purchased from other producers. During 1998-
2005, Evraz acquired an 87.39% interest in VGOK for a consideration of $2 million. Evraz’s effective interest in VGOK
as of 31 December 2007 amounted to 100.00%.

❘❚ Nakhodka Commercial Sea Port. The Nakhodka Sea Port is located in the Far East of Russia from where Evraz ships
the majority of its export sales. By the end of 2005, Evraz had acquired an ownership interest of 93.61% in Nakhodka
Sea Port for a total consideration of US$17 million. In 2006, Evraz acquired additional minority interests in Nakhodka
Sea Port of 0.6%. Evraz’s effective interest in Nakhodka Sea Port as of 31 December 2007 amounted to 100.00%.

❘❚ Ferrotrade Limited (“Ferrotrade”) and East Metals S.A. (“East Metals”). Ferrotrade Limited and East Metals are export traders
that sell Evraz’s steel products overseas. The principal markets of the traders are South-East Asia, North America and the Mid-
dle East. Evraz’s effective interest in both Ferrotrade and EastMetals S.A. as of 31 December 2007 amounted to 100.00%.

❘❚ Raspadskaya. Raspadskaya, which produces coking coal, is one of the largest coal mines in Russia. On 10 March 2004, as
part of a joint venture agreement, Evraz acquired a 50% interest in Corber Enterprises Limited (“Corber”), a joint venture
created for the purpose of exercising joint control over the business activities of Raspadskaya, in which Corber owned
72.03% of the ordinary shares, and other subsidiaries of Corber owned the remaining interest. Evraz acquired its interest
for a total consideration of US$140 million. Corber acquired a further 4.90% interest in Raspadskaya during 2004–2005
for a total consideration of US$6.8 million. On 31 May 2006, Corber acquired a 100% ownership interest in Mezh-
durechenskaya Ugolnaya Company – 96 (“MUK-96”) from Adroliv, one of Corber’s shareholders, in exchange for its own
newly issued 7,200 ordinary shares and 4,800 preferred shares with par value of US$1 each. As part of the transaction,
Corber paid to Adroliv preferred dividends of US$318 million. The total cost of the business combination, including cash
consideration and fair value of equity instruments exchanged, amounted to US$770 million. On 31 May 2006, Evraz ac-
quired 3,600 newly issued ordinary shares of Corber for cash consideration of US$225 million and retained its 50% own-
ership interest in Corber. Evraz’s effective interest in Raspadskaya as of 31 December 2007 amounted to 40.00%.

❘❚ Kachkanarsky Ore Mining and Processing Enterprise “Vanady” (“KGOK”). KGOK is an iron ore mining and processing
complex that produces sinter, pellets and concentrate from high-vanadium iron ore. On 21 May 2004, Evraz acquired
83.59% of the ordinary shares of KGOK for a consideration of US$190.3 million and purchased restructured debts of

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

KGOK with a fair value of RUB597.0 million (approximately US$20.6 million at the exchange rate at the date of the
transaction), the nominal value being RUB1,283.0 million (approximately US$44.3 million at the date of the transac-
tion). Evraz acquired further interests in KGOK amounting to 14.12% of the ordinary shares during 2004–2005 for a total
consideration of US$32 million. Evraz’s effective interest in KGOK as of 31 December 2007 amounted to 100.00%.

❘❚ Evrazruda. Evrazruda is an iron ore mining and processing complex that produces iron ore concentrate and sinter. In
March 2005, Evraz acquired a 99.90% interest in Evrazruda for a consideration of US$32 million from entities under
common control with Evraz and a 0.10% interest from third parties for an additional US$32 thousand. This has resulted
in Evrazruda being consolidated with Evraz with effect from 31 December 2001 as it existed at such date, with acqui-
sitions by Evrazruda subsequent to 31 December 2001 being accounted for by Evraz under the purchase method.
Evraz’s effective interest in Evrazruda as of 31 December 2007 amounted to 100.00%.

❘❚ Palini e Bertoli (“Palini”). Palini produces customised, high-quality steel plate products and is located in northern Italy. In Au-
gust 2005, Evraz acquired a 75% plus one share interest in Clama S.r.l., which owns 100% of Palini. Cash consideration for
both companies amounted to US$112 million, including transaction costs of US$3 million. At the same time, Evraz and
Clama’s minority shareholders entered into a put and call option agreement under which Clama’s minority shareholders had
a put option and Evraz had a corresponding call option, exercisable in the period from 2007 to 2010, in respect of 25% less
one share ownership interest in Clama. As a result, Evraz effectively acquired a 100% ownership interest in Clama with de-
ferred consideration of US$69 million which is equal to the fair value of a financial liability payable under a put option.

❘❚ Evraz Vitkovice Steel (”Vitkovice Steel”). Vitkovice Steel is the largest producer of steel plates in the Czech Republic.
In November 2005, Evraz acquired 98.96% of the shares in the former Vitkovice Steel for a cash consideration of
CZK7,428 million (approximately US$298 million at the exchange rate on the date of the transaction). Evraz’s effec-
tive interest in Vitkovice Steel as of 31 December 2007 amounted to 100.00%.

❘❚ Yuzhkuzbassugol. Yuzhkuzbassugol, which produces coking and steam coal, is one of the largest coal mines in Russia.
On 30 December 2005, Evraz acquired a 50% ownership interest in Yuzhkuzbassugol for cash consideration of US$675
million payable to Crondale Overseas Limited (“Crondale”), an entity under common control with Evraz. (See “– Ac-
quisitions in 2007”).

❘❚ Mine 12. Mine 12, a coal producer located in the Kemerovo region near Zapsib and NKMK, was acquired by Evraz in

March 2005.

Acquisitions in 2006
❘❚ Strategic Minerals Corporation (“Stratcor”). Stratcor is one of the world’s leading producers of vanadium alloys and chem-
icals for the steel, chemical and titanium industries. Stratcor has two wholly-owned subsidiaries — Stratcor, Inc. with a mill
in Hot Springs, Arkansas, USA, and Vametco Minerals Corporation with a mine and a mill in Brits, South Africa. On 23 Au-
gust 2006, Evraz acquired 72.84% of the ordinary shares of Stratcor, including 69.00% of the voting shares, for a purchase
consideration of US$125 million, including transaction costs of US$6 million and fair value of contingent consideration
amounting to US$21 million.

❘❚ Highveld Steel and Vanadium Corporation (“ Highveld”). Highveld is one of the largest steel producers in South Africa
and a leading producer of vanadium products. On 13 July 2006, Evraz acquired a 24.9% ownership interest in Highveld
from Anglo American plc for a cash consideration of US$216 million, including US$10 million of transaction costs. In ad-
dition, Evraz entered into share option agreements with the major shareholders of Highveld to increase this stake to
79% within the next 24 months (subject to receipt of all necessary regulatory approvals), should the Board of Directors
choose to do so. See “—Acquisitions in 2007”.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Summary of Acquisitions / Acquisitions in 2006 (Continued)

❘❚ EvrazEK. EvrazEK, an energy generating company, supplies natural gas, coke-oven gas, steam and electricity to certain
subsidiaries of Evraz and purchases metal products and materials from them. In 2006, Evraz acquired a 100% interest
in the entity for US$34 million.

Acquisitions in 2007
❘❚ Evraz Oregon Steel Mills ("Oregon Steel"). Headquartered in Portland, Oregon, United States, Oregon Steel is one of
the most diversified steel manufacturers in North America. Due to a diverse range of manufacturing capabilities, it can
produce over 1.5 million tonnes of higher margin specialty and commodity steel products (plate, coiled plate, welded
and seamless pipe for oil and gas applications, structural tubing, rail and wire rods and bars) annually. From 1988 to
January 2007, Oregon Steel Mills, Inc. was publicly-held, and its shares were traded on the New York Stock Exchange
(the “NYSE”). In January 2007, following a successful tender offer by the Company, it became a wholly-owned subsidiary
of the Company and changed its name to Evraz Oregon Steel Mills. Subsequently, Oregon Steel’s securities were de-
listed from the NYSE and deregistered. Total cash consideration for the acquisition of 100% ownership interest in Ore-
gon Steel amounted to US$2,276 million, including $10 million of transaction costs. Evraz’s effective interest in Oregon
Steel as of 31 December 2007 amounted to 100.00%.

❘❚ West Siberian Heat and Power Plant (“ZapsibTETs”). ZapsibTETs was built as a substation of Zapsib, which at present
consumes 42% of the heat and over 25% of the electricity produced by ZapsibTETs. The technological processes of
Zapsib and ZapsibTETs are closely interconnected. Zapsib supplies ZapsibTETs with coking and blast furnace gas,
takes part in the steam refrigeration, and gives it room for an ashes dump. ZapsibTETs can meet up to 85% of Zapsib’s
electricity requirements and fully satisfy its demand for heat. On 3 May 2007, Evraz acquired a 93.33% ownership
interest in ZapsibTETs for cash consideration of 5,945 million Roubles (US$231 million at the exchange rate as of the
date of the transaction) in addition to US$1 million in transaction costs. In accordance with Russian legislation, on 12
November 2007, Evraz commenced the buyout of minority shares and completed the transaction in January 2008.
Evraz’s effective interest in ZapsibTETs as of 31 December 2007 amounted to 100.00%.

❘❚ Highveld. On 20 February 2007, the European Commission approved the proposed acquisition of the controlling inter-
est in Highveld, subject to certain conditions. Evraz is obliged to divest of Highveld’s Vanchem Operations (see “Overview
of Evraz—General”) along with an equity interest in the Mapochs Mine, which guarantees supply of ore to the Vanchem
Operations. The divestment package also includes a ferrovanadium smelter located on the site of the Highveld steel fa-
cility and Highveld’s 50% shareholding in SAJV, a joint venture between Highveld and two Japanese partners which own
another ferrovanadium smelter at the same site. On 26 April 2007, Evraz obtained the regulatory approvals of the South
African competition authorities and the share options became exercisable. As a result, the financial position and results
of operations of Highveld were included in Evraz’s consolidated financial statements beginning 26 April 2007 as the
Company effectively exercised control over Highveld’s operations since that date. On 4 May 2007, the Company exer-
cised its option and acquired a 29.2% ownership interest in Highveld for cash consideration of US$238 million from
Anglo American plc. In addition, the Company paid transaction costs amounting to US$2 million.

In accordance with applicable South African legislation, an acquiror, which purchases 35% of the acquiree’s share cap-
ital, is obliged to offer to minority shareholders to sell their holdings. On 4 June 2007, the Company made an offer to
acquire the entire share capital of Highveld, other than those shares already held by the Company, at a price of $11.40
per share. On 16 July 2007, the Company increased the offer price from the South African rands equivalent of $11.40
per share to 93 South African rands (US$13.03 at the exchange rate as of 4 June 2007) which represented an ap-
proximately 14% increase to the previous offer price. As a result of this offer, the Company acquired 1,880,750 shares
of Highveld (1.91% of the share capital) for 175 million South African rands (US$25 million at the exchange rates as of
the dates of the transactions).

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

On 28 September 2007, the Credit Suisse option for the acquisition of a 24.9% ownership interest in Highveld was ex-
ercised by the Company for US$219 million. As of 31 December 2007, the Company’s effective interest in Highveld
amounted to 80.92%.

❘❚ Yuzhkuzbassugol. On 8 June 2007, Evraz acquired an additional 50% ownership interest in Yuzhkuzbassugol for cash
consideration of US$871 million, including transaction costs of US$9 million, thereby increasing its ownership interest
in Yuzhkuzbassugol to 100%.

❘❚ Nikom, a.s. On 20 December 2007, Evraz acquired 100% in Nikom, a.s., a ferrovanadium producer located in the

Czech Republic, for cash consideration of US$43 million.

Buyout of Minority Interests in Subsidiaries in 2007
❘❚ In August 2007, in accordance with Russian legislation, Evraz announced a mandatory buyout of the minority interests
in its five Russian subsidiaries (NTMK, Zapsib, KGOK, VGOK and Nakhodka Sea Port). The mandatory offers to buy
out the minority shareholders commenced on 14 August 2007 and were valid for 45 days. As a result of the offers, Evraz
owns 100% of NTMK, Zapsib, KGOK, VGOK and Nakhodka Sea Port.

Acquisitions in 2008
❘❚ Claymont Steel. Claymont Steel is a plate producer located in the United States. On 16 January 2008, Evraz acquired
approximately 93.4% of the outstanding ordinary shares of Claymont Steel through a tender offer. Following the ac-
quisition of shares in Claymont Steel, the company was merged with Evraz’s wholly owned subsidiary, Titan Acquisi-
tion Sub, Inc., and untendered shares were converted into the right to receive $23.50 in cash, which was the same price
per share as the tender offer price. Total cash consideration for the acquisition of a 100% ownership interest in Clay-
mont Steel amounted to approximately US$422 million.

Current Acquisitions
❘❚ For a description of Evraz’s ongoing acquisitions, see “Description of Business—Overview”.

Factors Affecting Evraz’s Results of Operations
In the period under review from 1 January 2005 through 31 December 2007, the primary factors affecting Evraz’s results
of operations were:

❘❚ Improved prices for steel products both in Russia and on export markets.

❘❚ The impact of acquisitions and start-ups (see “—Summary of Acquisitions”). In particular, in the steel segment, the ac-
quisitions of Oregon Steel and Highveld in 2007 made a substantial contribution. In the mining segment, the acquisi-
tion of a controlling interest in Yuzhkuzbassugol in June 2007 had the greatest impact.

❘❚ Increases in the volume of products sold (see “Description of Business—Steel Business—Products” and “Description of
Business—Steel Business—Marketing and Distribution”), resulting mainly from the acquisitions segment. A shift toward
higher margin products within the steel segment also positively impacted Evraz’s results of operations.

❘❚ Improvements in margins, as sales prices increased faster than costs, which grew mainly as a result of acquisitions and
inflation. While raw materials prices increased significantly during the period under review, the growth in Evraz’s own
iron ore production shielded it to a considerable extent. In addition, the expansion of Evraz’s mining operations enables
it to benefit from the favourable conditions in raw materials markets by capturing additional margin through increased
sales to third parties.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the Years Ended 31 December 2007 and 2006
The following table sets out the Company’s consolidated income statement data for the years ended 31 December 2007,
2006 and 2005 in absolute terms and as a percentage of revenues as well as year-on-year comparisons for 2007 and 2006
and 2006 and 2005:

e
g
a
t
n
e
c
r
e
P

s
e
u
n
e
v
e
r

f
o

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

s
e
u
n
e
v
e
r

f
o

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

s
e
u
n
e
v
e
r

f
o

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Income statement data

Revenues(1)

Cost of revenues

Gross profit

12,808

100.0%

8,292

100.0%

4,516

54.5%

6,508

100.0%

1,784 27.4%

(7,875)

(61.5)%

(5,163)

(62.3)%

(2,712)

52.5%

(4,172)

(64.1)%

(991) 23.8%

4,933

38.5%

3,129

37.7%

1,804

57.7%

2,336

Selling and distribution costs

(539)

(4.2)%

(243)

(2.9)%

(296)

121.8%

General and administrative expenses

Other operating income and expenses, net

Profit from operations

Non-operating income and expenses, net

Profit before tax

Income tax expense

Net profit

(681)

(190)

3,523

(322)

3,201

(984)

2,217

(1.5)%

27.5%

(2.5)%

25.0%

(7.7)%

(5.3)%

(494)

(6.0)%

(187)

37.9%

(94)

2,298

(1.1)%

27.7%

(96)

102.1%

1,225

53.3%

2,087

25.2%

1,114

53.4%

(637)

(7.7)%

(347)

54.5%

17.3%

1,450

17.5%

767

52.9%

Net profit attributable to equity holders of the
parent entity

2,144

16.7%

1,377

16.6%

767

55.7%

Net profit attributable to minority interests

0.6%

0.9%

0.0%

35.9%

(2.8)%

(7.2)%

(1.6)%

24.3%

793

33.9%

(62) 34.3%

(27)

5.8%

12 (11.3)%

716

45.3%

(181)

(467)

(106)

1,582

1,528

(475)

1,053

918

135

23.5%

(7.3)%

16.2%

14.1%

2.1%

559

36.6%

(162)

34.1%

397

37.7%

459 50.0%

(62) (45.9)%

(211)

(2.5)%

(111)

(52.6)%

(54)

(0.8)%

(157) 290.7%

(1) Includes service revenues of US$229 million, US$126 million and US$121 million for the years ended 31 December 2007, 2006 and 2005, respec-

tively. Sales of services consist primarily of heat and electricity supply and port, transportation, steel coating and accounting services.

Revenues
Evraz’s consolidated revenues in 2007 amounted to US$12,808 million, a 54.5% increase compared to revenues of
US$8,292 million in 2006. The steel segment sales accounted for the majority of the increase in revenues largely due to
the growth in average prices of steel products and the contribution of the new subsidiaries Oregon Steel, Highveld and
Stratcor. For a more detailed discussion, see “—Steel segment”. Evraz’s sales volumes of steel products increased to 16.4
million tonnes in 2007 from 15.9 million tonnes in 2006.

There was a 12% reduction (or approximately 1.8 million tonnes) in total steel sales volumes of the Russian operations.
Sales volumes in Russia increased by 9% (or approximately by 0.6 million tonnes), while export sales volumes of the Russ-
ian operations (mainly semi-finished products) decreased by 31% (or approximately by 2.4 million tonnes) due to a num-
ber of factors apart from the reallocation of the sales volumes to the Russian market. First, there was a significant
(approximately 0.6 million tonnes) de-stocking of inventories in ports in 2006, while changes in inventories in 2007 were

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

significantly lower (approximately 0.1 million tonnes). Other factors contributing to the decrease in export steel sales vol-
umes of the Russian operations were a closure of inefficient open hearth furnaces and a related blast furnace at NKMK in
April 2007 (which led to a decrease of approximately 0.7 million tonnes of crude steel in 2007 as compared with 2006)
and a maintenance shutdown of a blast furnace at Zapsib in June–October 2007 (which led to a decrease of approxi-
mately 0.8 million tonnes of crude steel in 2007 as compared with 2006). These decreases in export sales volumes of the
Russian operations were almost fully compensated by post-acquisition steel sales volumes of high value-added products
at Oregon Steel and Highveld (approximately 1.7 million and 0.5 million tonnes, respectively).

The following table shows the average price trends of Evraz’s principal products in 2007, 2006 and 2005 (encom-
passing semi-annual breakdowns of both the Russian and non-CIS export markets), which illustrates an uneven distribu-
tion of revenues during the periods under consideration:

f
l
a
h
d
n
2

f
l
a
h
t
s
1

f
l
a
h
d
n
2

f
l
a
h
t
s
1

f
l
a
h
d
n
2

2007

2006

2005

US dollars per tonne

Year ended 31 December

Average Russian prices for Evraz’s Russian operations products(1)

Construction products

Rebars

H-Beams

Channels

Angles

Wire rods

Wire

Railway products

Rails

Wheels

Flat-rolled products

Plates

Semi-finished products

Slabs

Pig Iron

Pipe blanks

Other steel products

Grinding balls

Rounds

Vanadium in slag

609

1,031

762

687

569

657

624

1,427

624

491

344

577

689

613

607

972

654

585

546

624

591

1,293

602

425

308

522

567

538

480

725

505

448

422

511

489

1,187

539

401

260

430

465

469

380

707

452

408

376

419

485

1,191

446

305

211

370

445

382

357

656

427

395

376

410

460

1,122

469

290

200

378

428

377

15,083

15,337

14,049

16,724

25,185

34,972

Continued on the next page

f
l
a
h
t
s
1

404

679

428

421

446

479

457

1,076

555

347

296

445

464

437

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Revenues (Continued)

f
l
a
h
d
n
2

f
l
a
h
t
s
1

f
l
a
h
d
n
2

f
l
a
h
t
s
1

f
l
a
h
d
n
2

2007

2006

2005

US dollars per tonne

Year ended 31 December

Average export prices for Evraz’s Russian operations products(2)

Construction products

H-beams

Rebars

Wire rods

Semi-finished products

Billets

Slabs

Pig Iron

Flat-rolled products

Plates

Average prices for Evraz’s non-Russian operations products(3)

Flat-rolled products

Vitkovice Steel – plates

Palini – plates

Oregon Steel – commodity plates

Oregon Steel – speciality plates

Tubular products

597

587

508

530

541

404

605

950

891

840

2,033

486

446

429

457

351

510

929

821

866

1,289

490

435

411

472

332

504

843

762

366

369

350

334

266

416

731

622

366

369

348

342

264

410

755

585

Oregon Steel – large diameter pipes

1,386

1,344

Vanadium products

Stratcor – Vanadium in alloys

38,387

36,751

38,502

f
l
a
h
t
s
1

408

425

384

490

329

525

(1) Prices for sales denominated in roubles are converted into US dollars at the average monthly exchange rate of the rouble to the US dollar as stated

by the CBR. Average US dollar prices are calculated as a weighted average sales prices in the relevant semi-annual period.

(2) Average price data relates to sales by Ferrotrade Limited and Eastmetals S.A.

(3) Prices for sales denominated in euro, korunas and rands are converted into US dollars at the average exchange rate to the US dollar for the period

under consideration as stated by the relevant central bank.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The following table presents Evraz’s consolidated revenues by segment for 2007, 2006 and 2005:

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Revenues by segment

Steel segment

To third parties

To mining segment

To other operations

Total

Mining segment

To third parties

To steel segment

To other operations

Total

Other operations

To third parties

To steel segment

To mining segment

Total

Eliminations

Consolidated revenues

% from steel segment

% from mining segment

% from other operations

12,278

8,085

4,193

51.9%

6,133

1,952

31.8%

102

52.2%

488.9%

(10) (13.0)%

(2) (18.2)%

12,433

8,161

4,272

52.3%

6,221

1,940

31.2%

369

1,527

121

1,020

248

507

205.0%

49.7%

(1)

(16.7)%

1,901

1,147

754

65.7%

161

504

173

838

394

124

604

110

88.4%

27.9%

39.5%

234

38.7%

147

836

989

228

312

105

645

(26) (17.7)%

184 22.0%

0.0%

158

16.0%

(142) (62.3)%

82 26.3%

18.1%

(41)

(6.4)%

(2,364)

(1,620)

12,808

8,292

95.8%

97.5%

2.9%

1.3%

1.5%

1.0%

(744)

4,516

45.9%

(1,347)

(273) 20.3%

54.5%

6,508

1,784

27.4%

94.2%

2.3%

3.5%

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Revenues (Continued)

The following table presents the geographic breakdown of Evraz’s consolidated revenues in 2007, 2006 and 2005 (based
on the location of the customer) in monetary terms and as a percentage of total revenues:

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

e
g
a
t
n
e
c
r
e
P

e
g
n
a
h
C

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

Russia

Americas

Europe

Asia

CIS

Africa

Rest of the World

Total

5,952

46.4%

4,217

50.9%

2,140

1,894

1,882

575

353

16.7%

14.8%

14.7%

4.5%

2.8%

0.1%

340

1,410

4.1%

17.0%

1,945

23.5%

344

4.1%

0.2%

1,735

1,800

484

(63)

231

333

41.1%

3,905 60.0%

529.4%

34.3%

318

1.4%

4.9%

(3.2)%

2,027

31.1%

67.2%

n/m

139

2.1%

—

(4)

(25.0)%

0.5%

12,808

100.0%

8,292

100.0%

4,516

54.5%

6,508 100.0%

Revenues from sales outside Russia increased in monetary terms and as a proportion of total revenues in spite of a sig-
nificant reduction in export sales volumes of semi-finished products from Russian operations to Asian markets. The main
drivers of the growth of revenues outside Russia were sales of high value-added steel products by Oregon Steel in North
America, increased prices for plates in Europe and sales of vanadium products worldwide by Stratcor and Highveld. Rev-
enues from sales in Russia increased in monetary terms both due to higher steel volumes (an increase of 8%) diverted
from export markets to capitalise on substantial growth in the Russian construction market, and due to higher average steel
prices in 2007 compared to 2006.

Steel segment
Steel segment revenues increased by 52.3% to US$12,433 million in 2007 compared to US$8,161 million in 2006.

Steel segment revenues were affected by the improved sales mix of the Russian operations in favour of higher margin
products sold on the domestic market, by the positive price dynamic for steel products noted in the price trends table
above and by the acquisitions of Stratcor in August 2006, Oregon Steel in January 2007 and Highveld in May 2007. Post-
acquisition revenues of Oregon Steel and Highveld, excluding intra-segment sales, amounted to US$1,911 million (15.4%
of steel segment revenues) and US$661 million (5.3% of steel segment revenues), respectively. Revenues of Stratcor in
2007 amounted to US$188 million (1.5% of steel segment revenues) against US$66 million (0.8% of steel segment rev-
enues) in 2006. Therefore, approximately US$1,512 million of the increase in steel segment revenues was due to organic
growth and approximately US$2,760 million was due to acquisitions.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The following table shows the breakdown of Evraz’s steel segment sales in 2007, 2006 and 2005, noting the contri-

bution made by Oregon Steel, Highveld and Stratcor:

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

e
g
a
t
n
e
c
r
e
P

e
g
n
a
h
C

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

l
a
t
o
t

f
o

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

Construction products(1)

of which Oregon Steel

of which Highveld

Railway products(2)

of which Oregon Steel

of which Highveld

Flat-rolled products(3)

of which Oregon Steel

of which Highveld

Tubular products(4)

of which Oregon Steel

Semi-finished products(5)

Other steel products(6)

Vanadium products(7)

of which Stratcor

of which Highveld

Other products(8)

of which Oregon Steel

of which Highveld

TOTAL

3,670

29.5%

2,100

25.7%

1,570

74.8%

1,755 28.2%

173

164

1.4%

1.3%

–

1,697

13.7%

961

11.8%

377

3.0%

0.1%

–

1,968

15.8%

1,073

13.2%

490

173

702

694

3.9%

1.4%

5.6%

–

0.1%

–

173

164

736

377

895

490

173

694

–

76.6%

884

14.2%

–

83.4%

365

5.9%

–

n/m

–

2,480

20.0%

2,857

35.0%

(377)

(13.2)%

2,203 35.4%

496

583

188

227

837

170

4.0%

4.7%

1.5%

1.8%

6.7%

1.4%

0.5%

460

222

–

5.6%

2.7%

0.8%

–

480

5.9%

–

361

122

227

357

170

7.8%

284

4.6%

162.6%

243

3.9%

184.8%

–

n/a

–

n/a

–

74.4%

487

7.8%

–

12,433 100.0%

8,161 100.0%

4,272

52.3%

6,221 100.0%

(1) Includes rebars, wire rods, wire, H-beams, channels and angles.

(2) Includes rails and wheels.

(3) Includes plates and coils.

(4) Includes large diameter, ERW, seamless pipes and casing.

(5) Includes billets, slabs, pig iron, pipe blanks and blooms.

(6) Includes rounds, grinding balls, mine uprights and strips.

(7) Includes vanadium in alloys and chemicals and vanadium in slag.

(8) Includes coke and coking products, refractory products, ferroaloys and resale of coking coal.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Revenues / Steel segment (Continued)

An increase in the proportion of revenues attributable to sales of construction products reflects substantially higher sales
volumes of the construction products on the Russian market, complemented by the additional sales volumes in North
America and South Africa following the acquisitions of Oregon Steel in January 2007 and Highveld in May 2007.

The proportion of revenues attributable to sales of railway products increased as a result of the acquisition of Oregon

Steel, which made a significant contribution to the volumes of railway products.

The proportion of revenues attributable to sales of tubular products also increased as a result of the acquisition of Ore-

gon Steel, because substantially all of the tubular products of Evraz are produced at Oregon Steel facilities.

The proportion of revenues attributable to sales of flat-rolled products increased due to higher sales prices for plate in Europe

in 2007 compared to 2006 and additional sales volumes provided by Oregon Steel and Highveld following their acquisitions.

A significant decline in the proportion of revenues attributable to sales of semi-finished products resulted from sub-
stantially lower sales volumes of semis sold by the Russian operations to the export markets (see above discussion on con-
solidated revenues) and allocation of production capacities in favour of higher margin construction and railway products,
as well as the additional re-rolling of slab produced by the Russian operations at Oregon Steel.

Revenues from sales of other steel products decreased as a proportion of steel segment revenues in 2007 compared

to 2006 mainly due to lower volumes of rounds sold in the Russian market in favour of construction products.

The proportion of revenues attributable to sales of vanadium products increased in 2007 compared to 2006 as a
result of the acquisitions of Stratcor and Highveld, both of which are important producers in the global vanadium
market. Sales of vanadium slag in 2007 by Evraz’s Russian operations remained approximately at the same level as
in 2006.

Revenues attributable to other non-steel sales increased as a proportion of steel segment sales. The increase in the pro-
portion was provided by post-acquisition sales of ferroalloys at Highveld (this business was sold in 2007) and post-acqui-
sition sales of scrap, freight and steel coating services at Oregon Steel. Russian operations also contributed to the increase
in other revenues due to higher sales of coke and chemical products.

For 2007 and 2006, steel segment sales to the mining segment amounted to US$102 million and US$67 million, re-

spectively.

Revenues from sales in Russia amounted to approximately 46% of steel segment revenues in 2007, compared to 50%
in 2006. While steel segment revenues in Russia increased to US$5,672 million in 2007 from US$4,034 million in 2006,
this increase was offset by the acquisition of Oregon Steel, Highveld and Stratcor, resulting in an overall decrease in the
shares of revenues from sales in Russia.

Mining segment
Mining segment revenues increased by 65.7% to US$1,901 million in 2007 compared to US$1,147 million in 2006. This
increase largely reflected the growth in the average prices of iron ore in 2007 and a sharp increase in volumes of coal sold
by the mining segment after the acquisition due to the consolidation of Yuzhkuzbassugol since June 2007. Sales volumes
of iron ore also increased by 2.7% in 2007 compared to 2006.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The following table shows the average price trends of the mining segment’s iron ore products in 2007, 2006 and 2005

with semi-annual breakdowns:

US dollars per tonne, except percentages

Average prices for Evraz’s mining segment products(1)

Concentrate

Sinter

Pellets

f
l
a
h
d
n
2

2007

Year ended
31 December

f
l
a
h
t
s
1

2006

f
l
a
h
d
n
2

t
s
1

f
l
a
h
d
n
2

s
v
7
0
0
2

6
0
0
2
f
l
a
h

f
l
a
h
t
s
1

% change

55.6%

59.3%

56.4%

t
s
1

f
l
a
h
d
n
2

s
v
7
0
0
2

7
0
0
2
f
l
a
h

f
l
a
h
d
n
2

f
l
a
h
t
s
1

2005

Year ended
31 December

2.9%

3.6%

2.4%

(1) Prices for sales denominated in roubles are converted into US dollars at the average semi-annual exchange rate of the Rouble to the US dollar as

stated by the CBR.

Prior to the acquisition of Yuzhkuzbassugol in June 2007, substantially all of Evraz’s mining segment sales consisted of
iron ore. Revenues attributable to the coal asset Mine 12 in 2007 amounted to US$40 million compared to US$27 mil-
lion in 2006. Post-acquisition revenues of Yuzhkuzbassugol amounted to US$283 million. Evraz also holds a 40.0% interest
in Raspadskaya coking coal mine (accounted for on an equity basis). Revenue attributable to Raspadskaya is therefore not
consolidated in Evraz’s financial statements, and the Company’s share of its net profits is accounted for as “Share of prof-
its (losses) of joint ventures and associates”. See “—Non-operating income and expense”.

For 2007 and 2006, mining segment sales to the steel segment amounted to US$1,527 million (80.3% of mining seg-

ment sales) and US$1,020 million (88.9% of mining segment sales), respectively.

Approximately 77% of Evraz’s iron ore requirements were met by the mining segment in 2007, compared to 72% in
2006. About 58% of Evraz’s coking coal requirements were met by supplies from Raspadskaya, Yuzhkuzbassugol and
Mine 12 in 2007, compared to 64% in 2006. The decrease in proportion of coal supplies from the mining segment and
affiliates primarily resulted from the interruptions in production of Yuzhkuzbassugol following the accidents at two mines
in the first six months of 2007 before its acquisition by Evraz.

Approximately 51% and 78% of third party sales in the mining segment were to customers in Russia in 2007 and 2006,
respectively. The increase in the share of third party sales outside Russia is mainly attributable to the sales of iron ore by
KGOK and the post-acquisition sales of coking coal by Yuzhkuzbassugol.

Other operations
External sales in respect of the other operations segment, consisting primarily of sales of energy by MEF, EvrazEK and ZapsibTETs
and the provision of port services by Nakhodka Sea Port, increased to US$161 million in 2007 from US$86 million in 2006. This
increase in external sales is primarily attributable to the sales revenues of new companies EvrazEK and ZapsibTETs.

Cost of revenues and gross profit
Evraz’s consolidated cost of revenues amounted to US$7,785 million and US$5,163 million in 2007 and 2006, respectively.
Cost of revenues as a share of consolidated revenues decreased from 62.3% in 2006 to 61.5% in 2007. This decrease was

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Cost of revenues and gross profit (Continued)

primarily attributable to margin growth with respect to steel products due to both positive price and product mix im-
provements in 2007 compared to 2006, while Evraz’s own iron ore and coal production served, to a considerable extent,
to shield Evraz’s consolidated gross profits from the impact of increased raw materials prices.

The effect of strengthening of the Russian rouble against the US dollar contributed slightly to the increase in costs of

the Russian operations in 2007 as compared to 2006.

The table below sets forth cost of revenues and gross profit by segment for 2007, 2006 and 2005, including percent-

age of segment revenues:

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Steel segment

Cost of revenues

Raw materials

Transportation

Staff costs

Depreciation

Energy

Other(1)

Gross profit

Mining segment

Cost of revenues

Raw materials

Transportation

Staff costs

Depreciation

Energy(2)

Other(3)

Gross profit

Other operations

Cost of revenues

Gross profit

Eliminations-cost of revenues

Eliminations-gross profit

Consolidated cost of revenues

Consolidated gross profit

(386)

(631)

(3.1)%

(5.1)%

(8,248)

(66.3)%

(5,493)

(67.3)% (2,755)

50.2%

(4,316)

(69.4)%

(1,177) 27.3%

(5,107)

(41.1)% (3,244)

(39.8)%

(1,863)

57.4% (2,594)

(41.7)%

(650)

25.1%

(429)

(3.5)%

(493)

(6.0)%

(13.0)%

(792)

(6.4)%

(484)

(5.9)%

(308)

63.6%

(209)

(2.6)%

(177)

84.7%

(440)

(398)

(178)

(7.1)%

(6.4)%

(2.9)%

(53)

12.0%

(86)

21.6%

(31)

17.4%

(457)

(5.6)%

(174)

38.1%

(342)

(5.5)%

(115) 33.6%

(903)

(7.3)%

(606)

(7.4)%

(297)

49.0%

4,185

33.7%

2,668

32.7%

1,517

56.9%

(364)

1,905

(5.9)%

(242) 66.5%

30.6%

763 40.1%

(1,241)

(65.3)%

(708)

(61.7)%

(533)

75.3%

(640)

(64.7)%

(68)

10.6%

(189)

(9.9)%

(119)

(10.4)%

(70)

58.8%

(164)

(16.6)%

45 (27.4)%

(122)

(6.4)%

(57)

(5.0)%

(65)

114.0%

(42)

(4.2)%

(15) 35.7%

(317)

(16.7)%

(169)

(14.7)%

(148)

87.6%

(146)

(14.8)%

(23)

15.8%

(157)

(8.3)%

(57)

(5.0)%

(100)

175.4%

(47)

(4.8)%

(10) 21.3%

(226)

(11.9)%

(173)

(15.1)%

(230)

(12.1)%

(133)

(11.6)%

(53)

(97)

30.6%

72.9%

660

34.7%

439

38.3%

221

50.3%

(154)

(15.6)%

(19)

12.3%

(87)

349

(8.8)%

(46) 52.9%

35.3%

90 25.8%

(592)

(70.6)%

(376)

(62.3)%

(216)

57.4%

(462)

(71.6)%

86 (18.6)%

246

29.4%

228

37.7%

7.9%

183

28.4%

45 24.6%

2,206

(158)

(7,875)

4,933

1,414

(206)

(5,163)

3,129

792

56.0%

(23.3)%

1,246

(101)

(2,712)

52.5%

(4,172)

1,804

57.7%

2,336

168

13.5%

(105) 104.0%

(991) 23.8%

793 33.9%

(1) Includes repairs and maintenance and auxiliary materials such as refractory products.

(2) Includes electricity, heat, natural gas and fuel used in production process, such as fuel oil.

(3) Includes auxiliary materials and repairs and maintenance.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Steel segment
The steel segment’s cost of revenues increased by 50.2% to US$8,248 million in 2007 from US$5,493 million in 2006.
Cost of revenues amounted to 66.3% and 67.3% of steel segment revenues for 2007 and 2006, respectively.

The growth in prices of raw materials and the change in steel product mix in favour of higher value added products both
in the Russian market and due to the acquisitions of Oregon Steel, Highveld and Stratcor contributed to the increase in
the steel segment cost of revenues in monetary terms in 2007 as compared to 2006.

The cost of revenues in respect of Oregon Steel (January-December 2007), including intra-group profits, amounted to
US$1,486 million (18.0% of steel segment cost of revenues), in respect of Highveld (May–December 2007) amounted to
US$452 million (5.5% of steel segment cost of revenues) and in respect of Stratcor amounted to US$125 million (1.5%
of steel segment cost of revenues).

The primary factors affecting the growth of steel segment cost of revenues in 2007 as compared to 2006 were as fol-

lows:

❘❚ Raw material costs increased by 57.4% in part due to higher prices of iron ore, coking coal, scrap and ferroalloys purchased
by the Russian operations and higher prices of pig iron, scrap and ferroalloys at Vitkovice Steel. Approximately half of
the increase was attributable to the contribution of new non-Russian subsidiaries Oregon Steel, Highveld and Stratcor.

❘❚ Transportation costs decreased by 13.0%. A large part of these costs relates to railway tariffs in respect of the trans-
portation of Evraz’s steel products from the Russian plants to the relevant ports, which declined due to the reduction
in export sales volumes of steel products from Russia and related transportation costs. This decline was partly com-
pensated by the contribution of about US$34 million of additional transportation costs at the new subsidiaries Oregon
Steel and Highveld.

❘❚ Staff costs increased by 63.6%. A substantial majority of the increase was attributable to the new subsidiaries Oregon
Steel, Highveld and Stratcor. Wages and salaries of production staff at Russian operations rose approximately by 15%
in accordance with the trade union agreement and due to appreciation of the rouble against the US dollar.

❘❚ Depreciation costs increased by 84.7%. A substantial majority of the increase was attributable to the new subsidiaries
Oregon Steel, Highveld and Stratcor. The increase was also due to completion of several investment projects at the Russ-
ian operations and Vitkovice Steel.

❘❚ Energy costs increased by 38.1%. A substantial majority of the increase was attributable to the new acquisitions of Ore-
gon Steel, Highveld and Stratcor. The remainder of the increase was mainly attributable to the increase of energy costs
at the Russian operations due to increases in electricity and natural gas tariffs and to appreciation of the rouble against
the US dollar.

❘❚ Other costs increased by 49.0%. These costs consisted primarily of contractor services and materials for maintenance

and repairs. The total increase was attributable to the acquisitions of Oregon Steel, Highveld and Stratcor.

❘❚ Steel segment gross profit increased by 56.9% to US$4,185 million for 2007 from US$2,668 million in 2006, while gross
profit margin amounted to 33.7% and 32.7% of steel segment revenues in 2007 and 2006, respectively. Gross profit
margin increased over the period primarily due to increased prices and a better sales mix of steel products.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Cost of revenues and gross profit (Continued)

Mining segment
The mining segment’s cost of revenues increased by 75.3% to US$1,241 million in 2007 from US$708 million in 2006,
representing 65.3% and 61.7% of the mining segment revenues in 2007 and 2006, respectively.

The primary factors affecting the mining segment cost of revenues between the periods were as follows:

❘❚ Raw materials costs increased by 58.8%. Most of this increase was attributable to the cost of coal purchased from
Raspadskaya for resale. The rest was attributable to the increased prices for raw iron ore, grinding balls, limestone
and other materials purchased by the mining segment and increased volumes of sinter produced by VGOK from pur-
chased iron ore.

❘❚ Transportation costs increased by 114.0%. A substantial majority of the increase was attributable to post-acquisition
transportation costs at Yuzhkuzbassugol. The rest of the increase was attributable to the transportation of raw iron ore
between branches of Evrazruda for further processing, the enlargement of open extraction operations at Mine 12 and
the increased internal traffic at VGOK, all of which were subject to increases in railway tariffs, and to appreciation of
the rouble against the US dollar.

❘❚ Staff costs increased by 87.6%. A majority of the increase was attributable to post-acquisition staff costs of Yuzhkuzbas-
sugol. The rest of the increase was mainly attributable to wages and salaries of production staff, which rose in accor-
dance with the trade union agreement, and to appreciation of the rouble against the US dollar.

❘❚ Depreciation costs increased by 175.4%. A substantial majority of the increase was attributable to post-acquisition de-
preciation of Yuzhkuzbassugol. The rest of the increase was attributable to purchases of new equipment at Evrazruda,
KGOK and VGOK.

❘❚ Energy costs increased by 30.6% primarily due to the growth in electricity, natural gas and heat tariffs and due to an increase
in production volumes of iron ore. Post-acquisition energy costs of Yuzhkuzbassugol contributed less than half of the increase.

❘❚ Other costs increased by 72.9%. These costs consisted primarily of contractor services and materials for maintenance
and repairs and certain taxes. A substantial majority of the increase was attributable to post-acquisition costs of
Yuzhkuzbassugol. The rest of the increase was attributable to appreciation of the rouble against the US dollar.

❘❚ Mining segment gross profit increased by 50.3% to US$660 million in 2007 from US$439 million in 2006, resulting
in gross profit margin of 34.7% of mining segment revenues in 2007 as compared to 38.3% in 2006. Gross profit in-
creased mainly due to higher prices of iron ore. Gross profit margin decreased due to consolidation of Yuzhkuzbas-
sugol, which had gross profit margin of approximately 1% due to closure of certain mines and repair works after
accidents in March and May 2007.

Other operations
The other operations segment’s cost of revenues increased by 57.4% to US$592 million in 2007, representing 70.6% of other
operations revenues, compared to US$376 million, representing 62.3% of other operations revenues, in 2006. In 2007, the
new subsidiaries EvrazEK and ZapsibTETs contributed US$148 million (25.0% of the segment cost of revenues) and US$59
million (10.0% of the segment cost of revenues), respectively, to the other operations segment cost of revenues.

The major components of cost of revenues at Nakhodka Sea Port are staff costs and cost of inventory. The major com-
ponent of Evraztrans’ cost of revenues is the rental of railway cars. The major component of MEF’s cost of revenues is the
purchase of electricity from power generating companies. The major components of EvrazEK’s cost of revenues are nat-

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

ural gas for resale to the steel segment and natural gas and steam coal for power generation. The major components of
ZapsibTETs’ cost of revenues are steam coal for power generation, depreciation and staff costs. The major component of
Sinano’s cost of revenues are ship hire fees. Staff costs account for the majority of EvrazHolding’s costs.

The gross profit of the other operations segment increased by 7.9% to US$246 million in 2007 from US$228 million
in 2006. In 2007, the new subsidiary EvrazEK contributed US$14.5 million (5.9% of the segment’s gross profit) and the
new subsidiary ZapsibTETs reduced the other operations segment’s gross profit by US$7.0 million.

Gross profit margin amounted to 29.4% and 37.7% of the other operations revenues in 2007 and 2006, respectively.
The decrease in gross profit margin was mainly due to decreased operations of Sinano, which substantially reduced the
volume of freight services provided to the steel segment. While the contribution of the new subsidiary EvrazEK compen-
sated for the decrease in Sinano’s gross profit in monetary terms, the gross profit margin of the new subsidiaries were
substantially lower than the gross profit margin of Sinano. This resulted in a lower gross profit margin for the other oper-
ations segment as a whole.

Selling and distribution costs
Selling and distribution costs increased by 121.8% to US$539 million (4.2% of consolidated revenues) in 2007, compared
to US$243 million (2.9% of consolidated revenues) in 2006, primarily due to the integration of Oregon Steel and High-
veld. Selling and distribution costs consist largely of transportation expenses related to Evraz’s selling activities.

The following table presents selling and distribution costs by segment for 2007, 2006 and 2005, including as a per-

centage of segment revenues:

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Selling and distribution costs by segment

Steel segment

Transportation costs

Staff costs

Bad debt expense

Amortisation of intangibles

Other(1)

Mining segment

Other operations

Eliminations

Total

(554)

(4.5)%

(288)

(3.5)%

(266)

92.4%

(202)

(3.2)%

(86)

42.6%

(273)

(2.3)%

(130)

(1.6)%

(143)

110.0%

(54)

(0.4)%

(30)

(0.4)%

(24)

80.0%

(4)

–

0.0%

–

(124)

(1.5)%

(1)

(0.1)%

(1)

(91)

(7)

(25)

25.0%

–

(84)

(13.9)%

(25.0)%

130

(243)

(25)

(296)

121.8%

(181)

5.6%

(77)

(1.2)%

(47)

61.0%

(98)

(22)

(5)

–

(1.6)%

(32)

32.7%

(0.4)%

(0.1)%

–

(8)

36.4%

–

(20.0)%

–

(0.7)%

(6.7)%

(7)

(43)

(85.7)%

(41)

95.3%

83.1%

(62)

34.3%

0.0%

(0.7)%

(1.1)%

(1.4)%

(7.5)%

(5)

(91)

(131)

(26)

(63)

104

(539)

(1) Includes auxiliary materials such as packaging, port services and customs duties.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Selling and distribution costs (Continued)

Steel segment
Selling and distribution costs amounted to 4.5% and 3.5% of the steel segment’s revenues in 2007 and 2006, respec-
tively. The primary factors affecting the steel segment selling and distribution costs between the periods were as follows:

❘❚ Transportation costs increased by 110.0%. A substantial majority of the increase is attributable to post-acquisition trans-
portation costs at Oregon Steel and Highveld. The rest of the increase is attributable to railroad expenses at Russian
mills due to the presence of new terms in sales contracts with respect to transportation in the CIS and to appreciation
of the rouble against the US dollar.

❘❚ Staff costs increased by 80.0%. The increase is attributable to the acquisition of new subsidiaries Oregon Steel, Strat-

cor and Highveld.

❘❚ Bad debt expense in 2007 and 2006 related principally to obligations in respect of a municipality that purchases heat

from NTMK.

❘❚ Amortisation of intangible assets in 2007 was attributable to customer relationships, tradenames and trade marks at

the new subsidiaries Oregon Steel and Highveld (US$63 million and US$28 million, respectively).

❘❚ Other selling costs increased by 5.6%. The increase was fully attributable to the new subsidiary Stratcor (mainly sales

commissions).

Mining segment
Selling and distribution costs amounted to 1.4% and 0.1% of mining segment revenues in 2007 and 2006, respectively. The
increase in selling and distribution costs of the mining segment was primarily attributable to the transportation costs re-
lated to export sales of iron ore to CIS countries in 2007, while in 2006 such sales were immaterial. The increase was also
due to a bad debt expense of US$4 million with respect to Yuzhkuzbassugol and Evrazruda and transportation costs of
US$6 million at Yuzhkuzbassugol.

Other operations
Selling and distribution costs amounted to 7.5% and 13.9% of other operations’ revenues in 2007 and 2006, respectively.
The decrease in selling and distribution costs was largely attributable to the reduction of Sinano’s business activities due
to lower export sales volumes of the Russian operations in 2007 as compared to 2006. Most of Sinano’s costs are allo-
cated to selling and distribution costs, which consist primarily of freight expenses, ship management services and ship
hire fees.

General and administrative expenses
General and administrative expenses increased by 37.9% to US$681 million in 2007 compared to US$494 million in 2006.
As a percentage of consolidated revenues, general and administrative expenses amounted to 5.3% and 6.0% in 2007
and 2006, respectively.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The following table presents general and administrative expenses by segment for 2007, 2006 and 2005, including as

a percentage of segment revenues:

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

General and administrative expenses by segment

2007

2006

2007 v 2006

2005

2006 v 2005

Steel segment

Staff costs

Taxes, other than on income

Management fees

Other(1)

Mining segment

Staff costs

Taxes, other than on income

Management fees

Other(2)

Other operations

Unallocated(3)

Eliminations

Total

(432)

(3.5)%

(316)

(3.9)%

(156)

(1.3)%

(110)

(1.3)%

(116)

(46)

36.7%

41.8%

(83)

(0.7)%

(65)

(0.8)%

(18)

27.7%

(23)

(0.2)%

(22)

(0.3)%

(170)

(130)

(1.4)%

(6.8)%

(119)

(1.5)%

(73)

(6.4)%

(1)

(51)

(57)

4.5%

78.1%

(56)

(2.9)%

(25)

(2.2)%

(31)

124.0%

(19)

(18)

(1.0)%

(0.9)%

(13)

(1.1)%

(6)

(5)

46.2%

38.5%

(319)

(102)

(74)

(21)

(5.1)%

(1.6)%

(1.2)%

(0.3)%

(70)

(26)

(4)

(9)

(7.1)%

(2.6)%

(0.4)%

(0.9)%

42.9%

(122)

(2.0)%

(0.9)%

(8)

7.8%

(12.2)%

(1)

(3)

4.8%

2.5%

4.3%

(3.8)%

(9) 225.0%

(4)

44.4%

(37)

(1.9)%

(22)

(1.9)%

(15)

68.2%

(31)

(3.1)%

9 (29.0)%

(152)

(18.1)%

(106)

(17.5)%

(46)

43.4%

(98)

(15.2)%

(8)

8.2%

(23)

(681)

(33)

(494)

(30.3)%

64.7%

(10)

(187)

37.9%

(467)

(23) 230.0%

13.3%

(27)

5.8%

(1) Includes depreciation, insurance and bank and other service costs.

(2) Includes rent, insurance, bank and other service costs.

(3) Relates principally to accounting and consulting fees.

Steel segment
General and administrative expenses amounted to 3.5% and 3.9% of the steel segment’s revenues in 2007 and 2006, re-
spectively. The primary factors affecting the changes in the steel segment’s general and administrative expenses between
the periods were as follows:

❘❚ Staff costs increased by 41.8%. A substantial majority of the increase was attributable to the new subsidiaries Oregon
Steel, Highveld and Stratcor. The rest of the increase was primarily attributable to the appreciation of the rouble against
the US dollar at the Russian operations.

❘❚ Taxes, other than on income, including property, land and local taxes, increased by 27.7%. The increase primarily re-

flected higher property, land and pollution taxes at the Russian operations.

❘❚ Management fees charged by EvrazHolding increased by 4.5% mainly due to the strengthening of the rouble against

the US dollar.

❘❚ Other general and administrative expenses increased by 42.9% due to contributions of the new subsidiaries Oregon

Steel and Stratcor.

Annual Report 2007

Evraz Group S. A.

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / General and administrative expenses / Steel segment (Continued)

The new subsidiaries Oregon Steel, Highveld and Stratcor accounted for US$51 million (12%), US$31 million (7%) and

US$8 million (2%) of the general and administrative expenses of the steel segment, respectively, in 2007.

Mining segment
General and administrative expenses amounted to 6.8% and 6.4% of mining segment revenues for 2007 and 2006, re-
spectively. The primary factors affecting the changes in the mining segment general and administrative expenses between
the periods were as follows:

❘❚ Staff costs increased by 124.0%. Nearly all of the increase was attributable to new subsidiaries, including Yuzhkuzbas-

sugol. The rest of the increase was primarily attributable to appreciation of the rouble against the US dollar.

❘❚ Taxes, other than on income, increased by 46.2% mainly due to the post-acquisition contribution of Yuzhkuzbassugol.

❘❚ Management fees to EvrazHolding increased by 38.5%.

❘❚ Other expenses increased by 68.2% mainly due to the contribution of post-acquisition costs at Yuzhkuzbassugol and

the outsourcing of accounting services to the other operations segment in 2007.

Other operations
General and administrative expenses amounted to 18.1% and 17.5% of the other operations segment’s revenues in
2007 and 2006, respectively. EvrazHolding accounted for US$99 million (65%) and US$87 million (82%) of the other
operations’ segment’s general and administrative expenses in 2007 and 2006, respectively. Most of EvrazHolding’s gen-
eral and administrative costs relate to wages and salaries in respect of its employees, including Evraz’s senior man-
agement.

New subsidiaries EvrazEK and ZapsibTETs accounted for US$10 million (7%) and US$4 million (3%), respectively, of
the general and administrative expenses of the other operations segment in 2007. Newly created subsidiary OUS which
provides accounting services to other Evraz companies in Russia accounted for US$12 million (8%) of general and ad-
ministrative expenses.

Unallocated
The increase in unallocated general and administrative expenses in 2007 is primarily attributed to the additional costs re-
lated to the acquisitions of new subsidiaries.

Other operating income and expenses
Other operating expenses, net of other operating income, increased by 102.1% to US$190 million in 2007, representing
1.5% of consolidated revenues, compared to US$94 million in 2006, representing 1.1% of consolidated revenues. Other
operating income and expenses consist primarily of social and social infrastructure expenses, gain (loss) on the disposal
of property, plant and equipment, impairment of assets and gain (loss) in respect of changes in foreign exchange rates.
Social and social infrastructure expenses include such items as maintenance of medical centres, recreational centres and
employee holiday allowances and the sponsorship of sports teams and athletic and charitable events.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The following table presents other operating income and expenses by segment for 2007, 2006 and 2005, including as

a percentage of segment revenues:

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Other operating income and expenses by segment

Steel segment

Social and social infrastructure maintenance expenses

Loss on disposal of property, plant and equipment

Impairment of assets

Foreign exchange gain (loss)

Other income (expense), net

Total

Mining segment

(51)

(16)

(4)

(0.4)%

(0.1)%

0.0%

(50)

(0.4)%

(67)

(0.8)%

(0.2)%

(15)

(19)

(1)

(23.9)%

6.7%

(78.9)%

(9)

(0.1)%

(26)

(0.3)%

(65.4)%

0.3%

(75) (300.0)%

(62)

(18)

–

(1)

(1.0)%

(0.3)%

(5)

8.1%

(16.7%)

–

(19)

–

(0.0)%

26 (2,600)%

0.1%

(31) (620.0)%

(130)

(1.0)%

(102)

(1.2)%

(28)

27.5%

(76)

(1.2)%

(26)

34.2%

Social and social infrastructure maintenance expenses

(24)

(1.3)%

(15)

(1.3)%

(9)

60.0%

Other income (expense), net

Total

Other operations

(22)

(46)

(1.1)%

(2.4)%

0.1%

(23)(2,300.0)%

(14)

(1.2)%

(32)

228.6%

Social and social infrastructure maintenance expenses

(3)

(0.4)%

Other income (expense), net

Total

Unallocated

Total other operating income and expenses, net

(1)

0.3%

(0.1)%

(4)

(8)

(0.7)%

(1.3)%

(25.0)%

10 (125.0)%

(12)

(2.0)%

91.7%

(13)

(190)

(94)

(47)

(138.2)%

(96) 102.1%

(106)

(1.1)%

(0.2)%

(1.3)%

(0.5)%

(0.7)%

(1.2)%

(11)

(2)

(13)

(3)

(5)

(8)

(9)

(4)

36.4%

3 (150.0)%

(1)

7.7%

(1)

(3)

33.3%

60.0%

(4)

50.0%

13 477.8%

12 (11.3)%

Total social and social infrastructure expenses decreased by 9.3% in 2007 compared to 2006, while an increasing por-
tion of social expenses were paid by the mining segment due to a re-allocation of such expenses from the steel segment.

Profit from operations
Profit from operations increased by 53.3% to US$3,523 million for 2007, amounting to 27.5% of consolidated revenues,
compared to US$2,298 million, amounting to 27.7% of consolidated revenues, for 2006. The modest decrease in the
share of profit from operations as a percentage of consolidated revenues was attributable to a significant decrease in the
operating profit margin of the mining segment, due to the lower profit margin of Yuzhkuzbassugol, the effect of which was
largely offset by a moderate increase in the operating profit margin of the steel segment.

Annual Report 2007

Evraz Group S. A.

100

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 / Profit from operations (Continued)

The following table presents segment results for 2007, 2006 and 2005, including as a percentage of segment revenues:

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

e
g
n
a
h
C

e
g
n
a
h
c
%

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

Segment Result
Steel segment

Mining segment

Other operations

Unallocated

Eliminations

Total

3,069

24.7%

1,962

24.0%

1,107

56.4%

1,308

24.1%

3.6%

458

(36)

351

30.6%

107

30.5%

(1)

(42)

4.3%

15.4%

(37) 3,700.0%

44 (104.8)%

259

(19)

–

21.0%

26.2%

5.3%

654

50.0%

35.5%

(8)

(23.5)%

20 (105.3)%

(42)

–

3,523

27.5%

2,298 27.7%

1,225

53.3%

1,582

24.3%

716 45.3%

Steel segment
Steel segment result increased by 56.4% to US$3,069 million in 2007 from US$1,962 million in 2006. Segment result as
a percentage of steel segment revenues amounted to 24.7% and 24.0% in 2007 and 2006, respectively.

The new subsidiaries Oregon Steel, Highveld and Stratcor contributed US$183 million, US$125 million and US$44

million, respectively, to the result of the steel segment in 2007.

Mining segment
Mining segment result increased by 30.5% to US$458 million in 2007 from US$351 million in 2006. Segment result as a
percentage of mining segment revenues decreased from 30.6% in 2006 to 24.1% in 2007. The decrease in the margin re-
sulted from the lower gross profit margin of Yuzhkuzbassugol.

Other operations
Other operations segment result increased by 15.4% to US$30 million in 2007 compared to US$26 million in 2006. Seg-
ment result as a percentage of other operations segment revenues decreased to 3.6% in 2007 from 4.3% in 2006. The
increase in result of the other operations segment in monetary terms is mainly attributable to the contribution of a new
subsidiary, EvrazEK, and additional profits earned by Evraztrans on new railcars acquired in 2007.

Non-operating income and expense
Non-operating income and expense include interest income, interest expense, share of profits (losses) of associates and
joint ventures and gain (loss) on financial assets and liabilities. The table below presents these items for 2007, 2006 and
2005, including as a percentage of consolidated revenues.

Annual Report 2007

Evraz Group S. A.

Interest income

Interest expense

Share of profits (losses) of associates and joint
ventures, net

Gain/(loss) on financial assets and liabilities, net

MAKING THE WO RLD ST RO NGER

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

101

e
g
n
a
h
C

e
g
n
a
h
c
%

e
g
n
a
h
C

e
g
n
a
h
c
%

t
n
u
o
m
A

e
g
a
t
n
e
c
r
e
P

t
n
e
m
g
e
s

f
o

s
e
u
n
e
v
e
r

millions of US dollars, except percentages

Year ended 31 December

2007

2006

2007 v 2006

2005

2006 v 2005

0.3%

51.9%

0.2%

80.0%

(409)

(3.2)%

(229)

(2.8)%

(180)

78.6%

(142)

(2.2)%

(87)

61.3%

0.7%

(71)

(0.6)%

0.5%

0.3%

120.0%

(97)

(373.1)

Loss on disposal groups classified as held for sale

0.1%

(77)

(0.8)%

83 (107.8)%

Excess of interest in the net fair value of acquiree’s
identifiable assets, liabilities and contingent liabilities
over the cost of acquisition

Other non-operating gain (loss), net

0.1%

0.0%

1,800%

300%

–

(7)

0.9%

0.1%

(17) (29.8)%

18 225.0%

–

(77)

–

0.2%

(14)

(93.3)%

(0.1)%

8 (114.3)%

Total

(322)

(2.5)%

(211)

(2.5)%

(111)

52.6%

(54)

(0.8)%

(157) 290.7%

Interest income increased by 51.9% to US$41 million in 2007 from US$27 million in 2006, largely due to more efficient

cash management on short-term deposit.

Interest expense increased by 78.6% to US$409 million in 2007 compared to US$229 million in 2006. The increase

primarily resulted from additional borrowings in 2007. See “—Liquidity and Capital Resources—Capital Resources”.

Share of profits of associates and joint ventures in 2007 and 2006 mainly relates to income (loss) attributable to Evraz’s
interest in Raspadskaya (US$82 million and US$39 million, respectively), Yuzhkuzbassugol prior to Evraz’s acquisition of
a controlling stake (US$(10) million and US$(28) million, respectively) and Highveld prior to Evraz’s acquisition of a con-
trolling stake (US$20 million and US$17 million, respectively).

Loss on financial assets and liabilities amounted to US$71 million in 2007 compared to a gain of US$26 million in 2006
and related to the re-measurement of the liability to minority shareholders for Highveld shares (US$34 million), a change in
the value of the option for the acquisition of a 24.9% ownership interest in Highveld (US$16 million) and a change in the value
of the call option in respect of 25% less one share ownership interest in Clama/Palini (US$21 million). See “—Summary of Ac-
quisitions—Acquisitions in 2007—Highveld” and “—Summary of Acquisitions—Acquisitions/start-ups prior to 2006—Palini”.

Income tax expense
Income tax expense increased by 54.5% to US$984 million in 2007 from US$637 million in 2006. Evraz’s effective tax
rate, defined as income tax expense as a percentage of profit before tax, increased slightly to 30.7% in 2007 from 30.5%
in 2006 due to the higher share of profits generated by Evraz outside Russia in countries with statutory tax rates gener-
ally exceeding the corporate tax rate in Russia.

Net profit attributable to equity holders of the parent entity
As a result of the factors set forth above, Evraz’s net profit attributable to equity holders of the parent entity increased to
US$2,144 million in 2007 from US$1,377 million in 2006.

Annual Report 2007

Evraz Group S. A.

102

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Results of Operations for the years ended 31 December 2007 and 2006 (Continued)

Net profit attributable to minority interests
Net profit attributable to minority interests amounted to US$73 million as a share of total net profit in each of 2007 and
2006. Net profit attributable to minority interests as a share of total net profit decreased to 3.3% in 2007 from 5.0% in
2006. The decrease in net profit attributable to minority interests as a share of total net profit reflected the decrease in
minority shareholders’ interests. Evraz’s strategy is to reduce the level of minority interests in its subsidiaries.

The following table presents the Company’s effective ownership interests in its major subsidiaries as of 31 December

2007 and 2006 and actual ownership interests as of 31 December 2007:

y
r
a
i
d
i
s
b
u
S

7
0
0
2

6
0
0
2

s
s
e
n
i
s
u
B

y
t
i
v
i
t
c
a

n
o
i
t
a
c
o
L

Actual ownership interest
as of 31 December

Effective ownership interest
as of 31 December, %

Mastercroft

NTMK

Zapsib

NKMK

Palini

Vitkovice Steel

Oregon Steel

Highveld

Stratcor

Nikom

KGOK

Evrazruda

VGOK

Yuzhkuzbassugol

Mine 12

Ferrotrade Limited

Trade House EvrazHolding

Trade House EvrazResource

Nakhodka Sea Port

Evraztrans

Sinano

ZapsibTETs

EvrazEK

Metallenergofinance

100.00

80.92

72.84

100.00

76.00

100.00

97.79

100.00

80.92

72.84

100.00

76.00

100.00

Holding
Company

Cyprus

95.00

Steel production

Russia

100.00

Steel production

Russia

98.75

Steel production

Russia

100.00

Steel production

Italy

100.00

Steel production

Czech Republic

–

Steel production

USA

24.90

Steel and vanadium S.Africa
production

–

97.11

100.00

85.00

Vanadium
production

Ferrovanadium
production

Iron ore mining
and processing

50.00

Coal mining

100.00

Coal mining

USA
S.Africa

Czech
Republic

Russia

100.00

Trading

Gibraltar

100.00

Trading

100.00

Trading

Russia

93.03

Seaport services

Russia

76.00

Freight forwarding Russia

100.00

Freight

–

Utilities supply

100.00

Utilities supply

Cyprus

Russia

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

103

Summary Results of Operations for the Years Ended 31 December 2006 and 2005
Revenues increased by US$1,784 million, or 27.4%, from 2005 to 2006. This increase reflected both acquisitions, princi-
pally Vitkovice Steel, and organic growth in revenue. Organic revenue growth reflected both an increase in volumes of prod-
ucts sold and an overall increase in average sales prices, as prices for Evraz’s products generally declined from the first half
of 2005 to the second half of 2005 but then increased during 2006. In geographic terms, revenue from sales to customers
located in Russia decreased from 60.0% in 2005 to 50.9% in 2006, primarily due to international acquisitions. Notwith-
standing this decrease, a substantial majority of Evraz’s consolidated EBITDA in 2006 resulted was derived from sales to
customers located in Russia.

Cost of revenues increased by only 23.8% from 2005 to 2006, and as a result gross profit increased by 33.9%.

Profit from operations grew by 45.3% from 2005 to 2006, primarily due to a decrease of 11.3% in other operating expenses
and to the fact that the increase of 5.8% in general and administrative expenses was considerably smaller than the percent-
age increase in gross profit. The decrease in other operating expenses reflects primarily foreign exchange gains in 2006.

Non-operating expenses increased by 290.7%, primarily due to increased interest expense. As a result, the increase of
36.6% in profit before tax was smaller than the percentage increase in profit from operations. Evraz’s effective tax rate de-
creased slightly, from 31.1% in 2005 to 30.5% in 2006. As a result, net profit increased by 37.7%, from US$1,053 million
in 2005 to US$1,450 million in 2006.

Liquidity and Capital Resources
Capital requirements
In addition to meeting its working capital requirements, Evraz expects that repayments of outstanding debt, capital ex-
penditure and acquisitions will represent the Company’s most significant use of funds for a period of several years. See “—
Contractual obligations and commercial commitments” for a description of the amount and term of Evraz’s obligations in
respect of outstanding debt. Evraz’s capital expenditure programme is aimed at the reconstruction and modernisation of
its existing production facilities to reduce costs, improve process flows and expand the product range. Evraz also plans to
make capital expenditures to increase the share of higher margin products it produces and sells.

In 2007, Evraz made capital expenditures of approximately US$740 million, including US$499 million in respect of its
steel segment and US$187 million in respect of its mining segment. In 2007, Evraz also paid approximately US$4,752
million for acquisitions (net of cash acquired) of new subsidiaries and US$423 million for purchases of minority interests.

For 2008, Evraz has budgeted capital expenditures of approximately US$1,068 million, of which US$649 million,
US$386 million and US$33 million are allocated for capital expenditures in the steel segment, mining segment and lo-
gistics, respectively. These amounts do not include planned or anticipated expenditures for businesses acquired or to be
acquired. Evraz’s capital expenditure plans are subject to change depending, among other things, on acquisitions (exist-
ing and potential), the evolution of market conditions and the cost and availability of funds.

Before year end 2007, Evraz made a cash prepayment to Lanebrook in the amount of US$1.06 billion in connection with
the planned acquisition of the Ukrainian assets; in January 2008 Evraz acquired 100% of the outstanding ordinary shares
of Claymont Steel for total cash consideration of approximately US$442 million; and in February 2008 Evraz purchased
an approximately 10% stake in Delong Holdings for approximately US$150 million.

Evraz expects to pay approximately US$614 million for the acquisition of an interest of 51.05% in Delong Holdings and
to incur additional expenditures to the extent that in accordance with Singapore law it makes a mandatory cash tender

Annual Report 2007

Evraz Group S. A.

104

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Liquidity and Capital Resources / Capital requirements (Continued)

offer to Delong Holdings’ shareholders in Singapore. In addition, Evraz expects to pay US$4,025 million (subject to cer-
tain closing adjustments) for the acquisition of certain IPSCO businesses from SSAB, of which Evraz expects to recover
US$1,200 million in 2008 pursuant to its back-to-back agreement with TMK relating to certain IPSCO businesses in the
United States and a further US$500 million in 2009 pursuant to its option agreement with TMK relating to the remain-
der of the IPSCO businesses in the United States. Certain banks, including ABN AMRO Bank N.V. and CALYON, are par-
ties to a commitment letter and related agreements (the “IPSCO Bridge Commitment”) pursuant to which they have
agreed to provide an acquisition bridge facility in the amount of US$2,100 million in connection with the pending acqui-
sition of IPSCO Canada. Under the IPSCO Bridge Commitment, the commitments of the lenders will be reduced by an
amount equal to the proceeds of the offer and sale of the Notes. See “Subscription and Sale”. It is possible that Evraz may
be required to complete its purchase of certain of the assets of IPSCO Canada from SSAB under circumstances in which
TMK is not required to complete its purchase from Evraz of certain IPSCO businesses in the United States pursuant to the
back-to-back agreement relating to such business or its purchase of the remaining IPSCO businesses in the US pursuant
to the option agreement relating to such businesses. The conditions to TMK’s obligations to buy are that (a) Evraz shall
be in compliance with its obligations, (b) the closing of Evraz’s purchase of certain assets of IPSCO Canada shall have oc-
curred without waiver of material conditions by Evraz, (c) the transactions shall not be prevented by law or order, or be
the subject of an action by a governmental authority seeking to prevent them, and (d) waiting periods under antitrust laws
shall have expired and required approvals shall have been obtained. There is thus a risk that Evraz could be required to com-
plete its purchase of the IPSCO businesses in circumstances where TMK would be excused from completing its purchases
of certain IPSCO businesses in the United States – for example if TMK is prevented by law from completing such purchase
but Evraz is not so prevented from completing its purchase of IPSCO Canada. If Evraz is required to complete its purchase
of certain of the assets of IPSCO Canada under circumstances in which TMK either is not required to or fails to complete
its purchase of IPSCO businesses in the United States, Evraz may need to secure up to US$1.7 billion in additional financ-
ing to complete its purchase of IPSCO Canada.

Capital resources
Historically, Evraz has relied on cash flow provided by operations and short-term debt to finance its working capital and
capital requirements. Management expects that such sources of funding will continue to be important in the future.
At the same time, Evraz intends to increasingly substitute short-term debt for longer-term debt in order to better match
its capital resources to its planned expenditure. Evraz does not currently make use of any off-balance sheet financing
arrangements.

Evraz intends to finance its capital investment programme and its acquisitions with a mix of cash flows from operations
and financing activities. Evraz seeks long-term financing (with tenures of five to seven years) both domestically and in-
ternationally from banks and the capital markets, as well as short-term working capital loans that may be secured by
pledges over plant and equipment. Purchases of equipment from major European producers have been, and are expected
to continue to be backed by European export credit agencies such as Hermes (Germany), OeKB (Austria), KUKE (Poland),
SACE (Italy), ODL (Luxembourg), EximBanka SR (Slovakia) and Finnvera (Finland).

Net cash provided by operating activities amounted to US$2,957 million, US$2,084 million and US$1,496 million in 2007,
2006 and 2005, respectively. The increase in net cash provided by operating activities was primarily due to increased profit and
new acquisitions in 2007 and primarily due to increased profit in 2006. Cash provided by operating activities before working
capital adjustments increased to US$3,264 million in 2007 from US$1,943 million in 2006 and US$1,422 million in 2005.
Working capital movement in 2007 was largely driven by new businesses, while in 2006 it was due to a large destocking.

Net cash used in investing activities totalled US$5,636 million, US$1,569 million and US$1,753 million in 2007, 2006
and 2005, respectively. The significant increase in 2007 was due to an increase of US$4,639 million relating to purchase

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

105

of subsidiaries, net of cash acquired, which reflected principally the acquisitions of Oregon Steel and Highveld. In 2006
and 2007, net cash used in investing activities was relatively balanced between purchases of subsidiaries, minority inter-
ests and interests in associates/joint ventures on the one hand and purchases of property, plant and equipment and in-
tangible assets on the other.

Net cash from (used in) financing activities amounted to US$2,135 million, US$(341) million and US$607 million in
2007, 2006 and 2005, respectively. The increase in 2007 as compared to 2006 reflected principally the receipt of
US$4,515 million in proceeds from loans and promissory notes, which were partially offset by US$1.635 million in cash
used for repayment of loans and promissory notes (including interest). The decrease in 2006 as compared to 2005 resulted
primarily from decreases in net cash from loans and promissory notes and in proceeds from issuance of share capital.

In 2007 and 2006, the most significant syndicated loan facilities entered into by Evraz with international banks to fi-

nance its requirements included the following:

❘❚ On 1 June 2006, Evraz entered into a US$225 million credit facility arranged by Natexis Banques Populaires and Bank
Natexis (ZAO). The full facility amount was utilised on 6 June 2006. The facility is repayable in 42 equal monthly
instalments, starting from December 2007, and bears interest at a fixed annual rate of 6.681%. The amount bor-
rowed by Evraz under the agreement was applied towards the refinancing of a payment made by it as consideration
for the 3,600 shares of Corber Enterprises Limited purchased pursuant to a share purchase agreement dated 28
April 2006.

❘❚ In November 2006, Evraz entered into a US$1,800 million credit facility arranged by UBS AG. The full facility amount
was utilised in January 2007 and was applied towards the financing of a payment made as consideration for the
32,470,867 shares of Oregon Steel Mills, Inc. The facility was repaid in full on 23 November 2007.

❘❚ On 11 September 2006, Evraz entered into a US$207 million credit facility arranged by ABN Amro and Commerzbank
AG. The full facility amount was utilised on 13 June 2007, is secured with sales proceeds of Vitkovice Steel, and bears
interest at LIBOR plus a margin of 0.85%. The facility is repayable in 17 equal quarterly installments, beginning in June
2008. This credit re-finances the US$207 million bridge facility agreement arranged in January 2006 by the same
banks for the acquisition of Vitkovice Steel.

❘❚ On 22 November 2007, Evraz entered into a US$3,214 million credit facility arranged by ABN Amro Bank N.V., Bar-
clays Capital, The Bank of Tokyo-Mitsubishi UFJ, BNP Paribas (Suisse) SA, Calyon, Commerzbank AG, Deutsche Bank
AG, ING Bank N.V., Sumitomo Mitsui Banking Corp. and UBS. The full facility amount was utilised on 6 December
2007. The facility consists of (i) Tranche A of US$2,714 million secured with sales proceeds of East Metals S.A. and re-
payable in 17 equal quarterly installments, starting from November 2008, and (ii) unsecured Tranche B of US$500 mil-
lion repayable in 12 equal quarterly installments, starting from February 2008. Both tranches bear interest at the rate
of applicable LIBOR plus a margin of 1.8%. The facility was utilised for the re-financing of the US$1,800 million bridge
facility borrowed in January 2007 for the acquisition of Oregon Steel and partial financing of the new acquisitions in
the US and Ukraine. The credit facility contains covenants that relax restrictions on Evraz and its subsidiaries in respect
of certain transactions and financial ratios.

Liquidity
As the table below illustrates, Evraz had estimated liquidity, defined as cash and cash equivalents, available under unre-
stricted credit facilities and short-term bank deposits with original maturity of more than three months, of approximately
US$1,215 million as of 31 December 2007 and approximately US$1,254 million as of 31 December 2006.

Annual Report 2007

Evraz Group S. A.

106

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Liquidity and Capital Resources / Liquidity (Continued)

Evraz’s current ratio, defined as current assets divided by current liabilities, decreased to 1.1 as of 31 December 2007
from 1.5 as of 31 December 2006. The decline in the current ratio mainly resulted from increases in short-term loans and
current portion of long-term loans.

The reduction in cash balances was mainly due to the cash payments for the purchase of shares in Highveld, Yuzhkuzbas-
sugol, ZapsibTETs and partially for the acquisition of Oregon Steel. See “—Summary of Acquisitions”. Evraz’s corporate treas-
ury monitors the financial requirements of Evraz’s various subsidiaries and has a variety of instruments at its disposal to
ensure that each subsidiary has sufficient liquidity to meet its obligations and capital requirements.

millions of US dollars

Estimated liquidity

Cash and cash equivalents(1)

Amount available under credit facilities(2)

Short-term bank deposits

Total estimated liquidity

7
0
0
2

As at 31 December

327

863

1,215

6
0
0
2

842

388

1,254

(1) Since 31 December 2007, Evraz has used or agreed to use or expects to use cash in several ways other than in the ordinary course of business. In the
first quarter of 2008, Evraz paid US$422 million for the acquisition of Claymont and US$165 million for the acquisition of interest in Delong Hold-
ings (see “—Summary of Acquisitions”) and also paid dividends in the amount of US$80 million. During 2008, Evraz expects to pay an additional
US$614 million for shares of Delong Holdings and may be required to pay additional amounts in connection with a mandatory cash tender offer
for Delong Holdings shares. Moreover, Evraz expects to pay US$4.0 billion for certain IPSCO businesses, of which it expects to recover US$1.2 bil-
lion in 2008 through its back-to-back agreements with TMK and US$0.5 billion in 2009 pursuant to its option agreement with TMK. See “Descrip-
tion of Business—Overview”.

(2) Total amounts available under borrowing facilities amounted to approximately US$863 million as of 31 December 2007 and US$2,428 million as of
31 December 2006. Evraz has also entered into the IPSCO Bridge Commitment. See “Subscription and Sale”. Amounts in excess of the total stated
in this table consisted of facilities associated with specific capital expenditures or specific other uses.

Contractual obligations and commercial commitments
The following table sets forth the amount of Evraz’s obligations in respect of loans and borrowings as of 31 December 2007
and 31 December 2006 by period:

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t

s
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e
L

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y

l
a
t
o
T

s
r
a
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y
2
–
1

s
r
a
e
y
5
–
2

n
a
h
t

e
r
o
M

s
r
a
e
y
5

l
a
t
o
T

n
a
h
t

s
s
e
L

r
a
e
y

s
r
a
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y
2
–
1

s
r
a
e
y
5
–
2

n
a
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t

e
r
o
M

s
r
a
e
y
5

millions of US dollars

As at 31 December 2007

As at 31 December 2006

Obligations in respect of borrowings
Short-term loans and borrowings
(including current portion of longterm borrowings)

Long-term loans and borrowings (excluding
current portion of long-term borrowings)

Unamortised debt issue costs(1)

1,958

–

741

–

4,735

(82)

6,611

–

1,360

2,570

805

1,895

–

(40)

–

383

–

707

805

–

2,596

(1) Unamortised debt issue costs represent commissions and arrangement costs paid by the Company’s subsidiaries in relation to the arrangement of

long-term loans and the issuance of notes.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

107

Subsequent to 31 December 2007, Evraz signed bank loan agreements for US$618 million.

As of 31 December 2007 and 31 December 2006, Evraz had equipment with a carrying value of US$121 million and
US$39 million, respectively, pledged as collateral under loans to the Company. In addition, Evraz had pledged finished
goods with a carrying value of US$415 million and US$194 million as of 31 December 2007 and 31 December 2006, re-
spectively.

As of 31 December 2007 and 31 December 2006, Evraz had incurred liabilities in respect of postemployment benefits
that the Company provides to employees of certain of its subsidiaries pursuant to collective bargaining agreements of
US$291 million and US$117 million, respectively. These amounts represent the present value of Evraz’s defined benefit ob-
ligation less the fair value of plan assets and adjusted for unrecognised actuarial loss and past service costs, discounted to
present value.

Evraz also makes defined contributions to Russia’s state pension, social insurance and medical insurance at the statu-
tory rates in force (approximately 24% as of 31 December 2007), based on gross salary payments. Evraz is only required
to make these contributions as they fall due, and the Company does not retain any legal or constructive obligation to pay
future benefits. These contributions are expensed as incurred.

At 31 December 2007, Evraz had contractual commitments for the purchase of production equipment and construc-

tion works for an approximate amount of US$677 million.

Future minimum lease payments were as follows as at 31 December 2007:

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m

f
o

m
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m
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M

s
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m
y
a
p

e
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a
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l

millions of US dollars

2008

2009–2012

2013

Total

Less: amounts representing finance charges

Total

As at 31 December 2007

(19)

Evraz is also involved in a number of social programmes designed to support education, healthcare and the develop-
ment of social infrastructure in certain towns where Evraz’s assets are located. In 2008, Evraz plans to spend approxi-
mately US$133 million under these programmes.

Evraz has a constructive obligation to reduce environmental pollution and contamination in accordance with an envi-
ronmental protection programme. During the period 2008 to 2012, Evraz is obligated to spend approximately US$245
million on the replacement of old machinery and equipment which is expected to result in reduced pollution.

Annual Report 2007

Evraz Group S. A.

108

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Liquidity and Capital Resources (Continued)

Tax contingencies
The Russian government has initiated reforms of the tax system that have brought about some improvement in the tax cli-
mate. Many tax laws and related regulations have been introduced, some of which are subject to varying interpretation and
inconsistent enforcement because they are not clearly defined. Instances of inconsistent opinions between local, regional and
federal tax authorities are not unusual. Management believes that it has paid or accrued all taxes that are applicable. Where
uncertainty exists, Evraz has accrued tax liabilities based on management’s best estimates. Possible liabilities, which were iden-
tified by management at the balance sheet date as those that can be subject to different interpretations of the tax laws and reg-
ulations and are not accrued in the accompanying financial statements, could amount to approximately US$19 million.

Inflation
While Evraz’s revenues depend substantially on international prices for metallurgical products, its costs are closely linked
to Russian cost factors. Inflation moderated in Russia during the past years; however it reached 11.9% in 2007 compared
with 9.0% in 2006. In 2007 and 2006, overall price trends were generally positive, with steel prices growing faster than
many relevant cost factors such as raw materials, railway transportation charges, natural gas prices, electricity costs and
the general consumer price index.

The table below presents changes in Russia’s consumer price index and Rouble to US dollar exchange rates from 2003

through 2007:

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

7
0
0
2
o
t

3
0
0
2

Consumer price Index, change in RUB(1)

Nominal RUB/US$ exchange rate, change(1)

12.0%

7.9%

11.7%

6.1%

10.9%

(3.6%)

9.0%

9.3%

11.9%

7.3%

69%

29.5%

(1) Represents the change from 31 December of the prior year to 31 December of the indicated year. Sources: Fedstat; CBR.

Seasonality
Seasonal effects have a relatively limited impact on Evraz. Nonetheless, a slowing of demand and a consequent reduction
in sales volumes, accompanied by an increase in inventories, is typically evident in the first and fourth quarters of the fi-
nancial year reflecting the general reduction in economic activity associated with the New Year holiday period in Russia
and elsewhere. The Russian construction market, in particular, experiences a slowdown in the winter months and export
markets generally tend to slow down during the first and second quarters of the year.

Quantitative and Qualitative Disclosures in Respect of Market Risk
Overview
In the ordinary course of its business, Evraz is exposed to risks related to changes in exchange rates, interest rates, com-
modity prices and energy and transportation tariffs. Evraz does not currently enter into hedging or forward contracts in
respect of any of these risks and does not currently plan to enter into such arrangements.

Exchange and Interest Rate Risk
Evraz’s presentation currency is the US dollar. The functional currency of Evraz’s Russian subsidiaries is the Rouble, while
the functional currencies of Evraz’s subsidiaries located in other countries are the Czech Koruna in respect of Vitkovice Steel,

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

the euro in respect of Palini, the Rand in respect of Highveld and the South African operations of Stratcor and the US dol-
lar in respect of other subsidiaries.

The Rouble is not a fully convertible currency outside the territory of the Russian Federation. Within the Russian Fed-
eration, official exchange rates are determined daily by the CBR. Market rates may differ from the official rates but the dif-
ferences are, generally, within narrow parameters monitored by the CBR. See “Presentation of Financial and Other
Information—Exchange Rate Information”.

Evraz’s products are typically priced in Roubles in respect of Russian and CIS sales and US dollars and euro in respect
of international sales. Evraz’s direct costs, including raw materials, labour and transportation, are incurred in Roubles in
respect of Russian subsidiaries and in Czech Korunas, euro, US dollars and South African Rand for Vitkovice Steel, Palini,
Oregon Steel and Highveld, respectively. Other costs, such as interest expense, are incurred largely in Roubles, US dollars
and euro.

The mix of Evraz’s revenues and costs is such that appreciation in real terms of the Rouble against the US dollar tends
to result in an increase in Evraz’s costs relative to its revenues, while depreciation of the Rouble against the US dollar in
real terms tends to result in a decrease in Evraz’s costs relative to its revenues. The Rouble appreciated in real terms against
the US dollar by 3.9% in 2005, 16.7% in 2006 and 15.0% in 2007, according to the CBR. However, in recent years the ef-
fect of the real appreciation of the Rouble against the US dollar has been more than offset by increased prices for Evraz’s
steel products, both in Russia and internationally.

In addition, nominal depreciation of the Rouble against the US dollar results in a decrease in the reported US dollar value
of Evraz’s Rouble denominated assets (and liabilities) while nominal appreciation of the Rouble against the US dollar re-
sults in an increase in the reported US dollar value of Evraz’s Rouble denominated assets (and liabilities). Moreover, nom-
inal appreciation/depreciation of the Rouble against the US dollar has a similar effect when the income statements of
Evraz’s Russian subsidiaries are translated into US dollars in connection with the preparation of Evraz’s consolidated fi-
nancial statements. The average exchange rate of the Rouble against the US dollar appreciated by 1.9%, 4.1% and 6.3%
in nominal terms in 2005, 2006 and during 2007, respectively, according to the CBR.

The following table summarises Evraz’s outstanding interest-bearing debt, including loans and other borrowings, by cur-
rency and interest rate method as at 31 December 2007 and 31 December 2006. This table excludes interest payable and
unamortised debt issue costs, as opposed to the obligations in respect of borrowings. See “—Liquidity and Capital Re-
sources—Contractual obligations and commercial commitments”:

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l
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T

109

l
a
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o
T

millions of US dollars

Total debt, of which

Fixed-rate debt

Variable-rate debt

2007

As at 31 December

2006

6,172

1,389

4,783

168

117

309

106

203

–

6,654

2,278

1,546

5,108

1,420

858

304

2,606

1,531

205

1,075

Annual Report 2007

Evraz Group S. A.

110

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Quantitative and Qualitative Disclosures in Respect of Market Risk / Exchange and Interest Rate Risk (Continued)

A hypothetical, instantaneous and simultaneous 10% appreciation of the Rouble and the euro against the US dollar as
of 31 December 2007 would have resulted in an increase of approximately US$53 million on borrowings denominated
in Roubles and euro held as of 31 December 2007.

The following table demonstrates the sensitivity to reasonably possible changes in the relative values of the respective
currencies, with all other variables held constant, of Evraz’s profit before tax. In estimating a reasonably possible change,
Evraz used foreign exchange rates of forward contracts for one year at each reporting date:

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E

millions of US dollars, except percentages

2007

As at 31 December

2006

USD/RUB

EUR/USD

EUR/RUB

EUR/CZK

USD/CZK

USD/ZAR

(5.80)

4.20

(7.35)

7.35

(5.45)

3.25

(4.10)

4.10

(9.40)

9.40

(17.70)

13.00

(1)

(14)

(10)

(3)

(10)

(6)

(6.10)

4.50

(9.25)

9.25

(7.00)

4.70

(3.50)

3.50

(8.40)

10.10

(15.00)

15.00

(8)

(17)

(11)

(2)

(18)

(13)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

111

Reasonably possible changes in floating interest rates at the reporting date would have changed profit before tax by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, re-
main constant.

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b

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B

US$ millions (except basis points)

Liabilities denominated in US dollars

Decrease in LIBOR

Increase in LIBOR

Liabilities denominated in euro

Decrease in EURIBOR

Increase in EURIBOR

2007

As at 31 December

2006

(125)

(150)

(14)

(1)

(100)

(50)

150

(5)

(3)

Commodity Price Risk
Evraz’s revenue is exposed to the market risk of price fluctuations related to the sale of its steel products. The prices of the
steel products sold by Evraz both within Russia and abroad are generally determined by market forces. These prices may
be influenced by factors such as supply and demand, production costs (including the costs of raw material inputs) and global
and Russian economic growth. The prices of the mined products that Evraz sells to third parties are also affected by sup-
ply and demand and global and Russian economic growth. Adverse changes in respect of any of these factors may reduce
the revenue that Evraz receives from the sale of its steel or mined products.

Evraz’s costs are also exposed to fluctuations in prices for the purchase, processing and production of iron ore, coking
coal, ferroalloys and other raw material inputs. Evraz’s exposure to fluctuations in the price of iron ore and, as a result of
the acquisition of Yuzhkuzbassugol and Mine 12, coking coal, is limited due to its ability to obtain these products from its
own production facilities. Where Evraz obtains these products from internal sources, the effect of price fluctuations is ac-
counted for as an inter-segment transfer and eliminated on consolidation. In addition, any increase in prices for coking coal
sourced from Raspadskaya is partially reflected as an increase in Evraz’s income from affiliates.

As Evraz increases the proportion of raw materials acquired from internal sources, Evraz’s exposure to commodity price
risk associated with the purchase and sale of these products will decline. Evraz’s ongoing process of vertical integration,
including the acquisitions of KGOK in 2004, Evrazruda, Mine 12, Palini and Vitkovice Steel in 2005 and Yuzhkuzbassugol,
Oregon Steel and Highveld in 2007, is an important element in Evraz’s drive to reduce its exposure to input and output
commodity price risk.

Tariff Risk
Evraz is also exposed to uncertainty with regard to the prices of the electricity and natural gas that it consumes in the pro-
duction of steel and the mining of iron ore and coal. Prices in respect of both electricity and natural gas in Russia are cur-
rently below market prices in Western Europe and are regulated by the Russian government, thereby limiting Evraz’s
exposure to fluctuations in the cost of these products.

Annual Report 2007

Evraz Group S. A.

112

MA NAG EMENT’S DISC USSIO N A ND A NALYS I S OF F INA N CIAL CO NDITI O N AND R ES ULTS OF O PE R AT I O NS

Quantitative and Qualitative Disclosures in Respect of Market Risk / Tariff Risk (Continued)

The Russian electricity sector is currently characterised by distinctly limited competition and regulated prices. Pric-
ing policy is determined by the Federal Tariffs Service (the “FTS”), a governmental agency authorised to regulate
prices in respect of the power generated by regional electricity companies, power transmission, dispatch services and
inter-regional trade, and is influenced by regional energy commissions that are authorised to regulate prices within a
specific region. Power may also be purchased from the Federal Wholesale Electricity Market (“FOREM”). Most sell-
ers of power on the domestic market are regional generation companies and most participants in FOREM are re-
gional generation companies that seek to sell a power surplus to regional generation companies with supply deficits
as well as industrial companies granted special access to FOREM. Evraz’s subsidiary MEF has been granted such ac-
cess to FOREM.

In 2007 and in 2006, Evraz’s Russian operations purchased approximately 8,913 million kWh and 9,047 million kWh
of electricity, respectively, representing approximately 84% and 90% of their requirements, respectively, from local sub-
sidiaries of UES, the government-controlled national holding company for the Russian power sector. The Russian gov-
ernment is currently implementing a restructuring plan for the power sector aimed at introducing competition, liberalising
the wholesale electricity market and moving from regulated pricing to a market-based system. Moreover, according to
the Russian government Macroeconomic Long-term Forecast, electricity tariffs for industrial users will reach 6.5-6.7 US
cents per kWh by 2010. Evraz’s average cost of electricity in Russia was 3.8 US cents per kWh in 2007 and 3.1 US cents
per kWh in 2006. Assuming a price of 6.7 US cents per kWh, Evraz’s Russian operations would have incurred additional
costs of approximately US$266 million and US$328 million in the years ended 31 December 2007 and 2006, respec-
tively. Further electricity price increases may occur in the future as the industry is restructured and controlled to a greater
extent by the private sector.

Evraz’s Russian operations also purchase significant amounts of natural gas, primarily for the production of electricity
and heat energy at Evraz’s facilities, from Gazprom’s subsidiaries. Gazprom is a state controlled company and is the dom-
inant producer and monopoly distributor of natural gas within Russia. Domestic natural gas prices are regulated by the gov-
ernment and have been rising during recent years. Evraz’s average price for natural gas in Russia reached RUB1,532 per
thousand cubic metres and RUB1,294 per thousand cubic metres in 2007 and in 2006, respectively. Despite these recent
price increases, natural gas prices in Russia remain significantly below western European levels, a factor that helps to pro-
vide Evraz with a cost advantage over its competitors. According to the Russian Government Macroeconomic Long-term
Forecast, domestic gas prices for industrial users will reach US$96-99 per thousand cubic metres by 2010. Assuming a
price of US$99 per thousand cubic metres, Evraz’s Russian operations would have incurred additional costs of approxi-
mately US$143 million and US$161 million in 2007 and 2006, respectively.

Evraz is also exposed to fluctuations in transportation costs. Transportation costs influence Evraz’s financial results
directly as a component of raw material costs and the costs of transporting finished products to Nakhodka Sea Port or
another designated off-take location. Although Evraz’s customers in Russia generally pay the transportation costs of
steel and mined products from the production site to the delivery location, the prices that Evraz receives may be ad-
versely affected by transportation costs to the extent that Evraz must be able to reduce the prices that it can charge
customers for its products in order to ensure that its products remain competitive with those of other producers that
may be located closer to customers and are therefore less impacted by increases in transportation costs. In recent years,
the Russian government has indexed railway tariffs in line with inflation and Evraz expects this policy to continue in the
immediate future. Consequently, Evraz does not currently expect fluctuations in railway tariffs to have a significant im-
pact on margins.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

113

Operational Outlook
Evraz’s primary strategy is to retain its position as one of the most cost-effective integrated steel producing and mining
groups in the world. Evraz’s management believes that the ability to produce low-cost steel products is essential to ensure
the competitiveness of its plants. In the short-to medium-term, Evraz intends to realise synergies from the integration of
recent acquisitions by rationalising production across its plants and making selective investments in improved production
technology, including the increasing use of continuous casting in steel production, ongoing blast furnace refurbishments
and closure of open hearth furnace production facilities. Evraz’s management expects to continue to expand its business
both vertically and horizontally.

Evraz’s future revenues will primarily be determined by the steel price environment. However, Evraz’s investment plans,
which are targeted to increase operational efficiency, are expected to facilitate a shift in product mix towards higher mar-
gin products and are also expected to result in a moderate increase in output, all of which is expected to have a positive
effect on Evraz’s operating results, subject to movements in steel prices. Evraz expects that increases in steel production
as a result of the acquisitions of Vitkovice Steel, Oregon Steel and Highveld will be partially offset by a gradual shutdown
of inefficient open hearth furnaces at certain of Evraz’s plants.

Inventories increased by 84% at 31 December 2007 compared to the balance at 31 December 2006. Approximately
three-quarters of this increase was attributable to contributions of the new subsidiaries Oregon Steel, Highveld and
Yuzhkuzbassugol and approximately one-fifth of this increase was due to higher prices for raw materials and steel goods.
Evraz’s management will continue to focus on working capital management and ongoing improvements in efficiency.

Most of Evraz’s investment programme is designed to increase the efficiency of its production facilities and to reduce
cost of production per tonne. Evraz’s mining segment currently supplies approximately 77% of the steel segment’s iron
ore requirements. Evraz’s requirements for coking coal can be fully covered by the mining segment and purchases from
Raspadskaya, which is accounted for under the equity method. Investments in power-generation assets, including
ZapsibTETs and EvrazEK, are expected to significantly reduce Evraz’s dependence on external sources of electricity and heat.
These factors are expected to mitigate the impact of increasing costs in respect of raw materials and energy.

Evraz expects other cost factors, such as salaries, construction materials and natural gas, to continue growing in line
with inflation in Russia in respect of its Russian subsidiaries and in line with inflation in the respective countries where
Evraz’s non-Russian subsidiaries are located. Evraz also expects the recent acquisitions of Stratcor, Oregon Steel and High-
veld to have a positive impact on Evraz’s revenues and results of operations in 2008.

Annual Report 2007

Evraz Group S. A.

115

Consolidated Financial Statements
Year Ended December 31, 2007

116 Independent Auditors’ Report

117 Consolidated Income Statement

118 Consolidated Balance Sheet

120 Consolidated Cash Flow Statement

124 Consolidated Statement of Changes in Equity

125 Notes to the Consolidated Financial Statements

125 Note 1. Corporate Information
126 Note 2. Significant Accounting Policies
143 Note 3. Segment Information
147 Note 4. Business Combinations
160 Note 5. Goodwill
162 Note 6. Acquisitions of Minority Interests

in Subsidiaries

164 Note 7. Income and Expenses
166 Note 8. Income Taxes
170 Note 9. Property, Plant and Equipment
172 Note 10. Intangible Assets Other Than Goodwill
175 Note 11. Investments in Joint Ventures

and Associates

184 Note 12. Disposal Groups Held for Sale
186 Note 13. Cash and Cash Equivalents
and Restricted Deposits at Banks
187 Note 14. Other Non-Current Assets
188 Note 15. Inventories
188 Note 16. Trade and Other Receivables
189 Note 17. Related Party Disclosures
192 Note 18. Other Taxes Recoverable
192 Note 19. Equity
195 Note 20. Loans and Borrowings
198 Note 21. Finance Lease Liabilities
199 Note 22. Employee Benefits
205 Note 23. Share-Based Payments
207 Note 24. Provisions
208 Note 25. Other Long-Term Liabilities
209 Note 26. Trade and Other Payables
209 Note 27. Other Taxes Payable
210 Note 28. Financial Risk Management Objectives

and Policies

218 Note 29. Non-Cash Transactions
218 Note 30. Commitments and Contingencies
219 Note 31. Subsequent Events

Annual Report 2007

Evraz Group S. A.

116

INDEPENDENT AU DITORS’ REPORT

Independent
Auditors’ Report

The Shareholders and Board of Directors
Evraz Group S.A.

We have audited the accompanying consolidated financial statements of Evraz Group S.A. and its subsidiaries
(“the Group”), which comprise the consolidated balance sheets as at December 31, 2007, 2006 and 2005, and the con-
solidated income statements, consolidated statements of changes in equity and consolidated cash flow statements for the
years then ended, and a summary of significant accounting policies and other explanatory notes.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accor-
dance with International Financial Reporting Standards. This responsibility includes: designing, implementing and main-
taining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial state-
ments. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material mis-
statement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the ef-
fectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Group as at December 31, 2007, 2006 and 2005, and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.

EMPHASIS OF MATTER
We draw attention to Note 1 to the consolidated financial statements. A significant part of the Group’s transactions were
made with related parties including, but not limited to, associates and a joint venture.

April 1, 2008
Moscow, Russia

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

117

Consolidated Income Statement

In millions of US dollars, except for per share information

Year ended December 31,

Revenue

Sale of goods

Rendering of services

Cost of revenue

Gross profit

Selling and distribution costs

General and administrative expenses

Social and social infrastructure maintenance expenses

Loss on disposal of property, plant and equipment

Impairment of assets

Foreign exchange gains/(losses), net

Other operating income/(expenses), net

Profit from operations

Interest income

Interest expense

Share of profits/(losses) of joint ventures and associates

Gain/(loss) on financial assets and liabilities, net

Gain/(loss) on disposal groups classified as held for sale

Excess of interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition

Other non-operating gains/(losses), net

Profit before tax

Income tax expense

Net profit

Attributable to:

Equity holders of the parent entity

Minority interests

Earnings per share:

s
e
t
o
N

4, 6, 7

7
0
0
2

*
6
0
0
2

*
5
0
0
2

$12,579

$8,166

$6,387

229

12,808

(7,875)

4,933

(539)

(681)

(78)

(26)

(7)

(55)

(24)

126

8,292

(5,163)

3,129

(243)

(494)

(86)

(21)

(20)

(15)

121

6,508

(4,172)

2,336

(181)

(467)

(76)

(24)

(8)

(5)

3,523

2,298

1,582

(409)

(71)

(229)

(77)

(142)

–

(7)

3,201

2,087

1,528

(984)

$2,217

(637)

$1,450

(475)

$1,053

$2,144

$1,377

$918

135

$2,217

$1,450

$1,053

basic, for profit attributable to equity holders of the parent entity, US dollars

diluted, for profit attributable to equity holders of the parent entity, US dollars

$18.16

$18.02

$11.76

$11.68

$8.14

$8.13

The amounts shown here do not correspond to the 2006 and 2005 financial statements and reflect adjustments made in connection with the
completion of initial accounting (Notes 4 and 11).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

118

CO N S O L I DAT E D B A L A N C E S H E E T

Consolidated Balance Sheet

In millions of US dollars

ASSETS

Non-current assets

Property, plant and equipment

Intangible assets other than goodwill

Goodwill

Investments in joint ventures and associates

Restricted deposits at banks

Other non-current assets

Current assets
Inventories

Trade and other receivables

Prepayments

Loans receivable

Receivables from related parties

Income tax receivable

Other taxes recoverable

Short-term investments and notes receivable

Restricted deposits at banks

Cash and cash equivalents

Assets of disposal groups classified as held for sale

Total assets

s
e
t
o
N

7
0
0
2

*
6
0
0
2

*
5
0
0
2

December 31,

$8,161

$3,655

$3,062

806

1,271

787

1,317

12,347

1,575

1,117

175

343

–

327

3,757

276

4,033

$16,380

112

1,494

271

5,581

864

556

331

–

842

2,824

105

2,929

$8,510

906

4,110

964

375

–

461

641

2,644

–

2,644

$6,754

Continued on the next page

* The amounts shown here do not correspond to the 2006 and 2005 financial statements and reflect adjustments made in connection with the com-

pletion of initial accounting (Notes 4 and 11) and certain reclassifications (Note 2).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

119

Consolidated Balance Sheet (Continued)

In millions of US dollars

EQUITY AND LIABILITIES

Equity

Equity attributable to equity holders of the parent entity

s
e
t
o
N

7
0
0
2

*
6
0
0
2

*
5
0
0
2

December 31,

Issued capital

Treasury shares

Additional paid-in capital

Revaluation surplus

Legal reserve

Accumulated profits

Translation difference

Minority interests

Non-current liabilities
Long-term loans

Deferred income tax liabilities

Finance lease liabilities

Employee benefits

Provisions

Amounts payable under put options for shares of subsidiaries

Other long-term liabilities

Current liabilities

Trade and other payables

Advances from customers

Short-term loans and current portion of long-term loans

Payables to related parties

Income tax payable

Other taxes payable

Current portion of finance lease liabilities

Provisions

Amounts payable under put options for shares of subsidiaries

Dividends payable by the parent entity to its shareholders

Dividends payable by the Group’s subsidiaries to minority shareholders

Liabilities directly associated with disposal groups classified as held for sale

Total equity and liabilities

$320

$318

–

286

233

4,124

994

5,986

371

6,357

4,653

1,277

291

126

–

531

–

2,750

439

4,066

169

4,235

1,855

277

117

–

$316

–

547

–

1,751

2,708

179

2,887

1,515

265

6,457

2,377

1,972

933

111

1,958

136

138

462

741

176

175

404

835

315

189

–

3,520

3,566

$16,380

1,875

1,898

$8,510

1,895

–

1,895

$6,754

The amounts shown here do not correspond to the 2006 and 2005 financial statements and reflect adjustments made in connection with the
completion of initial accounting (Notes 4 and 11) and certain reclassifications (Note 2).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

120

CO N S O L I DAT E D C A S H F L OW STAT E M E N T

Consolidated Cash Flow Statement

In millions of US dollars

Cash flows from operating activities

Net profit

Adjustments to reconcile net profit to net cash flows from operating activities:

Year ended December 31,

Depreciation, depletion and amortisation (Note 7)

Deferred income tax (benefit)/expense (Note 8)

Loss on disposal of property, plant and equipment

Impairment of assets

Foreign exchange (gains)/losses, net

Share of (profits)/losses of associates and joint ventures, net

Excess of interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition

(Gain)/loss on financial assets and liabilities, net (Notes 4 and 7)

Loss on disposal groups classified as held for sale (Note 12)

Other non-operating (gains)/losses, net (Note 7)

Interest income

Interest expense

Bad debt expense

Movements in provisions, pensions and other long-term liabilities

Share-based payments (Note 23)

Changes in working capital:

Inventories

Trade and other receivables

Prepayments

Receivables from/payables to related parties

Taxes recoverable

Other assets

Trade and other payables

Taxes payable

Advances from customers

Net cash flows from operating activities

Cash flows from investing activities

Issuance of loans receivable to related parties

Proceeds from repayment of loans issued to related parties, including interest

Issuance of loans receivable

Proceeds from repayment of loans receivable, including interest

Purchases of subsidiaries, net of cash acquired (Notes 4 and 14)

Purchases of minority interests

Purchase of interest in associates/joint venture

Restricted deposits at banks in respect of investing activities

Short-term deposits at banks, including interest

Purchases of property, plant and equipment and intangible assets

Proceeds from disposal of property, plant and equipment

Proceeds from sale of disposal groups classified as held for sale, net of transaction costs

Dividends and advances in respect of future dividends received

Other investing activities, net

Net cash flows used in investing activities

7
0
0
2

*
6
0
0
2

*
5
0
0
2

$2,217

$1,450

$1,053

698

(69)

(88)

(19)

(6)

(4)

(41)

409

(6)

303

(41)

(48)

(40)

(1)

(26)

(1)

(27)

229

245

(57)

(15)

(8)

–

(15)

142

3,264

1,943

1,422

(77)

(224)

(44)

(3)

(78)

2,957

(31)

(94)

(4,752)

(423)

–

(1)

(740)

223

208

(140)

(16)

(25)

113

(1)

(113)

2,084

–

(20)

(113)

(96)

(736)

(207)

(651)

–

212

(14)

(101)

(3)

(15)

1,496

(202)

206

(38)

(312)

(415)

(400)

–

(695)

–

(5,636)

(1,569)

(1,753)

Continued on the next page

The amounts shown here do not correspond to the 2006 and 2005 financial statements and reflect adjustments made in connection with the
completion of initial accounting (Notes 4 and 11).

Annual Report 2007

Evraz Group S. A.

Year ended December 31,

MAKING THE WO RLD ST RO NGER

Consolidated Cash Flow Statement
(Continued)

In millions of US dollars

Cash flows from financing activities

Proceeds from issuance of share capital, net of transaction costs
of $0, $0 and $22, respectively (Note 19)

Proceeds from exercise of share options (Note 19, 23)

Purchase of treasury shares (Note 19)

Sale of treasury shares (Note 19)

Contributions from Crosland Limited (Note 19)

Payments to entities under common control for the transfer of ownership
interest in subsidiaries

Proceeds from loans provided by related parties

Repayment of loans provided by related parties, including interest

Net (repayment)/proceeds from bank overdrafts and credit lines, including interest

Proceeds from loans and promissory notes

Repayment of loans and promissory notes, including interest

Restricted deposits at banks in respect of financing activities

Dividends paid by the parent entity to its shareholders

Dividends paid by the Group’s subsidiaries to minority shareholders

Payments under finance leases, including interest

Payments under Settlement Agreements, including interest, and purchases
of debts of subsidiaries

Payments of restructured taxes, including interest

Net cash flows from/(used in) financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplementary cash flow information:

Cash flows during the year:

Interest paid

Interest received

Income taxes paid

121

*
5
0
0
2

$400

–

131

(33)

(62)

(136)

1,305

(418)

(11)

(524)

(11)

(12)

(9)

(22)

607

(2)

348

293

*
6
0
0
2

$ –

–

(1)

708

(684)

(352)

(40)

(19)

(2)

(8)

(341)

201

641

$842

$641

$(211)

(656)

$(122)

(477)

7
0
0
2

$ –

(41)

–

(1)

222

4,515

(1,635)

(916)

(48)

(22)

–

2,135

(515)

842

$327

$(351)

(994)

The amounts shown here do not correspond to the 2006 and 2005 financial statements and reflect adjustments made in connection with the
completion of initial accounting (Notes 4 and 11).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

122

CO N S O L I DAT E D STAT E M E N T O F CH A N G E S I N E Q U I T Y

Consolidated
Statement of Changes
in Equity

d
e
u
s
s
I

l
a
t
i
p
a
c

y
r
u
s
a
e
r
T

s
e
r
a
h
s

l
a
t
i
p
a
c
n

i
-

d
i
a
p

l
a
n
o
i
t
i
d
d
A

n
o
i
t
a
u
l
a
v
e
R

s
u
p
r
u
s

d
e
t
a
l
u
m
u
c
c
A

s
t
i
f
o
r
p

n
o
i
t
a
l
s
n
a
r
T

e
c
n
e
r
e
f
f
i
d

e
v
r
e
s
e
r

l
a
g
e
L

l
a
t
o
T

y
t
i
r
o
n
M

s
t
s
e
r
e
t
n

y
t
i
u
q
e

l
a
t
o
T

In millions of US dollars

Attributable to equity holders of the parent entity

At December 31, 2006 (as previously reported)

Adjustments to provisional values (Notes 4 and 11)

At December 31, 2006 (as restated)

Effect of exchange rate changes

Revaluation surplus on acquisition of a controlling
interest in associates (Note 4)

Total income and expense for the year
recognised directly in equity

Net profit

Total income and expense for the year

Acquisition of minority interests in existing
subsidiaries (Note 6)

Minority interests arising on acquisition
of subsidiaries (Note 4)

Minority interests arising on acquisition
of a single asset entity (Note 10)

Decrease in minority interests arising due
to change in ownership within the Group

Derecognition of minority interests
in subsidiaries (Notes 4 and 6)

Recognition of minority interests in respect
of the expired put options (Note 4)

Share-based payments (Note 23)

Purchase of treasury shares (Note 19)

Exercise of share options (Notes 19 and 23)

Appropriation of net profit to legal reserve (Note 19)

Dividends declared by the parent entity
to its shareholders (Note 19)

Dividends declared by the Group’s subsidiaries
to minority shareholders (Note 19)

$318

–

$318

$ –

–

$ –

$531

–

$531

–

(41)

–

(283)

–

$ –

–

$ –

233

–

233

–

$28

$2,758

$439

$4,074

$176 $4,250

–

(8)

–

(8)

(7)

(15)

$28

$2,750

$439

$4,066

$169 $4,235

555

–

555

–

555

–

555

233

788

2,144

2,932

–

566

233

799

2,217

3,016

(10)

266

(5)

–

(145)

(311)

(456)

(41)

–

(958)

174

247

–

(41)

–

(958)

–

(40)

–

2,144

–

(145)

–

(27)

(1)

(675)

–

At December 31, 2007

$320

$ –

$286

$233

$29

$4,124

$994

$5,986

$371 $6,357

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Consolidated
Statement of Changes
in Equity (Continued)

d
e
u
s
s
I

l
a
t
i
p
a
c

y
r
u
s
a
e
r
T

s
e
r
a
h
s

l
a
t
i
p
a
c
n

i
-

d
i
a
p

l
a
n
o
i
t
i
d
d
A

123

y
t
i
u
q
e

l
a
t
o
T

n
o
i
t
a
u
l
a
v
e
R

s
u
p
r
u
s

d
e
t
a
l
u
m
u
c
c
A

s
t
i
f
o
r
p

n
o
i
t
a
l
s
n
a
r
T

e
c
n
e
r
e
f
f
i
d

e
v
r
e
s
e
r

l
a
g
e
L

l
a
t
o
T

y
t
i
r
o
n
M

s
t
s
e
r
e
t
n

in millions of US dollars

At December 31, 2005 (as previously reported)

Adjustments to provisional values (Notes 4 and 11)

At December 31, 2005 (as restated)

Effect of exchange rate changes

Total income and expense for the year
recognised directly in equity

Net profit*

Total income and expense for the year*

Exercise of share options (Notes 19 and 23)

Acquisition of minority interests
in existing subsidiaries (Notes 6)

Minority interests arising on acquisition
of subsidiaries (Note 4) *

Derecognition of minority interests
in subsidiaries (Note 4 and 6)

Acquisition of minority interests
by an associate (Note 19)

Sale of shares in a joint venture’s subsidiary (Notes 19)

Reorganisation of ownership structure
within a joint venture

Allocation of losses of prior periods
to minority shareholders (Note 19)

Share-based payments (Notes 23)

Appropriation of net profit to legal reserve

Dividends declared by the parent entity
to its shareholders (Note 19)

Dividends declared by the Group’s subsidiaries
to minority shareholders (Note 19)

Attributable to equity holders of the parent entity

$316

–

316

–

$ –

$547

$ –

$22

$1,738

$72

$2,695

$190 $2,885

–

547

–

(117)

–

1,751

–

1,377

–

(42)

–

(64)

–

(1)

–

(6)

(270)

–

367

–

367

–

2,708

367

1,377

1,744

(11)

179

–

2,887

390

1,450

1,840

(41)

(56)

(97)

–

(64)

(42)

(106)

(1)

–

(387)

–

(1)

–

(387)

–

(50)

At December 31, 2006*

$318

$ –

$531

$ –

$28

$2,750

$439

$4,066

$169 $4,235

* The amounts shown here do not correspond to the 2006 financial statements and reflect adjustments made in connection with the completion

of initial accounting (Notes 4 and 11).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

124

CO N S O L I DAT E D STAT E M E N T O F CH A N G E S I N E Q U I T Y

Consolidated
Statement of Changes
in Equity (Continued)

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In millions of US dollars

At December 31, 2004

Change in accounting policies: derecognition
of negative goodwill (Notes 2 and 5)

At January 1, 2005

Effect of exchange rate changes

Total income and expense for the year recognised
directly in equity

Net profit*

Total income and expense for the year*

Issue of share capital, net of transaction costs (Note 19)

Issue of share capital in exchange
for shares in Mastercroft (Note 19)

Acquisition of minority interests
in existing subsidiaries (Note 6)

Acquisition of minority interests
by a joint venture (Note 19)

Minority interests arising on acquisition
of subsidiaries (Note 4) *

Contributions from Crosland Limited (Note 19)

Share-based payments (Note 23)

Appropriation of net profit to legal reserve

Dividends declared by the parent entity
to its shareholders (Note 19)

Dividends declared by the Group’s subsidiaries
to minority shareholders (Note 19)

Attributable to equity holders of the parent entity

$ –

$319

$ –

$1,126

$164

$1,609

$358 $1,967

–

292

–

319

–

376

(292)

–

131

–

378

1,504

–

918

–

(131)

–

(22)

–

(518)

–

164

(92)

–

(92)

–

378

1,987

(92)

918

826

400

–

390

370

2,357

(13)

(105)

(13)

135

122

–

(105)

1,053

948

400

–

(129)

(287)

(416)

–

131

–

131

–

(518)

(6)

(524)

–

(23)

At December 31, 2005*

$316

$ –

$547

$ –

$22

$1,751

$72

$2,708

$179 $2,887

* The amounts shown here do not correspond to the 2005 financial statements and reflect adjustments made in connection with the completion

of initial accounting (Notes 4 and 11).

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

125

Notes to the Consolidated Financial Statements
Year Ended December 31, 2007

1. CORPORATE INFORMATION
These consolidated financial statements were authorised for issue in accordance with a resolution of the directors of Evraz
Group S.A. on April 1, 2008.

Evraz Group S.A. (“Evraz Group” or “the Company”) is a limited liability company registered under the laws of Luxem-
bourg on December 31, 2004. The registered address of Evraz Group is 1, Allee Scheffer L-2520, Luxembourg.

Evraz Group, together with its subsidiaries (the “Group”), is involved in production and distribution of steel and related
products. In addition, the Group owns and operates certain mining assets. The Group’s steel production and mining fa-
cilities are mainly located in the Russian Federation. The Group is one of the largest steel producers in the Russian Feder-
ation.

Prior to August 3, 2006, Evraz Group’s parent was Crosland Global Limited (“CGL” or the “Parent”), an entity under con-
trol of Mr. Alexander Abramov. On August 3, 2006, CGL transferred all its ownership interest in Evraz Group to Lanebrook
Limited (Cyprus) which became the ultimate controlling party from that date.

The Group was formed through a reorganisation in which 95.83% of the shares in Mastercroft Limited (“Mastercroft”),
a limited liability company registered in Cyprus, directly owned by Crosland Limited (“Crosland”), the parent of CGL, were
contributed into Evraz Group in April 2005. As the Group has been formed through a reorganisation of entities under
common control, these consolidated financial statements have been prepared using the pooling of interests method and,
as such, the financial statements have been presented as if the transfers of the Group’s interest in Mastercroft had oc-
curred from the beginning of the earliest period presented.

The major subsidiaries included in the consolidated financial statements of Evraz Group were as follows at December 31:

7
0
0
2

6
0
0
2

5
0
0
2

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Subsidiary

Actual ownership interest, %

Effective ownership interest, % (2)

OAO Nizhny Tagil Iron & Steel Plant

OAO West-Siberian Iron & Steel Plant

OAO Novokuznetsk Iron & Steel Plant

Vitkovice Steel a.s.

Evraz Oregon Steel Mills

Highveld Steel and Vanadium Corporation (1)

ZAO Yuzhkuzbassugol (1)

OAO Kachkanarsky Mining-and-Processing
Integrated Works

OAO Evrazruda

Ferrotrade Limited

OOO Trade House EvrazHolding

100.00

95.00

100.00

98.75

100.00

80.92

100.00

–

24.90

50.00

92.38

96.67

97.26

98.96

–

Steel production

Russia

Steel production

Czech Republic

Steel production

USA

Steel production

South Africa

50.00

Coal mining

Russia

100.00

97.11

91.98

Ore mining
and processing

100.00

Ore mining

100.00

Trading

Russia

Gibraltar

Russia

(1) Before the purchase of controlling interests in ZAO Yuzhkuzbassugol and Highveld Steel and Vanadium Corporation in
2007 (Note 4), these entities were accounted for under the equity method (Note 11).

Annual Report 2007

Evraz Group S. A.

126

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Corporate Information (Continued)

(2) Actual ownership interest in subsidiaries differs from the effective ownership interest due to the existence of minority
interests in subsidiaries that hold ownership interests in other subsidiaries as well as due to the derecognition of minority
interests for which minority shareholders hold put options (Notes 4 and 6).

Controlling Interests in Subsidiaries Transferred to the Group by Entities under Common Control
In 2005, the Group acquired a controlling interest in OAO Evrazruda from an entity under common control with the
Group. The Group applied the pooling of interests method with respect to this acquisition and presented its consolidated
financial statements as if the transfer of the controlling interest in the subsidiary had occurred from the beginning of the
earliest period presented.

In the years ended December 31, 2007, 2006 and 2005, approximately 5%, 8% and 7%, respectively, of the Group’s rev-
enues were generated in transactions with related parties. In addition, a certain part of the Group’s purchases was made
in transactions with related parties, including, but not limited to, associates and a joint venture. For detailed information
related to such activities refer to Note 17.

At December 31, 2007, the Group employed approximately 127,000 employees, excluding joint venture’s and associates’
employees.

2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Re-
porting Standards (“IFRS”).

The consolidated financial statements have been prepared under historical cost convention, except as disclosed in the
accounting policies below. Exceptions include, but are not limited to, property, plant and equipment at the date of
transition to IFRS accounted for at deemed cost, available for sale investments and assets classified as held for sale
measured at the lower of their carrying amount or fair value less costs to sell and post-employment benefits measured
at present value.

In 2007, the Group finalised its purchase price allocation for the acquisition of ownership interest in Strategic Minerals Cor-
poration (Note 4) and adjusted the consolidated financial statements as of December 31, 2006 and for the year then ended. In ad-
dition, adjustments to provisional values have been made in respect of Highveld Steel and Vanadium Corporation (Note 11)
resulting in a change in the amount of investments in associates at December 31, 2006.

Certain reclassifications have been made to the prior years financial statements to conform to the current year presenta-
tion, in particular, the intangible assets have been separately presented on the face of the balance sheet.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

127

Changes in Accounting Policies
The accounting policies applied are consistent with those of the previous financial year except that the Group has adopted
those new/revised standards mandatory for financial years beginning on or after January 1, 2007. The changes in ac-
counting policies result from adoption of the following new or revised standards:

❘❚ IFRS 7 “Financial Instruments: Disclosures”;

❘❚ IAS 1 (amended) “Presentation of Financial Statements”;

❘❚ IFRIC 8 “Scope of IFRS 2”;

❘❚ IFRIC 10 “Interim Financial Reporting and Impairment”.

The Group has also early adopted IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions”.

The principal effects of these changes in policies are discussed below.

IFRS 7 “Financial Instruments: Disclosures”
This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group's
financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are
included in the financial statements (Notes 7 and 28).

IAS 1 “Presentation of Financial Statements”
This amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate the
Group's objectives, policies and processes for managing capital. These new disclosures are shown in Note 28.

IFRIC 8 “Scope of IFRS 2”
This interpretation requires IFRS 2 to be applied to any arrangements in which the entity cannot identify specifically some
or all of the goods received, in particular where equity instruments are issued for consideration which appears to be less
than fair value. As equity instruments are only issued to the grantees in accordance with the Incentive Plans (Note 23), the
interpretation had no impact on the financial position or performance of the Group.

IFRIC 10 “Interim Financial Reporting and Impairment”
This interpretation requires that an entity must not reverse an impairment loss recognised in a previous interim period in
respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. The interpretation
had no impact on the financial position or performance of the Group during 2007.

IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions”
This interpretation requires arrangements whereby an employee is granted rights to an entity's equity instruments to be
accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the sharehold-
ers provide the equity instruments needed.

In 2007, the Group ceased to issue new shares to meet its obligations under the share options plans (Note 23). Instead, the
Group started to acquire its own shares on the open market for this purpose. The Group has elected to adopt IFRIC In-
terpretation 11 as of January 1, 2007.

Annual Report 2007

Evraz Group S. A.

128

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Significant Accounting Policies / Basis of Preparation / Changes in Accounting Policies (Continued)

Standards Issued But Not Yet Effective
The Group has not applied the following standards and IFRIC Interpretations that have been issued but are not yet effective:

❘❚ IFRS 8 “Operating Segments” (effective from January 1, 2009);

❘❚ IAS 23 (revised) “Borrowing Costs” (effective from January 1, 2009);

❘❚ IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” (ef-

fective from January 1, 2008);

❘❚ IFRS 3 (revised) “Business Combinations” (effective from July 1, 2009);

❘❚ IAS 27 (revised) “Consolidated Financial Statements” (effective from July 1, 2009);

❘❚ Amendments to IFRS 2 “Share-based Payments” – Vesting Conditions and Cancellation (effective from January 1, 2009);

❘❚ IAS 1 (revised) “Presentation of Financial Statements” (effective from January 1, 2009);

❘❚ Amendments to IAS 32 “Financial Instruments: Presentation” and IAS 1 (revised) “Presentation of Financial State-

ments”– Puttable instruments and obligations arising on liquidation (effective from January 1, 2009).

The Group expects that the adoption of the pronouncements listed above will not have a significant impact on the Group’s
results of operations and financial position in the period of initial application.

Significant Accounting Judgements and Estimates
Accounting Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those
involving estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements:

❘❚ The Group determined that options to acquire ownership interests in Caplink and Velcast represent potential voting

rights which provide the Group with the power to exercise control over these subsidiaries.

❘❚ The Group determined that the sale of Nerungriugol does not constitute a discontinued operation (Note 12).

❘❚ The Group determined that the purchase of production complex of OOO Nizhnesaldinsky Metallurgical Plant is, in sub-

stance, business combination (Note 4).

❘❚ The Group determined that it obtained an access to the economic benefits associated with potential voting rights in

respect of 54.1% shares of Highveld Steel and Vanadium Corporation on February 26, 2007 (Note 11).

Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi-
nancial year are discussed below.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

129

Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such in-
dication exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an indi-
vidual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or
group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and
the risks specific to the assets. In 2007, 2006 and 2005, the Group recognised an impairment loss of $7 million, $20 mil-
lion and $7 million, respectively (Note 9).

The determination of impairments of property, plant and equipment involves the use of estimates that include, but are not
limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as
changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the
future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other
changes in circumstances that indicate impairment exists. The determination of the recoverable amount of a cash-gener-
ating unit involves the use of estimates by management. Methods used to determine the value in use include discounted
cash flow-based methods, which require the Group to make an estimate of the expected future cash flows from the cash-
generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
These estimates, including the methodologies used, may have a material impact on the fair value and, ultimately, the
amount of any impairment.

Useful Lives of Items of Property, Plant and Equipment
The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end
and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate
in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. These estimates may have a
material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for
the period.

In 2005, the change in estimates of useful lives of property, plant and equipment resulted in an additional depreciation
expense of approximately $33 million. No such changes took place in 2006 and 2007.

Fair Values of Assets and Liabilities Acquired in Business Combinations
The Group is required to recognise separately, at the acquisition date, the identifiable assets, liabilities and contingent li-
abilities acquired or assumed in a business combination at their fair values, which involves estimates. Such estimates are
based on valuation techniques which require considerable judgement in forecasting future cash flows and developing
other assumptions.

Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the
Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suit-
able discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at De-
cember 31, 2007, 2006 and 2005 was $1,271 million, $112 million and $67 million, respectively. More details are
provided in Note 5.

Annual Report 2007

Evraz Group S. A.

130

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Significant Accounting Policies / Significant Accounting Judgements and Estimates / Estimation Uncertainty (Continued)

Mineral Reserves
Mineral reserves are a material factor in the Group’s computation of depreciation, depletion and amortisation charge.
The Group estimates its mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (“JORC Code”). Estimation of reserves in accordance with JORC Code involves
some degree of uncertainty. The uncertainty depends mainly on the amount of reliable geological and engineering data
available at the time of the estimate and the interpretation of this data, which also requires use of subjective judgement
and development of assumptions.

Site Restoration Provisions
The Group reviews site restoration provisions at each balance sheet date and adjusts them to reflect the current best es-
timate in accordance with IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”. The amount
recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the balance
sheet date based on the requirements of the current legislation of the country where the respective operating assets are
located. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in
reaching the best estimate of a provision. Considerable judgement is required in forecasting future site restoration costs.

Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision when
there is sufficient objective evidence that they will occur.

Post-Employment Benefits
The Group uses actuarial valuation method for measurement of the present value of post-employment benefit obligations
and related current service cost. This involves the use of demographic assumptions about the future characteristics of the
current and former employees who are eligible for benefits (mortality, both during and after employment, rates of em-
ployee turnover, disability and early retirement, etc.) as well as financial assumptions (discount rate, future salary and
benefit levels, expected rate of return on plan assets, etc.).

In addition, post-employment benefit obligations were calculated taking into consideration that certain of the Group’s
subsidiaries plan to discontinue to pay lump-sum amounts at retirement date after 2008–2009 (Note 22).

Allowances
The Group makes allowances for doubtful receivables to account for estimated losses resulting from the inability of cus-
tomers to make required payments. When evaluating the adequacy of an allowance for doubtful accounts, manage-
ment bases its estimates on the current overall economic conditions, the ageing of accounts receivable balances,
historical write-off experience, customer creditworthiness and changes in payment terms. Changes in the economy, in-
dustry or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in
the consolidated financial statements. As of December 31, 2007, 2006 and 2005, allowances for doubtful accounts in
respect of trade and other receivables have been made in the amount of $79 million, $59 million and $54 million, re-
spectively (Notes 16 and 17).

The Group makes an allowance for obsolete and slow-moving raw materials and spare parts. As of December 31,
2007, 2006 and 2005, the allowance for the obsolete and slow-moving items was $12 million, $13 million and $21
million, respectively (Note 15). In addition, certain finished goods of the Group are carried at net realisable value. Esti-
mates of net realisable value of finished goods are based on the most reliable evidence available at the time the es-
timates are made. These estimates take into consideration fluctuations of price or cost directly relating to events
occurring subsequent to the balance sheet date to the extent that such events confirm conditions existing at the end
of the period.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

131

Litigations
The Group exercises judgment in measuring and recognising provisions and the exposure to contingent liabilities re-
lated to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or
government regulation, as well as other contingent liabilities. Judgement is necessary in assessing the likelihood that
a pending claim will succeed, or a liability will arise, and to quantify the possible range of the final settlement. Because
of the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated
provision. These estimates are subject to change as new information becomes available, primarily with the support
of internal specialists or with the support of outside consultants. Revisions to the estimates may significantly affect
future operating results.

Current Taxes
Russian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Fur-
ther, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s en-
tities may not coincide with that of management. As a result, tax authorities may challenge transactions and the Group’s
entities may be assessed additional taxes, penalties and interest, which can be significant. In Russia the periods remain
open to review by the tax and customs authorities with respect to tax liabilities for three calendar years preceding the
year of review. Under certain circumstances reviews may cover longer periods. More details are provided in Note 30.

Deferred Income Tax Assets
Deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. The estimation of that
probability includes judgments based on the expected performance. Various factors are considered to assess the proba-
bility of the future utilisation of deferred tax assets, including past operating results, operational plan, expiration of tax losses
carried forward, and tax planning strategies. If actual results differ from that estimates or if these estimates must be ad-
justed in future periods, the financial position, results of operations and cash flows may be negatively affected. In the
event that the assessment of future utilisation of deferred tax assets must be reduced, this reduction will be recognised in
the income statement.

Foreign Currency Transactions
The presentation currency of the Group is the US dollar because the presentation in US dollars is convenient for the major
current and potential users of the consolidated financial statements.

The functional currency of the Group’s subsidiaries located in the Russian Federation is the Russian rouble (the “rouble”).
The functional currency of the subsidiaries located in other countries is the US dollar, euro, Czech koruna and South African
rand. As at the reporting date, the assets and liabilities of the subsidiaries with the functional currency other than the US
dollar, are translated into the presentation currency at the rate of exchange ruling at the balance sheet date, and their in-
come statements are translated at the weighted average exchange rates for the year. The exchange differences arising on
the translation are taken directly to a separate component of equity. On disposal of a subsidiary with the functional cur-
rency other than the US dollar, the deferred cumulative amount recognised in equity relating to that particular subsidiary
is recognised in the income statement.

Transactions in foreign currencies in each subsidiary of the Group are initially recorded in the functional currency at the
rate ruling at the date of the transaction. Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value was determined. Monetary assets and liabilities denominated in
foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. All resulting
differences are taken to the income statement.

Annual Report 2007

Evraz Group S. A.

132

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Significant Accounting Policies / Foreign Currency Transactions (Continued)

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated
at the closing rate.

Basis of Consolidation
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than 50% of the voting rights, or other-
wise has power to exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on
which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercom-
pany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where nec-
essary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Acquisition of Subsidiaries
The purchase method of accounting was used to account for the acquisition of subsidiaries by the Group.

The initial accounting for a business combination involves identifying and determining the fair values to be assigned to the
acquiree’s identifiable assets, liabilities and contingent liabilities and the cost of the combination. If the initial accounting
for a business combination can be determined only provisionally by the end of the period in which the combination is ef-
fected because either the fair values to be assigned to the acquiree’s identifiable assets, liabilities or contingent liabilities
or the cost of the combination can be determined only provisionally, the Group accounts for the combination using those
provisional values. The Group recognises any adjustments to those provisional values as a result of completing the initial
accounting within twelve months of the acquisition date.

Minority interest is that portion of the profit or loss and net assets of subsidiaries attributable to equity interests that are
not owned, directly or indirectly through subsidiaries, by the parent.

Minority interests at the balance sheet date represents the minority shareholders' portion of the pre-acquisition carrying amounts
(for business combinations for which the agreement date was before March 31, 2004) or the fair values (for business combi-
nations for which agreement date was on or after March 31, 2004) of the identifiable assets and liabilities of the subsidiary at
the acquisition date and the minorities' portion of movements in equity since the date of the combination. Minority interests
are presented in the consolidated balance sheet within equity, separately from the parent’s shareholders’ equity.

Losses allocated to minority interest do not exceed the minority interest in the equity of the subsidiary. Any additional losses
are allocated to the Group unless there is a binding obligation of the minority to fund the losses.

For the identifiable assets, liabilities and contingent liabilities initially accounted for at provisional values, the carrying amount
of identifiable asset, liability or contingent liability that is recognised or adjusted as a result of completing the initial account-
ing is calculated as if its fair value or adjusted fair value at the acquisition date had been recognised from that date. Goodwill
or any gain recognised when the acquired interest in net fair values of the identifiable assets, liabilities and contingent liabil-
ities exceeds the cost of their acquisition is adjusted from the acquisition date by an amount equal to adjustment to the fair
value at the acquisition date of the identifiable asset, liability or contingent liability being recognised or adjusted.

Comparative information presented for the periods before the completion of initial accounting for the acquisition is pre-
sented as if the initial accounting had been completed from the acquisition date.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

133

Increases in Ownership Interests in Subsidiaries
The differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the con-
sideration given for such increases is either added to additional paid-in capital, if positive, or charged to accumulated prof-
its, if negative, in the accompanying consolidated financial statements.

Purchases of Controlling Interests in Subsidiaries from Entities under Common Control
Purchases of controlling interests in subsidiaries from entities under common control are accounted for using the pooling
of interests method.

The assets and liabilities of the subsidiary transferred under common control are recorded in these financial state-
ments at the historical cost of the controlling entity (the “Predecessor”). Related goodwill inherent in the Predeces-
sor's original acquisition is also recorded in the financial statements. Any difference between the total book value of
net assets, including the Predecessor's goodwill, and the consideration paid is accounted for in the consolidated fi-
nancial statements as an adjustment to the shareholders' equity.

These financial statements, including corresponding figures, are presented as if a subsidiary had been acquired by the
Group on the date it was originally acquired by the Predecessor.

Put Options Over Minority Interests
The Group derecognises minority interests if minority shareholders have a put option over their holdings. The difference
between the amount of the liability recognised in the balance sheet over the carrying value of the derecognised minority
interests is charged to accumulated profits.

Investments in Associates
Associates are entities in which the Group generally has between 20% and 50% of the voting rights, or is otherwise able
to exercise significant influence, but which it does not control or jointly control.

Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost
including goodwill. Subsequent changes in the carrying value reflect the post acquisition changes in the Group’s share
of net assets of the associate and goodwill impairment charges, if any. The Group’s share of its associates’ profits or
losses is recognised in the income statement and its share of movements in reserves is recognised in equity. How-
ever, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does
not recognise further losses, unless the Group is obligated to make further payments to, or on behalf of, the associ-
ate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's inter-
est in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of
the asset transferred.

Interest in a Joint Venture
The Group’s interest in its joint venture is accounted for under the equity method of accounting whereby an interest in
jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the Group's
share of net assets of the joint venture. The income statement reflects the Group's share of the results of operations of the
joint venture.

Annual Report 2007

Evraz Group S. A.

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Significant Accounting Policies (Continued)

Property, Plant and Equipment
The Group’s property, plant and equipment, except for the items acquired prior to January 1, 2002, are stated at purchase
or construction cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any impairment in
value. Such cost includes the cost of replacing part of plant and equipment when that cost is incurred and recognition cri-
teria are met. The items of property, plant and equipment acquired prior to January 1, 2002 were accounted for at deemed
cost being their fair value at January 1, 2002, which is the date of the Group’s transition to IFRS.

The Group’s property, plant and equipment include mining assets, which consist of mineral reserves, mine development
and construction costs and capitalised site restoration costs. Mineral reserves represent tangible assets acquired in busi-
ness combinations. Mine development and construction costs represent expenditures incurred in developing access to
mineral reserves and preparations for commercial production, including sinking shafts and underground drifts, roads, in-
frastructure, buildings, machinery and equipment.

At each balance sheet date management makes an assessment to determine whether there is any indication of impairment of
property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is the higher
of an asset’s fair value less cost to sell and its value in use. The carrying amount is reduced to the recoverable amount, and the
difference is recognised as an expense (impairment loss) in the income statement. An impairment loss recognised for an asset
in previous years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount.

Land is not depreciated. Depreciation of property, plant and equipment, except for mining assets, is calculated on a straight-
line basis over the estimated useful lives of the assets. The useful lives of items of property, plant and equipment and meth-
ods of their depreciation are reviewed, and adjusted as appropriate, at each fiscal year-end. The table below presents the
useful lives of items of property, plant and equipment.

u
f
e
s
U

s
e
v
i
l

d
e
t
h
g
i
e
W

e
g
a
r
e
v
a

e
f
i
l

u
f
e
s
u

Buildings and constructions

Machinery and equipment

Transport and motor vehicles

Other assets

years

15–60

4–45

7–20

3–15

The Group determines the depreciation charge separately for each significant part of an item of property, plant and equipment.

Depletion of mining assets including capitalised site restoration costs is calculated using the units-of-production method
based upon proved and probable mineral reserves.

Maintenance costs relating to items of property, plant and equipment are expensed as incurred. Major renewals and im-
provements are capitalised, and the replaced assets are derecognised.

The Group has the title to certain non-production and social assets, primarily buildings and facilities of social infrastructure,
which are carried at their recoverable amount of zero. The costs to maintain such assets are expensed as incurred.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

135

Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at in-
ception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item,
are capitalised from the commencement of the lease term at the fair value of the leased property or, if lower, at the pres-
ent value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction
of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges
are charged to interest expense.

The depreciation policy for depreciable leased assets is consistent with that for depreciable assets, which are owned. If there
is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated
over the shorter of the lease term or its useful life.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the
lease term.

Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets
of the acquired subsidiary or associate at the date of acquisition. Goodwill on an acquisition of a subsidiary is in-
cluded in intangible assets. Goodwill on an acquisition of an associate is included in the carrying amount of the in-
vestments in associates. Subsequent to initial recognition, goodwill is measured at cost less any accumulated
impairment losses.

Goodwill is not amortised but is reviewed for impairment annually or more frequently, if events or changes in cir-
cumstances indicate that the carrying amount may be impaired. Impairment is determined by assessing the recov-
erable amount of the cash-generating unit or the group of cash generating units, to which the goodwill relates.
Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is
recognised.

Where goodwill forms part of a cash-generating unit and part of the operations within that unit are disposed of, the good-
will associated with the operation disposed of is included in the carrying amount of the operation when determining the
gain or loss on disposal of the operation.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of
acquisition.

In accordance with the transitional provisions of IFRS 3, on January 1, 2005, the Group ceased to recognise negative good-
will in the consolidated balance sheet. Negative goodwill is recognised in the income statement.

Annual Report 2007

Evraz Group S. A.

136

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Significant Accounting Policies (Continued)

Intangible Assets Other Than Goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in
a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried
at cost less any accumulated amortisation and any accumulated impairment losses. Expenditures on internally generated
intangible assets, excluding capitalised development costs, are expensed as incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for an intangible asset with a finite life are reviewed at least at each year end. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are treated as changes in ac-
counting estimates.

Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually
or at the cash generating unit level.

The table below presents the useful lives of intangible assets.

u
f
e
s
U

s
e
v
i
l

d
e
t
h
g
i
e
W

e
g
a
r
e
v
a

e
f
i
l

u
f
e
s
u

Customer relationships

Trade names and trademarks

Water rights and environmental permits with definite lives

Patented and unpatented technology

Contract terms

Other

years

1–15

5–10

Certain water rights and environmental permits are considered to have indefinite lives as the management believes that
these rights will continue indefinitely.

The most part of the Group’s intangible assets represents customer relationships arising on business combinations (Note 10).

Emission Rights
One of the Group’s subsidiaries participates in the programme for emission reduction established by Kyoto protocol. Emis-
sion rights (allowances) for each compliance period (one year) are issued at the beginning of year, actual emissions are ver-
ified after the end of year.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

137

Allowances, whether issued by government or purchased, are accounted for as intangible assets in accordance with IAS 38
“Intangible Assets”. Allowances that are issued for less than fair value are measured initially at their fair value.

When allowances are issued for less than fair value, the difference between the amount paid and fair value is recognised
as a government grant. Initially the grant is recognised as deferred income in the balance sheet and subsequently recog-
nised as income on a systematic basis over the compliance period for which the allowances were issued, regardless of
whether the allowances are held or sold.

As emissions are made, a liability is recognised for the obligation to deliver allowances equal to emissions that have been
made. This liability is a provision that is within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent As-
sets” and it is measured at the best estimate of the expenditure required to settle the present obligation at the balance sheet
date being the present market price of the number of allowances required to cover emissions made up to the balance
sheet date.

Financial Assets
The Group classified its investments into the following categories: financial assets at fair value through profit or loss; loans
and receivables; held-to-maturity and available-for-sale. When investments are recognised initially, they are measured at
fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.
The Group determines the classification of its investments after initial recognition.

Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are
classified as held for trading and included in the category “financial assets at fair value through profit or loss”. Investments
which are included in this category are subsequently carried at fair value; gains or losses on such investments are recog-
nised in income.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recog-
nised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Non-derivative financial assets with fixed or determinable payments and fixed maturity that the management has the pos-
itive intent and ability to hold to maturity are classified as held-to-maturity. Held-to-maturity investments are carried at
amortised cost using the effective yield method.

Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity
or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless man-
agement has the express intention of holding the investment for less than 12 months from the balance sheet date or
unless they will need to be sold to raise operating capital, in which case they are included in current assets. Manage-
ment determines the appropriate classification of its investments at the time of the purchase and re-evaluates such
designation on a regular basis. After initial recognition available-for-sale investments are measured at fair value with
gains or losses being recognised as a separate component of equity until the investment is derecognised or until the in-
vestment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is in-
cluded in the income statement. Reversals of impairment losses in respect of equity instruments are not recognised in
the income statement. Impairment losses in respect of debt instruments are reversed through profit or loss if the increase
in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised
in the income statement.

Annual Report 2007

Evraz Group S. A.

138

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Significant Accounting Policies / Financial Assets (Continued)

For investments that are actively traded in organised financial markets, fair value is determined by reference to stock ex-
change quoted market bid prices at the close of business on the balance sheet date. For investments where there is no ac-
tive market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market
transactions, reference to the current market value of another instrument, which is substantially the same, discounted
cash flow analysis or other valuation models.

All purchases and sales of financial assets under contracts to purchase or sell financial assets that require delivery of the
asset within the time frame generally established by regulation or convention in the market place are recognised on the
settlement date i.e. the date the asset is delivered by/to the counterparty.

Inventories
Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the weighted av-
erage basis and includes expenditure incurred in acquiring inventories and bringing them to their existing location and con-
dition. The cost of finished goods and work in progress includes an appropriate share of production overheads based on
normal operating capacity, but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and
estimated costs necessary to make the sale.

Accounts Receivable
Accounts receivable, which generally are short term, are recognised and carried at the original invoice amount less an al-
lowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no
longer probable. Bad debts are written off when identified.

The Group establishes an allowance for impairment of accounts receivable that represents its estimate of incurred losses.
The main components of this allowance are a specific loss component that relates to individually significant exposures, and
a collective loss component established for groups of similar receivables in respect of losses that have been incurred but
not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar fi-
nancial assets.

Value Added Tax
The tax authorities permit the settlement of sales and purchases value added tax (“VAT”) on a net basis.

Prior to 2006, most of the Group subsidiaries located in Russia followed cash method for the recognition of VAT payable.
Under the cash method, VAT was payable to tax authorities upon collection of receivables from customers. VAT on pur-
chases, which have been settled at the balance sheet date, was deducted from the amount payable. In addition, VAT re-
lated to sales which had not been settled at the balance sheet date (VAT deferred) was also included in VAT payable.

Starting from 2006, all the Group’s subsidiaries located in Russia apply accrual method for VAT recognition, under which
VAT becomes payable upon invoicing and delivery of goods or rendering services as well upon receipt of prepayments from
customers. VAT on purchases, even not settled at the balance sheet date, is deducted from the amount of VAT payable.

Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the
debtor, including VAT.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

139

Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three
months or less.

Borrowings
Borrowings are initially recognised at the fair value of consideration received, net of directly attributable transaction costs.
After initial recognition borrowings are measured at amortised cost using the effective interest rate method; any difference
between the amount initially recognised and the redemption amount is recognised as interest expense over the period of
the borrowings. Borrowing costs are expensed as incurred.

Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Group are those contracts that require a payment to be made to reimburse the
holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt
instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that
are directly attributable to the issue of the guarantee. Subsequently, the liability is measured at the higher of the best estimate
of the expenditure required to settle the present obligation at the balance sheet date and the amount initially recognised.

Equity
Share Capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a de-
duction in equity from the proceeds. Any excess of the fair value of consideration received over the par value of shares is-
sued is recognised as additional paid-in capital.

Treasury Shares
Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is
recognised in income statement on the purchase, sale, issue or cancellation of the treasury shares.

Dividends
Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared before
or on the balance sheet date. Dividends are disclosed when they are proposed before the balance sheet date or proposed
or declared after the balance sheet date but before the financial statements are authorised for issue.

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, for ex-
ample under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimburse-
ment is virtually certain.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks spe-
cific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as an
interest expense.

Provisions for site restoration costs are capitalised in mining assets within property, plant and equipment.

Annual Report 2007

Evraz Group S. A.

140

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Significant Accounting Policies (Continued)

Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian Federation state pension, social insurance, medical insur-
ance and unemployment funds at the statutory rates in force (approximately 24%), based on gross salary payments. The
Group has no legal or constructive obligation to pay further contributions in respect of those benefits. Its only obligation
is to pay contributions as they fall due. These contributions are expensed as incurred.

Post-Employment Benefits
The Group companies provide pensions and other benefits to their employees. The entitlement to these benefits is
usually conditional on the completion of a minimum service period. Certain benefit plans require the employee to
remain in service up to retirement age. Other employee benefits consist of various compensations and non-mone-
tary benefits. The amount of the benefits is stipulated in the collective bargaining agreements and/or in the plan doc-
uments.

The liability recognised in the balance sheet in respect of post-employment benefits is the present value of the de-
fined benefit obligation at the balance sheet date less the fair value of the plan assets, together with adjustments
for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annu-
ally using the projected unit credit method. The present value of the benefits is determined by discounting the es-
timated future cash outflows using interest rates of high-quality government bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the re-
lated obligations.

Actuarial gains and losses are recognised as income or expense when the cumulative unrecognised actuarial gains or
losses for each individual plan exceed 10% of the higher of defined benefit obligation and the fair value of plan assets.
The excess of cumulative actuarial gains or losses over the 10% of the higher of defined benefit obligation and the fair
value of plan assets are recognised over the expected average remaining working lives of the employees participating in
the plan.

The past service cost is recognised as an expense on a straight line basis over the average period until the benefits be-
come vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan,
past service cost is recognised immediately. The defined benefit asset or liability comprises the present value of the defined
benefit obligation less past service cost not yet recognised and less the fair value of plan assets out of which the obliga-
tions are to be settled directly.

The Group includes expected return on plan assets in interest expense caption of the consolidated income statement.

Other Costs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other serv-
ices. These amounts principally represent an implicit cost of employment and, accordingly, have been charged to cost of
sales.

Share-based Payments
In 2005 and 2006, the Group adopted share option plans, under which certain directors, senior executives and employ-
ees of the Group receive remuneration in the form of share-based payment transactions, whereby they render services as
consideration for equity instruments (‘equity-settled transactions’).

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

141

The cost of equity-settled transactions with non-executive directors and employees is measured by reference to the fair
value of options at the date on which they are granted. The fair value is determined using the Black-Scholes-Merton model,
further details of which are given in Note 23. In valuing equity-settled transactions, no account is taken of any conditions,
other than market conditions.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (additional paid-
in capital), over the period in which service conditions are fulfilled, ending on the date on which the relevant persons
become fully entitled to the award (‘the vesting date’). The cumulative expense recognised for equity-settled transac-
tions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the
Group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge or
credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that pe-
riod.

No expense is recognised for awards that do not ultimately vest. Once a share-settled transaction has vested no further
accounting entries are made to reverse the cost already charged, even if the instruments that are the subject of the trans-
action are subsequently forfeited or, in the case of options, are not exercised. In this case, the Group makes a transfer be-
tween different components of equity.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had
not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of
the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modifi-
cation.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated
as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share
(Note 19).

Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured.

When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the
fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When
the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of
the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred. The following specific
recognition criteria must also be met before revenue is recognised:

Sale of Goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the
amount of revenue can be measured reliably. The moment of transfer of the risks and rewards of ownership is determined
by the contract terms.

Annual Report 2007

Evraz Group S. A.

142

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Significant Accounting Policies / Revenue (Continued)

Rendering of Services
The Group’s revenues from rendering of services include electricity, transportation, port and other services. Revenue is
recognised when services are rendered.

Interest
Interest is recognised using the effective interest method.

Dividends
Revenue is recognised when the shareholders’ right to receive the payment is established.

Rental Income
Rental income is accounted for on a straight-line basis over the lease term on ongoing leases.

Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be re-
covered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted by the balance sheet date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Deferred Income Tax
Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred
income taxes are provided for all temporary differences arising between the tax basis of assets and liabilities and their car-
rying values for financial reporting purposes, except where the deferred income tax arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss.

A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are ex-
pected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted
or substantively enacted at the balance sheet date.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ven-
tures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the tem-
porary difference will not reverse in the foreseeable future.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

3. SEGMENT INFORMATION
The Group’s primary reporting format is business segments and its secondary format is geographical segments. The Group’s
major business segments are steel production and mining. Steel production segment includes production of steel and re-
lated products at six steel mills. Mining segment includes ore and coal mining and enrichment.

In 2005–2007, inter-segment operations were made at prevailing market prices at the dates of transactions.

The following tables present revenue and profit information and certain asset and liability information regarding business
segments for the years ended December 31, 2007, 2006, and 2005:

Year ended
December 31, 2007

n
o
i
t
c
u
d
o
r
p

l
e
e
t
S

g
n
n
M

s
n
o
i
t
a
n
m

i
l
E

s
n
o
i
t
a
r
e
p
o

r
e
h
t
O

$161

677

838

$12,278

155

12,433

$369

1,532

1,901

$ –

$12,808

(2,364)

–

12,808

$3,069

$458

$30

$3,559

US$ million

Revenue

Sales to external customers

Inter-segment sales

Total revenue

Result

Segment result

Unallocated expenses

Profit from operations

Share of profits/(losses) of joint ventures and associates

–

Other income/(expenses), net

Income tax expense

Net profit

Assets and liabilities
Segment assets

Investments in joint ventures and associates

Unallocated assets

Total assets

Segment liabilities

Unallocated liabilities

Total liabilities

Other segment information

Additions to property, plant and equipment
and intangible assets

Property, plant and equipment and intangible assets
acquired in business combinations

Depreciation, depletion and amortisation

Impairment of assets

$9,832

$3,655

783

$708

–

$3,540

$1,172

$214

$464

2,263

(501)

(4)

$197

2,272

(169)

(2)

$132

305

(37)

(1)

143

l
a
t
o
T

(36)

$3,523

(410)

(984)

$2,217

$14,195

787

1,398

$16,380

$4,926

5,097

$10,023

$793

4,840

(707)

(7)

Annual Report 2007

Evraz Group S. A.

144

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Segment Information (Continued)

Year ended
December 31, 2006

n
o
i
t
c
u
d
o
r
p

l
e
e
t
S

g
n
n
M

s
n
o
i
t
a
r
e
p
o

r
e
h
t
O

$86

518

604

s
n
o
i
t
a
n
m

i
l
E

l
a
t
o
T

$ –

(1,620)

$8,292

–

8,292

$8,085

8,161

$121

1,026

1,147

$1,962

$351

$26

$(42)

$2,297

US$ million

Revenue

Sales to external customers

Inter-segment sales

Total revenue

Result

Segment result

Unallocated expenses

Profit from operations

Share of profits/(losses) of joint ventures and associates

–

Other income/(expenses), net

Income tax expense

Net profit

Assets and liabilities
Segment assets

Investments in joint ventures and associates

Unallocated assets

Total assets

Segment liabilities

Unallocated liabilities

Total liabilities

Other segment information

Additions to property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets acquired
in business combinations

Depreciation, depletion and amortisation

Impairment of assets

$4,853

233

$1,043

1,261

$273

–

$1,633

$183

$125

$509

107

(228)

(19)

$133

(63)

(1)

$34

(16)

–

$2,298

(251)

(637)

$1,450

$6,169

1,494

847

$8,510

$1,941

2,334

$4,275

$676

150

(307)

(20)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Year ended
December 31, 2005

US$ million

Revenue

Sales to external customers

Inter-segment sales

Total revenue

Result

Segment result

Unallocated expenses

Profit from operations

145

l
a
t
o
T

s
n
o
i
t
a
n
m

i
l
E

$ –

(1,347)

$6,508

–

6,508

n
o
i
t
c
u
d
o
r
p

l
e
e
t
S

$6,133

6,221

g
n
n
M

$147

842

989

s
n
o
i
t
a
r
e
p
o

r
e
h
t
O

$228

417

645

$1,308

$259

$34

$ –

$1,601

Share of profits/(losses) of joint ventures and associates

–

Other income/(expenses), net

Income tax expense

Net profit

Assets and liabilities
Segment assets

Investments in joint ventures and associates

Unallocated assets

Total assets

Segment liabilities

Unallocated liabilities

Total liabilities

Other segment information

Additions to property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets acquired
in business combinations

Depreciation, depletion and amortisation

Impairment of assets

$4,270

$949

904

$204

–

$1,518

$181

$128

$611

319

(191)

–

$125

(54)

(1)

$37

–

(13)

–

(19)

$1,582

(111)

(475)

$1,053

$5,423

906

425

$6,754

$1,827

2,040

$3,867

$773

329

(258)

(1)

Annual Report 2007

Evraz Group S. A.

146

US$ million

Russia

Ukraine

South Africa

USA

Czech Republic

Canada

Other

US$ million

Russia

USA

Iran

Korea

Kazakhstan

Taiwan

Italy

South Africa

Czech Republic

Germany

Poland

Thailand

Austria

Philippines

Ukraine

Great Britain

Canada

Turkey

Vietnam

Indonesia

China

Other countries

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Segment Information (Continued)

The additions to the property, plant and equipment and intangible assets based on the location of the Group’s subsidiaries
for the years ended December 31 were as follows:

7
0
0
2

6
0
0
2

5
0
0
2

$603

$629

$746

–

$793

$676

–

$773

Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended De-
cember 31 was as follows:

7
0
0
2

6
0
0
2

5
0
0
2

$5,952

1,964

461

400

379

373

361

319

277

263

179

175

173

144

143

119

720

$12,808

$4,217

$3,905

289

292

149

259

572

379

263

184

465

194

188

412

203

166

522

113

–

477

198

–

211

176

184

$8,292

$6,508

Evraz Group S. A.

Annual Report 2007

MAKING THE WO RLD ST RO NGER

147

Carrying amounts of the Group’s assets by geographical area in which the assets are located at December 31 were as fol-
lows:

US$ million

Russia

USA

South Africa

Luxembourg

Czech Republic

Switzerland

Italy

Cyprus

Ukraine

Malta

Gibraltar

Belgium

Panama

7
0
0
2

$8,791

3,125

1,556

1,099

574

475

414

212

6
0
0
2

5
0
0
2

$5,674

$4,997

159

332

720

451

368

252

–

445

–

310

444

334

–

488

$16,380

$8,510

$6,754

4. BUSINESS COMBINATIONS
Palini & Bertoli S.p.A.
On August 11, 2005, the Group acquired a 75% plus one share ownership interest in Clama S.r.l. (“Clama”). Clama owned
100% of the share capital of Palini & Bertoli S.p.A. (“Palini”), an Italian rolling mill. Cash consideration for both companies
amounted to $112 million, including transaction costs of $3 million.

At the same date, the Group and Clama’s minority shareholders entered into a put and call option agreement under which
Clama’s minority shareholders have a put option and the Group has a corresponding call option, exercisable in the period from
2007 to 2010, in respect of 25% less one share ownership interest in Clama. The exercise price of the option is dependent
upon Clama’s future consolidated earnings. As a result, the Group effectively acquired a 100% ownership interest in Clama
with deferred consideration of $69 million which is equal to the fair value of a financial liability payable under the put option.

The financial position and the results of operations of both Clama and Palini were included in the Group’s consolidated fi-
nancial statements beginning August 11, 2005. At December 31, 2005, the acquisition of Palini was accounted for based
on provisional values as at the date of authorisation of issue of financial statements for the year ended December 31, 2005
the subsidiary has not completed valuation of assets in accordance with IFRS 3. In 2006, the Group finalised its purchase
price allocation on the acquisition of Palini. As a result, the Group recognised adjustments to the provisional values of
identifiable assets, liabilities and contingent liabilities as at August 11, 2005 and recognised a financial liability payable
under the put option in the amount of $69 million. Identifiable assets, liabilities and contingent liabilities of the acquiree
and the resulting goodwill which as follows:

Annual Report 2007

Evraz Group S. A.

148

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. BUSINESS COMBINATIONS / Palini & Bertoli S.p.A. (Continued)

US$ million

Property, plant and equipment

Deferred tax asset

Inventories

Accounts and notes receivable

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Net assets

Fair value of net assets attributable to 75% plus one share ownership interest

Fair value of net assets attributable to 100% ownership interest

Purchase consideration

Goodwill as of August 11, 2005

Translation difference

Goodwill as of December 31, 2005

The 2005 comparative information has been restated to reflect these adjustments.

In 2005, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

r
i
a
f

f
o

s
e
u
l
a
v

n
o
i
t
a
m

i
t
s
e

l
a
n
i
F

r
i
a
f

f
o

s
e
u
l
a
v

$47

167

121

131

$36

$27

$119

$92

(7)

$85

$166

–

282

121

172

$110

$181

$71

(4)

$67

$ –

(113)

$(113)

In 2006, the Group paid $2 million of the purchase consideration outstanding at December 31, 2005. The difference be-
tween the cash portion of the purchase consideration ($112 million) and amounts paid on acquisition ($115 million) rep-
resents translation difference.

Clama’s consolidated net profit for the period from August 11, 2005 to December 31, 2005 amounted to $7 million.

The goodwill of €57 million comprises the fair value of expected synergies arising from the acquisition.

In October 2007, the Group exercised its call option in respect of 25% less one share ownership interest in Palini for €76
million ($107 million at the exchange rate as of the date of the transaction). The change in the fair value of the liability
to minority shareholders amounting to $21 million was recorded as a loss within gain/(loss) on financial assets and liabil-
ities caption of the consolidated income statement for the year ended December 31, 2007.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Vitkovice Steel
On November 14, 2005, the Group acquired a 98.96% ownership interest in Vitkovice Steel (“Vitkovice”), a rolling mill,
located in the Czech Republic, for cash consideration of $298 million, including transaction costs of $15 million. As a re-
sult, the financial position and the results of operations of Vitkovice were included in the Group’s consolidated financial
statements beginning November 14, 2005.

At December 31, 2005, the acquisition of Vitkovice was accounted for based on provisional values. In 2006, the Group
finalised its purchase price allocation on the acquisition of Vitkovice, but no adjustments were required to the amounts
initially recognised.

The identifiable assets, liabilities and contingent liabilities as at November 14, 2005 were as follows:

US$ million

Property, plant and equipment

Deferred tax asset

Other non-current assets

Inventories

Accounts and notes receivable

Other current assets

Cash

Total assets

Non-current liabilities

Current liabilities

Total liabilities

Net assets

Fair value of net assets attributable to 98.96% ownership interest

Purchase consideration

Excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition recognised in the income statement

In 2005, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

149

,
4
1

r
e
b
m
e
v
o
N

5
0
0
2

$130

110

456

145

146

$310

$307

$298

$(9)

$89

(289)

$(200)

In 2006, the Group paid $9 million of the purchase consideration outstanding at December 31, 2005.

Vitkovice’s consolidated net loss for the period from November 14, 2005 to December 31, 2005 amounted to $4 million.

Annual Report 2007

Evraz Group S. A.

150

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. Business Combinations / Vitkovice Steel (Continued)

In 2006, the Group acquired the remaining minority interests in Vitkovice (1.04%) for cash consideration of $3 million.
The excess of the amount of the carrying value of minority interest over consideration amounting to $1 million was included
in additional paid-in capital.

Strategic Minerals Corporation
On August 23, 2006, the Group acquired 72.84% of ordinary shares of Strategic Minerals Corporation (“Stratcor”), in-
cluding 69.00% of voting shares, for purchase consideration of $125 million, including transaction costs of $6 million and
fair value of contingent consideration amounting to $21 million. Stratcor, headquartered in Danbury, Connecticut, USA,
is one of the world's leading producers of vanadium alloys and chemicals for steel and chemical industries. Stratcor has two
wholly-owned subsidiaries – Stratcor, Inc. with a mill in Hot Springs, Arkansas, USA, and Vametco Minerals Corporation
with a mine and a mill in Brits, South Africa.

As a result, the financial position and the results of operations of Stratcor were included in the Group’s consolidated fi-
nancial statements beginning August 23, 2006.

At December 31, 2006, the acquisition of Stratcor was accounted for based on provisional values as at the date of au-
thorisation of issue of the financial statements for the year ended December 31, 2006 the subsidiary has not completed
valuation of assets in accordance with IFRS 3 “Business Combinations”

In 2007, the Group finalised its purchase price allocation on the acquisition of Stratcor. As a result, the Group recognised
adjustments to the provisional values of identifiable assets, liabilities and contingent liabilities as at August 23, 2006.
Identifiable assets, liabilities and contingent liabilities of the acquiree and the resulting goodwill were as follows:

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

r
i
a
f

f
o

s
e
u
l
a
v

n
o
i
t
a
m

i
t
s
e

l
a
n
i
F

r
i
a
f

f
o

s
e
u
l
a
v

US$ million

Property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

Fair value of net assets attributable to 72.84% ownership interest

Purchase consideration

Goodwill

$123

–

247

113

–

$81

238

107

$134

$123

$97

$125

$28

$89

$125

$36

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

In 2006, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

151

$39

(102)

$(63)

In 2007, the Group repaid the outstanding liability for the purchase of Stratcor.

For the period from August 23, 2006 to December 31, 2006 Stratcor incurred net loss amounting to $5 million.

Under the share purchase agreement, the Group will pay earn out and synergy payments during the period from 2007 to
2019. The payments depend on the deviation of the average prices for vanadium pentoxide from certain levels and the
amounts payable for each year are limited to maximum amounts. Liabilities under earn out and synergy payments were
considered as contingent consideration and recognised at fair value which was determined based on expected amounts
to be paid, their timing and applicable discount rate.

In 2007, the change in the fair value of the contingent consideration amounting to $11 million was recorded as an ad-
justment to goodwill recognised on acquisition (Note5).

Under the Black Economic Empowerment Programme, realised by the South-African government in accordance with the
Mineral and Petroleum Resources Development Act and the Broad-Based Socio Economic Empowerment Charter for the
South African Mining Industry, the Group has a commitment to sell an 11% ownership interest in the South-African sub-
sidiary of Stratcor to historically disadvantaged communities not later than April 2014.

Oregon Steel Mills
On January 12, 2007, the Group acquired approximately 90.65% of the outstanding shares of Oregon Steel Mills, Inc.
(“OSM”) through a tender offer. OSM, located in the United States and Canada, produces plates, pipes, rails and other
long steel products.

In accordance with the US legislation, following the acquisition of the controlling interest in OSM, all the untendered
shares were converted into the right to receive $63.25 in cash which is the same price per share paid during the tender
offer. As a result, the Group effectively acquired a 100% ownership interest in OSM. On January 23, 2007, OSM was
merged with the Group’s wholly owned subsidiary and the merged entity was named as Evraz Oregon Steel Mills, Inc.

Total cash consideration for the acquisition of a 100% ownership interest in OSM amounted to $2,276 million, including
transaction costs of $10 million.

As a result, the financial position and the results of operations of OSM were included in the Group’s consolidated finan-
cial statements beginning January 12, 2007.

In the interim consolidated financial statements for the six-month period ended June 30, 2007, the acquisition of OSM
was accounted for based on provisional values. In 2007, the Group finalised its purchase price allocation on the acquisi-
tion of OSM, but no adjustments were required to the amounts initially recognised.

Annual Report 2007

Evraz Group S. A.

152

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. Business Combinations / Oregon Steel Mills (Continued)

The table below sets forth the fair values of OSM’s consolidated identifiable assets, liabilities and contingent liabilities at
the date of acquisition:

US$ million

Property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash

Total assets

Deferred income tax liabilities

Non-current liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

Purchase consideration

Goodwill

In 2007, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

,
2
1

y
r
a
u
n
a
J

7
0
0
2

$1,038

373

442

131

1,989

359

155

235

749

$1,194

$2,276

$1,082

(2,269)

$(2,267)

Certain transaction costs amounting to $4 million were paid in 2006. In 2008, the Group paid $3 million of the transac-
tion costs outstanding at December 31, 2007.

For the period from January 12, 2007 to December 31, 2007, OSM reported net profit amounting to $49 million.

Annual Report 2007
Annual Report 2007

Evraz Group S. A.
Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

153

Highveld Steel and Vanadium Corporation
On July 13, 2006, the Group acquired a 24.9% ownership interest in Highveld Steel and Vanadium Corporation Lim-
ited (“Highveld”), one of the largest steel producers in South Africa and a leading producer of vanadium products.
Cash consideration amounted to $216 million, including $10 million of transaction costs. In addition, the Group en-
tered into option agreements with Anglo South Africa Capital (Proprietary) Limited (“Anglo”) and Credit Suisse In-
ternational (“Credit Suisse”), the major shareholders of Highveld, to increase this stake to 79% within the next 24
months should such a decision be made by the Board of directors of Evraz Group S.A. and subject to receipt of all nec-
essary regulatory approvals.

On February 20, 2007, the European Commission approved the proposed acquisition of the controlling interest in High-
veld, subject to certain conditions, and the directors resolved to proceed with the purchase transaction at the meeting held
on February 26, 2007.

These conditions included divestment commitments in respect of certain business of Highveld (Note 12) and a commitment
to maintain and strengthen the existing feedstock supply relationships with Vanadium-Tula, Chussovskoy Metallurgical
Plant, both located in Russia, and Treibacher (Austria) – the major consumers of the feedstock sold by the Group and
Highveld.

On April 26, 2007, the Group obtained the regulatory approvals of the South African competition authorities and the
share options became exercisable. As a result, the financial position and results of operations of Highveld were included
in the Group’s consolidated financial statements beginning April 26, 2007 as the Group effectively exercised control over
Highveld’s operations since that date. In the period from July 13, 2006 to April 26, 2007, the Group accounted for its in-
vestment in Highveld under the equity method (Note 11).

In the interim consolidated financial statements for the six-month period ended June 30, 2007 the acquisition of Highveld
was accounted for based on provisional values as the Group, as of that date, has not completed purchase price allocation
in accordance with IFRS 3 “Business Combinations”.

The acquisition of a controlling interest in Highveld was accounted for based on provisional values as the Group, as
of the date of authorisation of issue of these financial statements, has not completed purchase price allocation in ac-
cordance with IFRS 3 “Business Combinations”. The Group made certain adjustments to the provisional fair values of
Highveld’s consolidated identifiable assets, liabilities and contingent liabilities at April 26, 2007 as compared with
those values recorded in the Group’s interim consolidated financial statements for the six-month period ended
June 30, 2007.

Annual Report 2007

Evraz Group S. A.

154

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. Business Combinations / Highveld Steel and Vanadium Corporation (Continued)

y
l
e
t
a
i
d
e
m
m

e
h
t

e
r
o
f
e
b

s
s
e
n
i
s
u
b

n
o
i
t
a
n
b
m
o
c

g
n
i
y
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r
a
C

s
t
n
u
o
m
a

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

r
i
a
f

f
o

s
e
u
l
a
v

l
a
n
o
i
s
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o
r
p

s
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u
l
a
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r
i
a
f

d
e
t
s
u
d
A

US$ million

Property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash and cash equivalents

Assets of disposal groups classified as held for sale (Note 12)

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Liabilities directly associated with disposal groups classified as held for sale (Note 12)

Total liabilities

Net assets

$207

–

161

170

685

316

418

$382

339

147

536

$431

419

168

338

1,550

1,514

183

325

594

191

329

618

$267

$956

$896

On April 26, 2007, the Group recognised revaluation surplus amounting to $34 million in respect of the change in fair val-
ues of identifiable assets, liabilities and contingent liabilities of Highveld allocated to the previously acquired stakes.

In 2007, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

$75

(254)

$(179)

For the period from April 26, 2007 to December 31, 2007, Highveld reported net profit amounting to $105 million.

The acquisition of Highveld was achieved in stages. Cost of the business combination at each stage, the provisional val-
ues of Highveld’s identifiable consolidated assets, liabilities and contingent liabilities and goodwill are summarised in the
table below:

Annual Report 2007

Evraz Group S. A.

155

l
a
t
o
T

79%

658

–

MAKING THE WO RLD ST RO NGER

)
1
1
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t
o
N

(

,
3
1

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6
0
0
2

,
6
2
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F

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1
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o
N

(

7
0
0
2

)
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i
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p
(

,
6
2

l
i
r
p
A

7
0
0
2

US$ million

Ownership interest acquired

Cost of business combination

Fair values of Highveld’s identifiable consolidated assets,
liabilities and contingent liabilities

Goodwill/(excess of interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition)

24.9%

216

731

54.1%

442

834

(9)

–

896

–

Goodwill includes $16 million associated with the disposal group which, subsequent to July 13, 2006, was classified as held
for sale (Note 12).

On May 4, 2007, the Group exercised its option and acquired a 29.2% ownership interest in Highveld for cash consider-
ation of $238 million from Anglo. In addition, the Group incurred transaction costs amounting to $2 million.

In accordance with the South African legislation, an acquirer, which purchases 35% of the acquiree’s share capital, is
obliged to offer to minority shareholders to sell their holdings.

Following this requirement, on June 4, 2007, the Group made an offer to acquire the entire share capital of Highveld,
other than those shares already held by the Group, at a price of $11.40 per share.

The Group derecognised minority interests in the amount of $189 million representing 21% ownership interest in Highveld,
and accrued a liability to minority shareholders in the amount of $237 million. The liability was measured at a price of
$11.40 per share. The excess of the amount of the liability over the carrying value of the derecognised minority interests
amounting to $48 million was charged to accumulated profits.

On July 16, 2007, the Group increased the offer price from the South African rands equivalent of $11.40 per share to 93
South African rands ($13.03 at the exchange rate as of June 4, 2007).

Upon the increase of the offer price, the Group remeasured the liability to minority shareholders and recorded the in-
crease amounting to $34 million as a loss in gain/(loss) on financial assets and liabilities caption of the consolidated in-
come statement for the year ended December 31, 2007.

As a result of this offer, the Group acquired 1,880,750 shares of Highveld (1.91% of the share capital) for 175 million South
African rands ($25 million at the exchange rates as of the dates of the transactions). On August 6, 2007, upon the clos-
ing of the offer, the Group recognised minority interests in respect of the shares retained by minority shareholders. The
difference between the carrying value of minority interests recognised and the liability to minority shareholders, which was
derecognised at that date, amounting to $73 million was credited to accumulated profits.

Annual Report 2007

Evraz Group S. A.

156

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. Business Combinations / Highveld Steel and Vanadium Corporation (Continued)

On September 28, 2007, the Credit Suisse option for the acquisition of 24.9% ownership interest in Highveld was exer-
cised by the Group for $219 million, comprising $207 million offset with the restricted deposit (Note 14) and a cash consid-
eration of $12 million. As the liability under this put option was initially measured at $202 million, the Group recorded the
increase amounting to $17 million as a loss in gain/(loss) on financial assets and liabilities caption of the consolidated in-
come statement for the year ended December 31, 2007.

At December 31, 2007, the Group is the owner of 80,223,738 Highveld’s shares (80.91% of the Highveld’s share capital).

West Siberian Heat and Power Plant
On May 3, 2007, the Group acquired a 93.35% ownership interest in OAO West Siberian Heat and Power Plant
(“ZapsibTETs”), an energy generating company located in Novokuznetsk, the Russian Federation, for cash consideration
of 5,945 million roubles ($231 million at the exchange rate as of the date of the transaction). In addition, the Group in-
curred transaction costs of $1 million.

As a result, the financial position and the results of operations of ZapsibTETs were included in the Group’s consolidated
financial statements beginning May 3, 2007.

In the interim consolidated financial statements for the six-month period ended June 30, 2007 the acquisition of ZapsibTETs
was accounted for based on provisional values as the Group, as of that date, has not completed purchase price allocation
in accordance with IFRS 3 “Business Combinations”. In 2007, the Group finalised its purchase price allocation on the ac-
quisition of the controlling interest in ZapsibTETs and recognised adjustments to the provisional values of identifiable as-
sets, liabilities and contingent liabilities as at May 3, 2007, which were as follows:

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
n
i
F

US$ million

Property, plant and equipment

Other non-current assets

Inventories

Accounts and notes receivable

Cash

Total assets

Deferred income tax liabilities

Non-current liabilities

Current liabilities

Total liabilities

Net assets

Fair value of net assets attributable to 93.35% ownership interest

Purchase consideration

Goodwill

Excess of interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition

$189

$306

208

–

325

$171

$258

$159

$232

$73

$ –

$242

$232

$ –

$(10)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

In 2007, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

157

$13

(228)

$(215)

The difference between the cash portion of the purchase consideration ($232 million) and amounts paid on acquisition
($228 million) represents translation difference.

For the period from May 3, 2007 to December 31, 2007, ZapsibTETs reported net loss amounting to $9 million.

In accordance with the Russian legislation, an acquirer, which purchases at least 30% of the acquiree’s share capital,
is obliged to offer to other shareholders to sell their holdings (“obligatory offer”). Following this requirement, on
June 4, 2007, the Group made an offer to minority shareholders of ZapsibTETs to sell their stakes to the Group at a
price of 10.59 roubles per share ($0.41 at the exchange rate as of June 4, 2007). The total purchase consideration
for the ownership interests that could be acquired amounts to 427 million Russian roubles ($17 million at the ex-
change rate as of June 4, 2007). The Group derecognised all minority interests in ZapsibTETs amounting to $16 mil-
lion and accrued a liability to the minority shareholders in the amount of $17 million. The excess of the amount of the
liability over the carrying value of the derecognised minority interests amounting to $1 million was charged to accu-
mulated profits.

During the offer the Group acquired 4.44% shares of ZapsibTETs and became subject to the provisions of the Russian leg-
islation allowing a shareholder owning more than 95% of a company to increase its stake to 100%. On November 12, 2007,
the Group started the buy out of minority shares and completed the transaction in January 2008.

ZAO Yuzhkuzbassugol
On June 8, 2007, the Group acquired an additional 50% ownership interest in ZAO Yuzhkuzbassugol (“Yuzhkuzbassugol”),
the Group’s associate, for cash consideration of $871 million, including transaction costs of $9 million, increasing the
Group’s ownership interest in Yuzhkuzbassugol to 100%.

As a result, the financial position and results of operations of Yuzhkuzbassugol were included in the Group’s consolidated
financial statements beginning June 8, 2007 as the Group effectively exercised control over Yuzhkuzbassugol’s opera-
tions since that date. In the period from January 1, 2007 to June 8, 2007, the Group accounted for its investment in
Yuzhkuzbassugol under the equity method (Note 11).

The acquisition of a controlling interest in Yuzhkuzbassugol was accounted for based on provisional values as the
Group, as of the date of authorisation of issue of these financial statements, has not completed purchase price alloca-
tion in accordance with IFRS 3 “Business Combinations”. The Group made certain adjustments to the provisional fair
values of Yuzhkuzbassugol’s consolidated identifiable assets, liabilities and contingent liabilities at June 8, 2007 as
compared with those values recorded in the Group’s interim consolidated financial statements for the six-month period
ended June 30, 2007.

Annual Report 2007

Evraz Group S. A.

158

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

4. Business Combinations / ZAO Yuzhkuzbassugol (Continued)

The table below sets forth the provisional fair values of Yuzhkuzbassugol’s consolidated identifiable assets, liabilities and
contingent liabilities at June 8, 2007:

y
l
e
t
a
i
d
e
m
m

e
h
t

e
r
o
f
e
b

s
s
e
n
i
s
u
b

n
o
i
t
a
n
b
m
o
c

g
n
i
y
r
r
a
C

s
t
n
u
o
m
a

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

r
i
a
f

f
o

s
e
u
l
a
v

l
a
n
o
i
s
i
v
o
r
p

s
e
u
l
a
v

r
i
a
f

d
e
t
s
u
d
A

US$ million

Mineral reserves

Other property, plant and equipment

Investments in associates (Note 11)

Other non-current assets

Inventories

Accounts and notes receivable

Cash

Total assets

Deferred income tax liabilities

Non-current liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

Fair value of net assets attributable to 50% ownership interest

Purchase consideration

$ 1,170

$ 1,578

$1,403

663

154

2,181

298

180

321

799

663

211

856

204

115

2,651

2,678

394

145

361

900

402

192

327

921

$1,373

$1,742

$871

On June 8, 2007, the Group recognised revaluation surplus amounting to $199 million in respect of the change in fair values
of identifiable assets, liabilities and contingent liabilities of Yuzhkuzbassugol allocated to the previously acquired stake.

In 2007, cash flow on acquisition was as follows:

US$ million

Net cash acquired with the subsidiary

Cash paid

Net cash outflow

$17

(871)

$(854)

For the period from June 8, 2007 to December 31, 2007, Yuzhkuzbassugol reported net loss amounting to $70 million.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

159

Other Acquisitions
In 2005, the Group purchased a 100% ownership interest in OOO Mine 12 (“Mine 12”) and OAO Zapadno-Sibirskoye Ge-
ologicheskoye Upravlenie (“ZSGU”). In addition, the Group acquired the assets and the business of OOO Nizhnesaldin-
sky Metallurgical Plant. The excess of fair value of identifiable assets, liabilities and contingent liabilities acquired over
consideration amounting to $6 million was included in the income statement. Goodwill of $1 million was determined as
impaired and included in impairment of assets in the income statement for the year ended December 31, 2005.

In 2006, the Group purchased 100% ownership interest in OOO Evro-Aziatskaya Energy Company, OOO Evrazteknika,
OOO Ekont and OOO Cheremshanka, all located in the Russian Federation, from the entities under control of an ultimate
principal shareholder. The total cash consideration amounted to $34 million. The excess of fair value of identifiable assets,
liabilities and contingent liabilities acquired over consideration amounting to $1 million was included in the income state-
ment. Goodwill of $1 million arising on the acquisition of Evro-Aziatskaya Energy Company was recorded in the consoli-
dated balance sheet as of December 31, 2006.

On December 20, 2007, the Group acquired 100% in Nikom, a.s., (“Nikom”), a ferrovanadium producer located in the
Czech Republic, for cash consideration of $43 million. The acquisition of Nikom was accounted for based on provisional
values as the Group, as of the date of authorisation of issue of these financial statements, has not completed purchase price
allocation in accordance with IFRS 3 “Business Combinations”. Goodwill of $37 million arising on the acquisition of Nikom
was recorded in the consolidated balance sheet as of December 31, 2007.

Disclosure of Other Information in Respect of Business Combinations
As the acquired subsidiaries either did not prepare financial statements in accordance with IFRS before the business com-
binations or applied accounting policies that are significantly different from the Group’s accounting policies, it is imprac-
ticable to determine revenues and net profit of the combined entity for each year presented on the assumption that all
business combinations effected during each year had occurred at the beginning of the respective year.

Except for the relevant disclosures in respect of Yuzhkuzbassugol and Highveld, it is impracticable to determine the car-
rying amounts of each class of the acquirees' assets, liabilities and contingent liabilities, determined in accordance with IFRS,
immediately before the combination, because the acquirees did not prepare financial statements in accordance with IFRS
before acquisitions.

Annual Report 2007

Evraz Group S. A.

160

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

5. GOODWILL
Negative Goodwill
The table below presents a reconciliation of the carrying amount of negative goodwill at December 31, 2004:

US$ million

At December 31, 2004

Change in accounting policies: derecognition of negative goodwill

At January 1, 2005

(436)

436

$ –

e
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a
v

s
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o
r
G

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o
o
b

d
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t
a
l
u
m
u
c
c
A

n
o
i
t
a
s
i
t
r
o
m
a

(73)

$ –

l
a
t
o
T

(363)

363

$ –

In accordance with the transitional provisions of IFRS 3, on January 1, 2005, the Group ceased to recognise negative good-
will in the consolidated balance sheet. The carrying amount of negative goodwill at December 31, 2004 that arose from
business combinations, for which the agreement date was before March 31, 2004, or interests in a jointly controlled en-
tity obtained before March 31, 2004 and accounted for by applying the equity method, was derecognised at January 1,
2005, with a corresponding adjustment of $390 million to the opening balance of accumulated profits and minority in-
terest (Notes 4 and 11).

Goodwill
The table below presents movement in the carrying amount of goodwill:

US$ million

At December 31, 2004

Goodwill recognised on acquisitions of subsidiaries (Note 4)

Impairment of goodwill (Note 4)

Translation difference

At December 31, 2005

Goodwill recognised on acquisitions of subsidiaries (Note 4)

Translation difference

At December 31, 2006

Goodwill recognised on acquisitions of subsidiaries (Note 4)

Goodwill previously recognised in investments under the equity method (Note 11)

Goodwill allocated to disposal groups classified as held for sale (Note 11)

Adjustment to contingent consideration (Note 4)

Translation difference

At December 31, 2007

g
n
i
y
r
r
a
C

t
n
u
o
m
a

$ –

(1)

(4)

112

1,119

(16)

$1,271

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The
carrying amount of goodwill was allocated among cash generating units as follows at December 31:

US$ million

Oregon Steel Mills

Oregon Steel Portland Mill

OSM Tubular – Portland Mill

Rocky Mountain Steel Mills

OSM Tubular – Camrose Mills

Palini e Bertoli

Strategic Minerals Corporation

Nikom, a.s.

Highveld

Evro-Aziatskaya Energy Company

7
0
0
2

$1,082

411

103

411

157

6
0
0
2

$ –

–

161

5
0
0
2

$ –

–

$1,271

$112

$67

The cash generating units within Evraz Oregon Steel Mills represent the smallest identifiable groups of assets, primarily
individual mills, that generate cash flows that are largely independent from other assets or groups of assets.

Goodwill was tested for impairment at various dates during the second half of 2007.

The recoverable amount of goodwill was based on value in use determined based on future cash flow analysis covering a
period as disclosed below. For periods beyond this projection a terminal value was calculated. Cash flow projections have
been estimated by extrapolating the budget for 2008 using a zero real growth rate. The budgets were based on the ex-
pected commodity prices.

,
t
s
a
c
e
r
o
f

f
o

d
o
i
r
e
P

s
r
a
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o
c
s
i
D

e
t
a
r

y
t
i
d
o
m
m
o
C

e
c
i
r
p
e
g
a
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e
v
A

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n
o
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p

e
h
t

f
o

Evraz Oregon Steel Mills

Palini e Bertoli

Strategic Minerals Corporation

Nikom

Highveld

10.4% steel products

11.7% steel plates

$1,019
€ 628

11.2% ferrovanadium

$37,229

products

12.1% ferrovanadium

$35,640

products

12.5% ferrovanadium

$34,008

products

steel products

$728

Annual Report 2007

Evraz Group S. A.

162

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Goodwill (Continued)

The above mentioned goodwill will not be impaired unless the assumptions used for impairment testing substantially
change. Management believes that no reasonably possible change in any of the key assumptions would cause the carry-
ing values of cash-generating units to materially exceed their recoverable amounts.

6. ACQUISITIONS OF MINORITY INTERESTS IN SUBSIDIARIES
Mastercroft
On June 1, 2005, the Group acquired a 4.17% ownership interest in Mastercroft for cash consideration of $124 million. The
excess of the amount of consideration over the carrying value of that minority interest amounting to $32 million was
charged to accumulated profits.

LDPP
On June 30, 2005, the Group acquired an additional minority interest of 30.10% in OAO Large Diameter Pipe Plant
(“LDPP”) for cash consideration of $13 million. The excess of the amount of the carrying value of minority interest over
consideration amounting to $1 million was included in additional paid-in capital.

On December 27, 2007, the Group acquired an additional minority interest of 19.9% in LDPP for cash consideration of
$10 million, which approximates the carrying value of the net assets attributable to the acquired shares.

Minority Interests Derecognised in 2006
In 2005, the Group acquired minority interests in West Siberian Iron and Steel Plant (“Zapsib”) (2.08% ownership inter-
est) for cash consideration of $41 million. The excess of the amounts of consideration over the carrying values of minor-
ity interests acquired amounting to $23 million was charged to accumulated profits. Purchases of minority interests in
2006 had no significant impact on the Group’s financial statements.

Subsequent purchases of additional minority interests in KGOK (0.01% and 0.08% in 2006 and 2005, respectively) had
no significant impact on the Group’s financial statements.

In 2006, the new regulations were introduced in the Russian Federation in respect of the companies in which a controlling
shareholder owns at least 95% of the share capital as of July 1, 2006. These amendments obliged a controlling shareholder
to acquire the company’s shares in case when the minority shareholders are willing to sell their stakes. On the other hand, a
controlling shareholder can initiate a forced disposal of the shares held by minority shareholders. As such, a controlling share-
holder obtained a call option and minority shareholders obtained a put option for the minority shares in a subsidiary.

At July 1, 2006, the Group was the owner of 96.68% shares of Zapsib and 97.72% shares of KGOK. At this date, the Group
derecognised minority interests of $42 million and accrued a liability to minority shareholders in the amount of $106 mil-
lion. The liability was measured based on the highest price for the shares during the period of six months up to the date
of its recognition as required by the regulations. The excess of the amount of the liability over the carrying value of the
derecognised minority interests amounting to $64 million was charged to accumulated profits.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

163

d
e
s
i
n
g
o
c
e
r
e
d

y
t
i
r
o
n
M

s
t
s
e
r
e
t
n

6
0
0
2
,
1

e
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l
a
v

r
i
a
F

y
t
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l
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a
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l

y
l
u
J

f
o

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a

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C

s
t
i
f
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r
p

US$ million

Zapsib

KGOK

$26

$42

$64

$106

$38

$64

In addition, in 2006, the Group recognised a gain from the change in the fair value of the liability to minority sharehold-
ers of KGOK and included $12 million in gain/(loss) on financial assets and liabilities in the consolidated income statement
for the year ended December 31, 2006.

In 2007, the liability to minority shareholders of Zapsib and KGOK as of December 31, 2006 was measured by independ-
ent experts. The excess of the new valuation over the liability to minority shareholders recognised as of December 31,
2006 amounting to $24 million was charged to accumulated profits in the accompanying statement of changes in equity
for the year ended December 31, 2007. In addition, the Group derecognised minority interests in the amount of $3 mil-
lion in respect of Zapsib’s subsidiaries.

Minority Interests Derecognised in 2007
In the years ended December 31, 2006 and 2005, the Group acquired minority interests in Nizhny Tagil Iron and Steel Plant
(2.62% and 11.94% ownership interest, respectively) for cash consideration of $79 million and $236 million, respectively.
The excess of the amounts of consideration over the carrying value of minority interest acquired amounting to $37 mil-
lion and $75 million, respectively, was charged to accumulated profits.

In 2006, the Group acquired a 7.61% minority interest in Vysokogorsky Mining-and-Processing Integrated Works for cash
consideration of $14 million. The excess of the amount of consideration over the carrying value of minority interest acquired
amounting to $5 million was charged to accumulated profits.

In 2006 and 2005, the Group acquired minority interests in Nakhodka Trade Sea Port (0.6% and 2.1%, respectively).
These transactions had no significant impact on the Group’s financial statements.

In March 2007, the Group made voluntary offers to minority shareholders of its three subsidiaries (Nizhny Tagil Iron and Steel
Plant, Vysokogorsky Mining-and-Processing Integrated Works and Nakhodka Trade Sea Port) to sell their stakes to the Group.

At the dates of voluntary offers, the Group derecognised minority interests in Nizhny Tagil Iron and Steel Plant, Vysoko-
gorsky Mining-and-Processing Integrated Works and Nakhodka Trade Sea Port in the amount of $103 million and accrued
a liability to minority shareholders in the amount of $174 million. The liabilities were measured based on the expected
amounts to be paid to minority shareholders being the highest price for the shares during the period of six months up to
the date of its recognition, as required by the legislation. The excess of the amount of the liability over the carrying value
of the derecognised minority interests amounting to $71 million was charged to accumulated profits.

Annual Report 2007

Evraz Group S. A.

164

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Acquisitions Of Minority Interests In Subsidiaries / Minority Interests Derecognised in 2007 (Continued)

d
e
s
i
n
g
o
c
e
r
e
d

y
t
i
r
o
n
M

s
t
s
e
r
e
t
n

n
o
i
t
i
n
g
o
c
e
r
e
d

y
t
i
l
i

b
a
i
l

e
t
a
d
e
h
t

e
u
l
a
v

r
i
a
F

f
o

t
a

f
o

d
e
t
a
l
u
m
u
c
c
a

o
t

d
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g
r
a
h
C

s
t
i
f
o
r
p

US$ million

Nizhny Tagil Iron and Steel Plant

Vysokogorsky Mining-and-Processing Integrated Works

Nakhodka Trade Sea Port

$92

$103

$162

$174

$70

–

$71

In the course of the voluntary offer the Group acquired minority interests of 1.09%, 0.83% and 1.54% in Nizhny Tagil Iron
and Steel Plant, Vysokogorsky Mining-and-Processing Integrated Works and Nakhodka Trade Sea Port, respectively, for
cash consideration of $37 million, $2 million and $1 million, respectively.

As a result, the Group has obtained in each of the above mentioned subsidiaries an ownership interest exceeding 95% of
the share capital. As such, the Group became subject to the regulations that require a controlling shareholder to acquire
the company’s shares in case when the minority shareholders are willing to sell their stakes. On the other hand, a controlling
shareholder can require the minority shareholders to sell their stakes.

Buyout of Minority Shares in Subsidiaries
In August 2007, in accordance with Russian legislation allowing a shareholder owning more than 95% of a company to increase
its stake to 100%, the Group started the buyout of minority shares of its five Russian subsidiaries (Nizhny Tagil Iron and Steel Plant,
West Siberian Iron and Steel Plant, Kachkanarsky Mining-and-Processing Integrated Works, Vysokogorsky Mining-and-
Processing Integrated Works and Nakhodka Trade Sea Port). The buyouts have been successfully completed in October 2007.

7. INCOME AND EXPENSES
Cost of revenues, distribution costs, administrative expenses and social infrastructure maintenance expenses include the
following for the years ended December 31:

US$ million

Cost of inventories recognised as expense

Staff costs, including social security taxes

Depreciation, depletion and amortisation

7
0
0
2

6
0
0
2

5
0
0
2

$(4,996)

(1,535)

(698)

$(2,900)

$(2,509)

(909)

(303)

(769)

(245)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

165

Interest expense consisted of the following for the years ended December 31:

US$ million

Bank interest

Interest on guaranteed notes

Finance charges payable under finance leases

Interest on liabilities relating to employee benefits and expected return on plan assets

Discount adjustment on provisions

Interest on earn out and synergy payments

Other

Interest income consisted of the following for the years ended December 31:

7
0
0
2

$(285)

(97)

(8)

(10)

(4)

(1)

(4)

6
0
0
2

$(98)

(108)

(6)

(2)

(1)

(8)

5
0
0
2

$(63)

(61)

(4)

(5)

(3)

–

(6)

$(409)

$(229)

$(142)

US$ million

Interest on bank accounts and deposits

Interest on loans receivable

Interest on accounts receivable

Other

7
0
0
2

$24

$41

Gain/(loss) on financial assets and liabilities included the following for the years ended December 31:

US$ million

Re-measurement of liabilities to minority shareholders at fair value (Notes 4 and 6)

Gain/(loss) on extinguishment of debts (Notes 17 and 25)

Amortisation of financial guarantee contracts

7
0
0
2

$(72)

–

$(71)

6
0
0
2

$25

–

$27

6
0
0
2

$12

$26

5
0
0
2

$13

–

$15

5
0
0
2

$ –

–

Other Non-Operating Loss
Other non-operating loss for the year ended December 31, 2005 includes $10 million paid to the government of Georgia
as a non-refundable prepayment for the acquisition of ownership interest in JSC Chiaturmanganum and JSC Vartsikhe
GES. The Group planned to acquire a 63.08% interest in these entities, but abandoned the project.

Annual Report 2007

Evraz Group S. A.

166

Russia

Cyprus

Czech Republic

Italy

South Africa

Switzerland

USA

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

8. INCOME TAXES
The Group’s income was subject to tax at the following tax rates:

7
0
0
2

6
0
0
2

5
0
0
2

24.00%

10.00%

24.00%

37.25%

29.00%

25.38%
and 10.90%

35.00%

24.00%

10.00%

24.00%

37.25%

29.00%

24%
and 11.60%

35.00%

24.00%

10.00%

26.00%

37.25%

–

Ferrotrade Limited (Gibraltar) has a Taxation Exemption Certificate under which it is currently liable to tax at the fixed an-
nual amount of £225. This certificate is valid through 2010.

Major components of income tax expense for the years ended December 31 were as follows:

US$ million

Current income tax expense

Adjustment in respect of income tax of previous years

Deferred tax benefit relating to changes in tax rates

Deferred income tax (expense)/benefit
Relating to origination and reversal of temporary differences

7
0
0
2

6
0
0
2

5
0
0
2

$(1,064)

$(676)

$(466)

(2)

–

(7)

–

(2)

Income tax expense reported in the consolidated income statement

$(984)

$(637)

$(475)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

167

The major part of income taxes is paid in the Russian Federation. A reconciliation of income tax expense applicable to profit
before income tax using the Russian statutory tax rate of 24% to income tax expense as reported in the Group’s consoli-
dated financial statements for the years ended December 31 is as follows:

US$ million

Profit before income tax

At the Russian statutory income tax rate of 24%

Adjustment in respect of income tax of previous years

Effect of non-deductible expenses and other non-temporary differences

Effect of the difference in tax rates on dividend income from associates and joint ventures

Tax on dividends distributed by the Group’s subsidiaries to parent company

Effect of the difference in tax rates in countries other than the Russian Federation

Deferred income tax provided for undistributed earnings of the Group’s subsidiaries

Share of profits in joint ventures and associates

Excess of interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition

Gain/(loss) on financial assets and liabilities

Utilisation of previously unrecognised tax losses

Change in allowance for deferred tax asset
Income tax expense reported in the consolidated income statement

7
0
0
2

$3,201

(768)

(48)

(78)

(37)

(54)

(12)

(17)

–

(17)

6
0
0
2

$2,087

(501)

(2)

(105)

(45)

(11)

(1)

–

$(984)

$(637)

5
0
0
2

$1,528

(367)

(7)

(37)

(44)

(18)

–

(26)

$(475)

Annual Report 2007

Evraz Group S. A.

168

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Income Taxes (Continued)

Deferred income tax assets and liabilities and their movements for the years ended December 31 were as follows:

US$ million

Deferred income tax liabilities:

Valuation and depreciation of property,
plant and equipment

Valuation and amortisation of intangible assets

Undistributed earnings of subsidiaries

Other

Deferred income tax assets:

Tax losses available for offset

Accrued liabilities

Impairment of accounts receivable

Other

Valuation allowance

Net deferred income tax asset

7
0
0
2

$1,177

237

1,497

143

290

(48)

242

t
n
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m
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t
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m
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c
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d
e
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s
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e
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d

s
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e
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n
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h
C

n
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t
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e
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f
f
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d

6
0
0
2

n
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f
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s
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a
l
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R

e
l
a
s
-
r
o
f
-
d
l
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h

s
t
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s
s
a
o
t

t
n
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m
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t
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s

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d
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s
i
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r

e
g
n
a
h
C

s
n
o
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t
a
n
b
m
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e
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d
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g
n
a
h
C

s
s
e
n
i
s
u
b

o
t

n
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i
t
a
l
s
n
a
r
T

e
c
n
e
r
e
f
f
i
d

5
0
0
2

$312

$ –

$(17)

$25

$26

$278

(47)

(24)

(22)

(50)

(3)

(17)

862

251

–

1,138

352

126

–

126

–

117

(31)

–

(2)

–

(1)

(5)

(8)

–

(8)

–

(7)

(9)

(33)

(3)

–

(4)

–

314

–

(29)

Net deferred income tax liability

$1,277

(60)

1,012

$277

$ –

$(38)

$29

$21

$265

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

169

As of December 31, 2007, 2006 and 2005, deferred income taxes have been provided for in respect of undistributed earn-
ings of the Group’s subsidiaries amounting to $1,046 million, $255 million and $465 million, respectively, as manage-
ment intended to dividend these amounts. Management does not intend to distribute other accumulated earnings in the
foreseeable future.

At December 31, 2007, the Group has not recognised a deferred tax liability and deferred tax asset in respect of tempo-
rary differences of $3,685 million and $857 million, respectively.

These differences are associated with investments in subsidiaries and were not recognised as the Group is able to control
the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

The current tax rate for dividend income in respect of the Group’s subsidiaries varies from 0% to 12.5%.

In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set
off against current tax liabilities and taxable profits of other companies, except for the companies registered in Cyprus
where group relief can be applied. As of December 31, 2007, the unused tax losses carry forward approximated to $369
million (2006: $152 million, 2005: $156 million). The Group recognised deferred tax asset of $22 million (2006: $2 mil-
lion, 2005: $2 million) in respect of unused tax losses. Deferred tax asset in the amount of $45 million (2006: $28 mil-
lion, 2005: $26 million) has not been recorded as it is not probable that sufficient taxable profits will be available in the
foreseeable future to offset these losses. Tax losses of $283 million (2006: $146 million, 2005: $139 million) for which
deferred tax asset was not recognised arose in companies registered in Luxembourg, Cyprus and Russia. Losses in the
amount of $270 million (2006: $130 million, 2005: $119 million) are available indefinitely for offset against future tax-
able profits of the companies in which the losses arose and $13 million (2006: $16 million, 2005: $20 million) will expire
during 2012–2017.

Annual Report 2007

Evraz Group S. A.

170

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December 31:

US$ million

Cost:

Land

Buildings and constructions

Machinery and equipment

Transport and motor vehicles

Mining assets

Other assets

Assets under construction

Accumulated depreciation and depletion:

Buildings and constructions

Machinery and equipment

Transport and motor vehicles

Mining assets

Other assets

Government grants:

Machinery and equipment, net

7
0
0
2

6
0
0
2

5
0
0
2

$148

1,950

4,427

396

2,266

113

676

9,976

(320)

(1,158)

(98)

(194)

(37)

(1,807)

(8)

$8,161

$62

1,224

2,258

257

350

474

4,694

(149)

(753)

(55)

(36)

(38)

(1,031)

(8)

$3,655

$58

823

1,689

186

315

670

3,793

(99)

(534)

(31)

(34)

(25)

(723)

(8)

$3,062

Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the
amount of $114 million, $117 million and $127 million as of December 31, 2007, 2006 and 2005, respectively.

Annual Report 2007

Evraz Group S. A.

171

s
t
e
s
s
a

r
e
h
t
O

r
e
d
n
u
s
t
e
s
s
A

n
o
i
t
c
u
r
t
s
n
o
c

l
a
t
o
T

s
t
e
s
s
a
g
n
n
M

MAKING THE WO RLD ST RO NGER

The movement in property, plant and equipment for the year ended December 31, 2007 was as follows:

d
n
a
s
g
n
d

l
i

u
B

s
n
o
i
t
c
u
r
t
s
n
o
c

d
n
a
y
r
e
n
h
c
a
M

t
n
e
m
p
u
q
e

d
n
a

t
r
o
p
s
n
a
r
T

s
e
l
c
i
h
e
v

r
o
t
o
m

US$ millions

At December 31, 2006, cost, net of accumulated
depreciation and government grants

Reclassifications

Additions

Assets acquired in business combination

Assets put into operation

Disposals

Depreciation & depletion charge

Impairment loss

Disposal of assets due to sale of a subsidiary

Transfer to assets held for sale

Translation difference

d
n
a
L

$62

(2)

–

(6)

–

(1)

$1,075

$1,497

$202

$314

$31

$474 $3,655

(3)

403

175

(13)

(94)

(1)

(2)

(12)

100

–

1,634

391

(20)

(399)

(3)

–

(8)

160

–

(7)

(37)

–

1,646

(3)

(55)

(1)

–

107

–

(2)

–

666

723

185

4,047

(684)

–

(10)

(61)

(20)

–

(605)

–

(2)

–

(7)

(2)

(21)

432

At December 31, 2007, cost, net of accumulated
depreciation and government grants

$148 $1,630 $3,261

$298 $2,072

$76

$676 $8,161

The movement in property, plant and equipment for the year ended December 31, 2006 was as follows:

US$ millions

At December 31, 2005, cost, net of accumulated
depreciation and government grants

Reclassifications

Additions

Assets acquired in business combination

Assets put into operation

Disposals

Depreciation & depletion charge

Impairment loss

Disposal of assets due to sale of a subsidiary

Transfer to assets held for sale

Change in site restoration provision

Translation difference

At December 31, 2006, cost, net of accumulated
depreciation and government grants

d
n
a
s
g
n
d

l
i

u
B

s
n
o
i
t
c
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r
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s
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d
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M

t
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d
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s
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v
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s
s
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n
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M

d
n
a
L

$58

$724

$1,147

$155

$281

–

(15)

(12)

289

(5)

(45)

(1)

–

408

(12)

(203)

(2)

(4)

(25)

–

119

(2)

(25)

–

(21)

–

(20)

–

(21)

s
t
e
s
s
a

r
e
h
t
O

$27

(1)

(8)

–

r
e
d
n
u
s
t
e
s
s
A

n
o
i
t
c
u
r
t
s
n
o
c

l
a
t
o
T

$670 $3,062

(8)

625

(763)

–

673

123

–

(10)

(30)

–

(301)

(17)

(1)

(20)

(27)

(87)

(148)

–

307

$62

$ 1,075

$1,497

$202

$314

$31

$474 $3,655

Annual Report 2007

Evraz Group S. A.

172

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

Property, Plant and Equipment (Continued)

The movement in property, plant and equipment for the year ended December 31, 2005 was as follows:

US$ million

At December 31, 2004 cost, net of accumulated
depreciation and government grants

Reclassifications

Additions

Assets acquired in business combination

Assets put into operation

Disposals

Depreciation & depletion charge

Change in site restoration provision

Impairment loss

Translation difference

At December 31, 2005, cost, net of accumulated
depreciation and government grants

s
n
o
i
t
c
u
r
t
s
n
o
c

s
g
n
d

l
i

u
B

d
n
a

d
n
a
L

$53

$592

–

107

(13)

(35)

–

(1)

–

(7)

(2)

y
r
e
n
h
c
a
M

d
n
a

t
n
e
m
p
u
q
e

$827

(17)

200

366

(18)

(179)

–

r
o
t
o
m
d
n
a

t
r
o
p
s
n
a
r
T

s
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l
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v

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s
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A

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T

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M

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s
s
a

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h
t
O

s
t
e
s
s
a

$131

$270

$20

$499 $2,392

–

(2)

(18)

–

(3)

–

(15)

(9)

–

(10)

–

(1)

(8)

–

(1)

–

728

(530)

–

769

317

–

(11)

(46)

–

(255)

(9)

(7)

(22)

(99)

(24)

(37)

$58

$ 724

$1,147

$155

$281

$27

$670 $3,062

10. INTANGIBLE ASSETS OTHER THAN GOODWILL
Intangible assets consisted of the following as of December 31:

US$ million

Cost:

Customer relationships

Trade names and trademarks

Water rights and environmental permits

Patented and unpatented technology

Contract terms

Other

Accumulated amortisation:

Customer relationships

Trade names and trademarks

Water rights and environmental permits

Patented and unpatented technology

Contract terms

Other

7
0
0
2

$714

930

(87)

(6)

(2)

(3)

–

(26)

(124)

$806

6
0
0
2

(1)

–

(1)

–

(5)

(7)

$37

5
0
0
2

$ –

–

(3)

$19

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

As of December 31, 2007, water rights with a carrying value of $42 million had indefinite useful life.

The movement in intangible assets for the year ended December 31, 2007 was as follows:

s
p
h
s
n
o
i
t
a
l
e
r

r
e
m
o
t
s
u
C

US$ million

At December 31, 2006, cost, net of accumulated amortisation

Additions

Assets acquired in business combination

Amortisation charge

Emission allowances granted

Emission allowances used for the period

Impairment loss

Translation difference

–

697

(87)

–

s
k
r
a
m
e
d
a
r
t
d
n
a

s
e
m
a
n
e
d
a
r
T

–

(6)

–

At December 31, 2007, cost, net of accumulated amortisation

$627

$25

s
t
i

m
r
e
p

l
a
t
n
e
m

s
t
h
g
i
r

r
e
t
a
W

n
o
r
i
v
n
e
d
n
a

–

(1)

–

(1)

$61

173

s
m
r
e
t

t
c
a
r
t
n
o
C

–

r
e
h
t
O

$12

l
a
t
o
T

$37

793

(6)

(102)

(4)

(1)

(4)

(1)

d
n
a
d
e
t
n
e
t
a
P

d
e
t
n
e
t
a
p
n
u

y
g
o
o
n
h
c
e
t

–

(2)

–

$66

$20 $806

In 2007, the Group acquired a 51% ownership interest in Frotora Holdings Ltd. (Cyprus). This purchase does not qualify
for a business combination as the acquired company does not constitute a business. The company’s assets comprise only
rights under a long-term lease of land to be used for a construction of a commercial sea port in the Ukraine. These rights
were valued at $65 million and included in contract terms category of the intangible assets.

The movement in intangible assets for the year ended December 31, 2006 was as follows:

s
p
h
s
n
o
i
t
a
l
e
r

r
e
m
o
t
s
u
C

s
k
r
a
m
e
d
a
r
t
d
n
a

s
e
m
a
n
e
d
a
r
T

s
t
i

m
r
e
p

l
a
t
n
e
m

s
t
h
g
i
r

r
e
t
a
W

n
o
r
i
v
n
e
d
n
a

d
n
a
d
e
t
n
e
t
a
P

d
e
t
n
e
t
a
p
n
u

y
g
o
o
n
h
c
e
t

US$ million

At December 31, 2005, cost, net of accumulated amortisation

Additions

Assets acquired in business combination

Amortisation charge

Emission allowances granted

Emission allowances used for the period

Sale of emission allowances

Impairment loss

Translation difference

$ –

–

(1)

–

$ –

–

$ –

–

(1)

–

s
m
r
e
t

t
c
a
r
t
n
o
C

r
e
h
t
O

l
a
t
o
T

$ –

$19

–

(4)

(9)

(4)

(9)

(6)

(9)

(4)

(9)

At December 31, 2006, cost, net of accumulated amortisation

$12

$37

Annual Report 2007

Evraz Group S. A.

174

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

10. Intangible Assets Other Than Goodwill (Continued)

The movement in intangible assets for the year ended December 31, 2005 was as follows:

s
p
h
s
n
o
i
t
a
l
e
r

r
e
m
o
t
s
u
C

s
k
r
a
m
e
d
a
r
t
d
n
a

s
e
m
a
n
e
d
a
r
T

s
t
i

m
r
e
p

l
a
t
n
e
m

s
t
h
g
i
r

r
e
t
a
W

n
o
r
i
v
n
e
d
n
a

d
n
a
d
e
t
n
e
t
a
P

d
e
t
n
e
t
a
p
n
u

y
g
o
o
n
h
c
e
t

s
m
r
e
t

t
c
a
r
t
n
o
C

US$ million

At December 31, 2004, cost, net of accumulated amortisation

$ –

Additions

Assets acquired in business combination

Amortisation charge

Sale of emission allowances

Translation difference

–

r
e
h
t
O

(3)

(2)

l
a
t
o
T

(3)

(2)

At December 31, 2005, cost, net of accumulated amortisation

$ –

$19

Amortisation of customer-related intangible assets in the amount of $93 million and $1 million were included in selling and
distribution costs in 2007 and 2006, respectively.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

11. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
The Group accounted for investments in joint ventures and associates under the equity method.

The movement in investments in joint ventures and associates was as follows:

US$ million

Investment at December 31, 2004

Change in accounting policies: derecognition
of negative goodwill (Note 2)

Investment at January 1, 2005

Additional investments

Share of profit/(loss)

Dividends paid

Additional paid-in capital in respect of acquisition
of minority interests (Note 19)

Translation difference

Investment at December 31, 2005

Additional investments

Share of profit/(loss)

Dividends paid

Reorganisation of ownership structure
within a joint venture

Additional paid-in capital in respect of acquisition
of minority interests (Note 19)

Sale of shares in a subsidiary to minority
shareholders (Note 19)

Cost of guarantee issued to a joint venture

Translation difference

Investment at December 31, 2006

Additional investments

Share of profit/(loss)

Dividends paid

Assets acquired in business combination (Note 4)

Acquisition of controlling interests (Note 4)

Translation difference

Investment at December 31, 2007

r
e
b
r
o
C

$195

222

–

(44)

(8)

229

225

–

(1)

–

577

–

(120)

–

$573

-
z
u
k
h
z
u
Y

o
g
u
s
s
a
b

d
l
e
v
h
g
H

v
o
k
n
a
z
a
K

a
y
a
k
s

$ –

–

675

–

675

–

(28)

(32)

–

679

–

(10)

–

(682)

$ –

–

216

(9)

–

231

442

(15)

–

(684)

$ –

–

(5)

–

204

–

$210

175

l
a
t
o
T

$197

224

675

(45)

(8)

906

442

(49)

(1)

1,494

442

(136)

206

(1,371)

$787

s
e
t
a
i
c
o
s
s
a

r
e
h
t
O

–

(1)

–

(8)

–

(1)

(5)

–

Annual Report 2007

Evraz Group S. A.

176

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

11.

Investments in Joint Ventures and Associates (Continued)

Corber Enterprises Limited
Corber Enterprises Limited (“Corber”) is a joint venture established in 2004 for the purpose of exercising joint control
over economic activities of Raspadskaya Mining Group.

On May 31, 2006, Corber acquired a 100% ownership interest in Mezhdurechenskaya Ugolnaya Company - 96 (“MUK-
96”) from Adroliv, one of the Corber’s shareholders, in exchange for Corber’s newly issued 7,200 ordinary shares and
4,800 preferred shares with par value of $1 each. Under the terms of the acquisition, preferred dividends of $318 million
were paid by Corber to Adroliv in respect of Corber’s acquisition of MUK 96.

MUK-96, an open joint stock company registered in the Russian Federation, is mainly involved in coal mining. MUK-96
holds a 99% ownership interest in ZAO Razrez Raspadsky (“Razrez Raspadsky”). Razrez Raspadsky is involved in render-
ing mining services, including open pit mine works at Raspadskaya mine in the Kemerovo region, the Russian Federation.
Prior to the acquisition of MUK-96, one of the Corber’s subsidiaries acquired a 1% ownership interest in Razrez Raspad-
sky for cash consideration of $2 million.

The total cost of the business combination, including cash consideration and fair value of equity instruments exchanged,
amounted to $770 million.

The table below sets forth the fair values of identifiable assets, liabilities and contingent liabilities of MUK-96 and Razrez
Raspadsky at the date of acquisition:

US$ million

Mineral reserves

Other property, plant and equipment

Inventories

Accounts and notes receivable

Cash

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Net assets

Purchase consideration

,
1
3
y
a
M

6
0
0
2

$897

1,029

218

259

$770

In order to retain its 50% ownership interest in Corber, on May 31, 2006, the Group acquired from Adroliv 3,600 newly
issued ordinary shares of Corber for cash consideration of $225 million.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

In addition, in 2006, the Group settled its liabilities under the interest-bearing promissory notes of Mastercroft Mining Lim-
ited, the Group’s subsidiary, in the amount of $20 million payable in connection with the acquistion of a 50% ownership
interest in Corber in 2004.

The table below sets forth Corber’s assets and liabilities as of December 31:

US$ million

Mineral reserves

Other property, plant and equipment

Other non-current assets

Inventories

Accounts and notes receivable

Cash

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

The table below sets forth Corber’s income and expenses:

US$ million

Revenue

Cost of revenue

Other expenses, including income taxes

Net profit

Attributable to:

Equity holders of the parent entity

Minority interests

Net profit

Unrealised profits on transactions with the joint venture

Group’s share of profits of the joint venture

177

5
0
0
2

$246

299

692

113

216

7
0
0
2

$1,163

587

245

2,140

328

297

107

732

260

6
0
0
2

$1,148

474

365

2,079

296

363

711

216

$1,148

$1,152

$458

7
0
0
2

$784

(374)

(194)

$216

$170

$216

(7)

$82

6
0
0
2

$472

(271)

(116)

$85

$79

$85

–

$39

5
0
0
2

$549

(330)

(103)

$116

$113

$116

–

$56

On July 7, 2006, the Group guaranteed the liabilities of OAO Raspadskaya, Corber's subsidiary, under a $300 million
loan agreement with Natexis Banques Populaires. The loan bore interest of LIBOR plus 0.85% per annum and matured on
June 30, 2007. The Group recognised a fair value of the guarantee as a liability in the amount of $2 million.

Annual Report 2007

Evraz Group S. A.

178

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

11.

Investments in Joint Ventures and Associates (Continued)

Yuzhkuzbassugol
On December 30, 2005, the Group acquired a 50% ownership interest in ZAO Coal Company Yuzhkuzbassugol
(“Yuzhkuzbassugol”) for cash consideration of $675 million payable to Crondale Overseas Limited (“Crondale”), an en-
tity under common control with the Group (Note 17). Yuzhkuzbassugol, a closed joint stock company, is a vertically integrated
group being one of the largest coking coal producers in Russia. The Group determined that its ownership interest in
Yuzhkuzbassugol represents the purchase of an associate and accounted for the investment under the equity method.

At December 31, 2005, the acquisition of Yuzhkuzbassugol was accounted for based on provisional values as at the date
of authorisation of issue of financial statements for the year ended December 31, 2005 the associate has not completed
preparation of IFRS financial statements. In 2006, the Group finalised its purchase price allocation on the acquisition of
an ownership interest in Yuzhkuzbassugol. As a result, the Group recognised adjustments to the provisional values of iden-
tifiable assets, liabilities and contingent liabilities as at December 30, 2005, which were as follows:

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
n
i
F

US$ million

Mineral reserves

Other property, plant and equipment

Investment in an associate

Other non-current assets

Inventories

Accounts and notes receivable

Other current assets

Cash

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

Fair value of net assets attributable to 50% ownership interest

Goodwill

Purchase consideration

The 2005 comparative information has been restated to reflect these adjustments.

$1,225

615

$1,106

615

146

1,997

2,017

106

313

238

657

120

295

238

653

$1,325

$1,350

$663

$12

$675

$ –

$675

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The table below sets forth Yuzhkuzbassugol’s assets and liabilities as of December 31, 2006:

US$ million

Mineral reserves

Other property, plant and equipment

Investment in an associate

Other non-current assets

Inventories

Accounts and notes receivable

Other current assets

Cash

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Minority interests

Net assets

The table below sets forth Yuzhkuzbassugol’s income and expenses for the periods from its acquisition till the date when
the entity became a subsidiary of the Group:

179

6
0
0
2

$1,161

658

152

2,133

216

294

255

765

$1,359

m
o
r
f
d
o
i
r
e
P

o
t

y
r
a
u
n
a
J

7
0
0
2
,
8
e
n
u
J

,
1
3
r
e
b
m
e
c
e
D

d
e
d
n
e

r
a
e
Y

6
0
0
2

US$ million

Revenue

Cost of revenue

Other expenses, including income taxes

Net loss

Attributable to:

Equity holders of the parent entity

Minority interests

Net loss

Group’s share of loss of the associate

$258

(194)

(84)

$(20)

–

$(20)

$(10)

$595

(482)

(170)

$(57)

$(54)

(3)

$(57)

$(28)

Annual Report 2007

Evraz Group S. A.

180

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

11.

Investments in Joint Ventures and Associates (Continued)

Kazankovskaya
In 2007, assets acquired in business combination represent investment in ZAO Kazankovskaya, an associate of Yuzhkuzbas-
sugol (Note 4). The Group owns 50% in ZAO Kazankovskaya. ZAO Kazankovskaya is a coal mining company.

The table below sets forth the provisional fair values of Kazankovskaya’s identifiable assets, liabilities and contingent lia-
bilities at the date of acquisition of Yuzhkuzbassugol and the reporting date:

US$ million

Mineral reserves

Other property, plant and equipment

Inventories

Accounts receivable

Other current assets

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Net assets

,
1
3
r
e
b
m
e
c
e
D

7
0
0
2

$584

655

133

235

,
8
e
n
u
J

7
0
0
2

$556

631

130

224

$420

$407

The table below sets forth Kazankovskaya’s income and expenses for the period from acquisition of the controlling inter-
est in Yuzhkuzbassugol:

,
1
3
r
e
b
m
e
c
e
D
o
t

m
o
r
f
d
o
i
r
e
P

8
e
n
u
J

7
0
0
2

US$ million

Revenue

Cost of revenue

Other expenses, including income taxes

Net loss

Group’s share of loss of the associate

(11)

(5)

$(9)

$(5)

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

181

Highveld Steel and Vanadium Corporation
On July 13, 2006, the Group acquired a 24.9% ownership interest in Highveld (Note 4). The Group determined that its own-
ership interest in Highveld represents an investment in an associate and accounted for it under the equity method.

In 2006, the acquisition of a 24.9% ownership interest in Highveld was accounted for based on provisional values as the
associate, as of the date of authorisation of issue of the financial statements for the year ended December 31, 2006, had
not completed valuation of assets in accordance with IFRS 3. In 2007, the Group completed purchase price allocation and
recognised adjustments to the provisional values of identifiable assets, liabilities and contingent liabilities of Highveld as
of July 13, 2006.

The table below sets forth the fair values of Highveld’s consolidated identifiable assets, liabilities and contingent liabilities
at July 13, 2006:

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
n
i
F

US$ million

Mineral reserves

Other property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash and cash equivalents

Assets of disposal groups classified as held for sale

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Liabilities directly associated with disposal groups classified as held for sale

Total liabilities

Net assets

Fair value of net assets attributable to 24.9% ownership interest

Purchase consideration

Goodwill (Note 5)

including goodwill associated with disposal groups subsequently classified as held for sale

$241

306

–

112

285

1,104

172

273

–

475

$ –

419

352

149

108

170

1,276

184

323

545

$629

$731

$157

$216

$59

–

$182

$216

$34

$16

Annual Report 2007

Evraz Group S. A.

182

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

11.

Investments in Joint Ventures and Associates / Highveld Steel and Vanadium Corporation (Continued)

The table below sets forth Highveld’s assets and liabilities as of December 31, 2006:

US$ million

Property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash and cash equivalents

Assets of disposal groups classified as held for sale

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Liabilities directly associated with disposal groups classified as held for sale

Total liabilities

Net assets

,
1
3
r
e
b
m
e
c
e
D

6
0
0
2

$489

344

167

176

1,321

192

275

530

$791

On February 26, 2007, when the Board of directors of the Company approved the acquisition transaction, the comple-
tion of the acquisition of controlling interest in Highveld became probable and the Group recognised liabilities to Anglo
and Credit Suisse under the option agreements (Note 4) in the amount of $442 million.

As a result, taking into account the eventual exercise of potential voting rights under the option agreements concluded
by the Group with Anglo and Credit Suisse in 2006 in respect of an additional 54.1% ownership interest in Highveld, under
which the exercise price for put and call options was fixed and adjusted for dividends to be distributed by Highveld to Anglo
and Credit Suisse, the Group, in substance, obtained access to the economic benefits associated with that additional own-
ership interest. Consequently, the Group accounted for a 79% ownership interest in the associate under the equity method
beginning February 26, 2007.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

183

The table below sets forth the provisional fair values of Highveld’s consolidated identifiable assets, liabilities and contin-
gent liabilities at February 26, 2007, when the beneficial interest was increased:

s
e
u
l
a
v

r
i
a
f

f
o

n
o
i
t
a
m

i
t
s
e

l
a
i
t
i
n
I

l
a
n
o
i
s
i
v
o
r
p

s
e
u
l
a
v

r
i
a
f

d
e
t
s
u
d
A

US$ million

Property, plant and equipment

Intangible assets

Other non-current assets

Inventories

Accounts and notes receivable

Cash and cash equivalents

Assets of disposal groups classified as held for sale

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Liabilities directly associated with disposal groups classified as held for sale

Total liabilities

Net assets

Fair value of net assets attributable to 54.1% beneficial ownership interest

Purchase consideration consisting of a liability under the option agreements

Excess of interest in the net fair value of acquiree’s identifiable assets,
liabilities and contingent liabilities over the cost of acquisition

$375

310

162

451

1,421

176

343

599

$413

385

184

330

1,443

180

335

609

$822

$834

$444

$442

$(2)

$451

$442

$(9)

The Group classified assets, including goodwill, and liabilities of the businesses to be disposed of in accordance with the
resolution of the European Commission as disposal groups held for sale (Note 12).

Annual Report 2007

Evraz Group S. A.

184

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

11.

Investments in Joint Ventures and Associates / Highveld Steel and Vanadium Corporation (Continued)

The table below sets forth Highveld’s income and expenses for the periods from its acquisition till the date when the en-
tity became a subsidiary of the Group:

m
o
r
f
d
o
i
r
e
P

,
6
2

y
r
a
u
n
a
J

l
i
r
p
A
o
t

7
0
0
2

,
1
3
r
e
b
m
e
c
e
D

m
o
r
f
d
o
i
r
e
P

o
t
3
1

y
l
u
J

6
0
0
2

US$ million

Revenue

Cost of revenue

Other expenses, including income taxes

Net profit

Group’s share of profits of the associate

$351

(276)

(42)

$33

$21

$481

(376)

(37)

$68

$17

12. DISPOSAL GROUPS HELD FOR SALE
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value
less costs to sell were as follows as of December 31:

7
0
0
2

6
0
0
2

5
0
0
2

US$ million

Land

Other property, plant and equipment

Goodwill

Other non-current assets

Current assets

Assets classified as held for sale

Liabilities directly associated with assets classified as held for sale

Net assets classified as held for sale

161

–

276

$230

–

105

$82

$ –

–

$ –

At December 31, 2006, assets held for sale were mostly represented by OAO Nerungriugol (“Nerungriugol”), a subsidiary,
which the Group intended to dispose of in April 2007. In addition, these assets included a few small subsidiaries involved
in non-core activities (construction business, trading activity and recreational services), certain assets located at one of the
Group’s steel subsidiaries and a parcel of land, which were expected to be sold in 2007.

Nerungiugol was included in the mining segment of the Group’s operations. The Group recognised a $66 million impair-
ment loss of Nerungriugol’s assets based on intended disposal terms and included it in loss on assets held for sale in the
consolidated income statement for the year ended December 31, 2006. The other losses on assets held for sale for the year
ended December 31, 2006 related to OOO Nikomogneupor, the Group’s subsidiary involved in the production of refrac-
tory materials, which was sold in November 2006.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

185

In addition, in 2006, the Group recognised an impairment loss of $5 million for write-down of land to fair value which was
included in gain/(loss) on assets held for sale in the consolidated income statement for the year ended December 31,
2006. In 2007, the Group reversed this impairment and recorded the gain on sale of land in the amount of $4 million.

On April 25, 2007, the Group completed the sale of Nerungriugol, the Group’s subsidiary, which was classified as a dis-
posal group held for sale in 2006. The total disposal consideration amounted to $84 million. Upon completion of the
transaction, the Group recognised additional loss representing the difference between the estimated recoverable amount
of the disposal group as of December 31, 2006 and actual proceeds. This additional loss amounting to $3 million was in-
cluded in the consolidated income statement for the year ended December 31, 2007.

In 2007, for the purpose of acquisition of Highveld (Note 4), the Group committed to divest Highveld's vanadium extraction,
vanadium oxides and vanadium chemicals plants located at the Vanchem site in Witbank, Republic of South Africa (collec-
tively referred to as the Vanchem operations) along with an equity interest or a portion of the Mapoch iron and vanadium ore
mine which guarantees supply of ore and slag to Vanchem operations. The divestment package also includes a ferrovanadium
smelter located on the site of Highveld steel facility and Highveld's 50% shareholding in SAJV, a joint venture between High-
veld and two Japanese partners which own another ferrovanadium smelter at the same site. The assets and liabilities of the above
mentioned business units were classified as assets and liabilities of disposal groups held for sale (Notes 4 and 11).

The Group was obliged to enter into a binding agreement for the sale of the divestment package by November 20, 2007.
In November 2007, the sale of the divestment package was extended to January 20, 2008 (Note 31). The Highveld di-
vestment package was included in the steel segment of the Group’s operations.

In addition, the assets held for sale at the date of acquisition of ownership interests in Highveld (Notes 4 and 11) included two
divisions of Highveld (Transalloys, producing manganese alloys, and Rand Carbide, producing ferrosilicon and various
carbonaceous products). Transalloys division was sold in July 2007 for cash consideration of $136 million, which approx-
imated the carrying value of the disposed assets.

The table below demonstrates the carrying values of assets and liabilities of the subsidiaries and other business units dis-
posed of in 2007:

s
e
t
a
d
e
h
t

t
A

l
a
s
o
p
s
i
d
f
o

US$ million

Property, plant and equipment

Other non-current assets

Accounts and notes receivable

Cash

Assets held for sale acquired in business combinations

Total assets

Non-current liabilities

Deferred income tax liabilities

Current liabilities

Total liabilities

Net assets

$74

–

137

239

–

$232

Annual Report 2007

Evraz Group S. A.

186

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

12. Disposal Groups Held for Sale (Continued)

Cash flow on disposal of the subsidiary and other business units was as follows:

US$ million

Net cash disposed with the subsidiary

Cash received

Net cash inflow

13. CASH AND CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BANKS
Cash and cash equivalents were denominated in the following currencies as of December 31:

US$ million

Russian rouble

US dollar

Euro

Czech koruna

South African rand

Other

7
0
0
2

$55

105

6
0
0
2

$110

632

$ –

223

$223

5
0
0
2

$96

421

–

The above cash and cash equivalents mainly consist of cash at banks.

Restricted deposits at banks were as follows as of December 31:

US$ million

Deposits to secure bank loans

Other

Less: deposits with current maturities

The deposits were mainly denominated in US dollars.

$327

$842

$641

7
0
0
2

$ –

–

6
0
0
2

–

$12

5
0
0
2

$25

(24)

Annual Report 2007

Evraz Group S. A.

187

5
0
0
2

$ –

–

$48

MAKING THE WO RLD ST RO NGER

14. OTHER NON-CURRENT ASSETS
Other non-current assets were as follows as of December 31:

US$ million

Prepayments for acquisition of subsidiaries

Deposit to secure put option for the shares of OAO Vanady

Deposit to secure put option for the Highveld’s shares (Note 4)

Deferred income tax assets (Note 8)

Long-term input VAT

Loans issued to related parties (Note 28)

Loans receivable (Note 28)

Trade and other receivables (Note 28)

Other

7
0
0
2

$1,060

126

–

6
0
0
2

–

207

–

$1,317

$271

As of December 31, 2007, prepayments for acquisition of subsidiaries represent the amounts paid for the businesses in the
Ukraine (Note 31).

Deposit to secure put option for the Highveld’s shares did not earn interest and matured upon the completion of the trans-
action (Note 29).

On December 20, 2007, the Group signed an option agreement with OOO SGMK-Engineering in respect of shares of
OAO Vanady, a vanadium refinery located in Russia. Under the agreement, the Group has the right to acquire (and OOO
SGMK-Engineering has the right to sell to the Group) 90.84% of shares of OAO Vanady for 3,140 million roubles ($128
million at the exchange rate as of December 31, 2007). The option expires on December 31, 2008. The exercise of the op-
tion is conditional upon the receipt of the approval of the regulatory authorities. As of the date of the issuance of these
consolidated financial statements, the Group did not apply for this approval and the option was not exercisable. To secure
the put option the Group provided the seller with the repayable non-interest bearing deposit in the amount of 3,091 mil-
lion roubles ($126 million at the exchange rate as of December 31, 2007).

Amounts receivable from related parties represent rouble-denominated loans granted by Yuzhkuzbassugol to
Kazankovskaya (Note 11) in 2004–2005. The loans bear interest of 10% per annum and mature in 2013.

Annual Report 2007

Evraz Group S. A.

188

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

15. INVENTORIES
Inventories consisted of the following as of December 31:

US$ million

Raw materials and spare parts, at cost

Work-in-progress, at cost

Finished goods:

– at cost

– at net realisable value

Allowance for obsolete and slow-moving items

7
0
0
2

$762

202

623

–

1,587

(12)

6
0
0
2

$431

106

334

877

(13)

5
0
0
2

$434

115

282

154

985

(21)

$1,575

$864

$964

As of December 31, 2007, 2006 and 2005, certain items of inventory with an approximate carrying amount of $415 mil-
lion, $194 million and $204 million, respectively, were pledged to banks as collateral against loans provided to the Group
(Note 20).

16. TRADE AND OTHER RECEIVABLES
Trade and other receivables consisted of the following as of December 31:

US$ million

Trade accounts receivable

Other receivables

Allowance for doubtful accounts

7
0
0
2

$1,119

1,194

(77)

$1,117

6
0
0
2

$586

615

(59)

$556

5
0
0
2

$403

424

(49)

$375

Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

189

17. RELATED PARTY DISCLOSURES
For the purposes of these financial statements, parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in making financial or operational decisions. In con-
sidering each possible related party relationship, attention is directed to the substance of the relationship, not merely the
legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties
may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

Amounts owed by/to related parties at December 31 were as follows:

US$ million

Corber

Crondale

Evrazmetall-Centre

Evrazmetall-Sibir

Evrazmetall-Ural

Ferrotranstrade

Marens

Raspadsky Ugol

SEAR-MF

Sojitz Noble Alloys Corp.

Yuzhkuzbassugol

Other entities

Less: allowance for doubtful accounts

7
0
0
2

6
0
0
2

5
0
0
2

7
0
0
2

6
0
0
2

Amounts due from related parties

Amounts due to related parties

$ –

–

(2)

$60

$ –

–

$54

$14

–

(5)

$90

$70

$151

–

136

–

$136

–

176

–

$176

5
0
0
2

$ –

275

–

315

–

$315

Annual Report 2007

Evraz Group S. A.

190

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

17. Related Party Disclosures (Continued)

Transactions with related parties were as follows for the years ended December 31:

US$ million

Evrazmetall-Centre

Evrazmetall-Chernozemie

Evrazmetall-Povolzhie

Evrazmetall-Severo-Zapad

Evrazmetall-Sibir

Evrazmetall-Ural

Evro-Aziatskaya Energy Company

Ferrotranstrade

KMK- Energo

Marteck Shipping

Raspadsky Ugol

Sojitz Noble Alloys Corp.

Yuzhkuzbassugol

Other entities

7
0
0
2

6
0
0
2

5
0
0
2

7
0
0
2

6
0
0
2

Sales to related parties

Purchases from related parties

$144

$141

$100

$ –

137

157

–

$632

146

150

–

$664

123

–

$400

–

192

121

–

104

–

279

5
0
0
2

$ –

–

147

–

426

$369

$523

$729

In addition to the balances and transactions disclosed in this note, loans due to and receivable from related parties are pre-
sented separately in the consolidated balance sheets and in Note 14.

Corber is the Group’s joint venture (Note 11). At December 31, 2007 and 2006, amounts due to Corber represented ad-
vances received from the entity in respect of dividends to be declared for 2007. At December 31, 2005, amounts due
from Corber represented dividends receivable from the entity in respect of 2005.

Crosland Global Limited (“CGL”) was the Company’s parent up to August 3, 2006 (Note 1). In 2005, the Company pro-
vided a $200 million short-term loan to CGL which bore interest of 4.25% per annum. The loan was fully repaid in 2005.

Crondale is an entity under control of an ultimate principal shareholder of the Group. At December 31, 2005, accounts
payable to Crondale represented the Group’s liabilities for the purchase of 50% share in Yuzhkuzbassugol payable by Jan-
uary 31, 2006 (Note 11). In 2006, the Group fully repaid its liabilities to Crondale.

OOO Evrazmetall-Centre, OOO Evrazmetall-Sibir, OOO Evrazmetall-Ural, OOO Evrazmetall-Povolzhie, OOO Evrazmet-
all-Severo-Zapad, OOO Evrazmetall-Chernozemie were the entities under control of an ultimate principal shareholder of
the Group and purchased steel products from the Group. In 2007, 2006 and 2005, the Group sold approximately 5%, 7%
and 6%, respectively, of volume of steel products to these entities. The transactions were made on terms equivalent to
those that prevail in arm’s length transactions. In December 2007, the ultimate principal shareholder of the Group sold
its ownership interests in these companies and they ceased to be the related parties to the Group.

OOO Evro-Aziatskaya Energy Company (“EvrazEK”), an energy generating company, was an entity under common con-
trol. In 2006, the Group acquired the entity (Note 4). EvrazEK supplies natural gas, steam and electricity to certain sub-
sidiaries of the Group and purchases steel products and materials from the Group companies.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

191

OAO Ferrotranstrade (“Ferrotranstrade”), an entity under control of an ultimate principal shareholder of the Group, acted
as the Group’s sales agent. In 2007, Ferrotranstrade ceased to be a related party with the Group.

KMK-Energo, an entity under control of an ultimate principal shareholder of the Group, supplied electricity to certain sub-
sidiaries of the Group. In 2006, KMK-Energo was liquidated and ceased to be a related party with the Group.

Marens is an entity under control of ultimate principal shareholders of the Group. In 2007, the Group granted a short-term
interest-bearing loan to Marens for financing the construction of the office building to be rented by one of the Group’s sub-
sidiaries.

Marteck Shipping Limited (“Marteck Shipping”), an entity under control of an ultimate principal shareholder of the Group,
provided freight services to the Group. At the end of 2005, Marteck Shipping discontinued entering into new shipping con-
tracts and the business was assumed by the Group. The transactions were made at prevailing market prices at the dates
of transactions.

OOO Raspadsky Ugol (“Raspadsky Ugol”), a subsidiary of the Group’s joint venture, sells coal to the Group. Raspadsky
Ugol represents approximately 16% of volume of the Group’s coal purchases. In 2007, coal was sold at prevailing market
prices at the dates of transactions.

ZAO SEAR MF (“SEAR MF”) is an entity under control of an ultimate principal shareholder of the Group. The accounts
payable to SEAR-MF represent zero-interest loans to Yuzhkuzbassugol.

Sojitz Noble Alloys Corp. (“Sojitz”), a Japanese trade house, is a minority shareholder of Stratcor, the Group’s subsidiary.
Sojitz exercises a significant influence over Stratcor. In 2007 and 2006, Sojitz acted as a sales agent of Stratcor. At De-
cember 31, 2007 and 2006, other long-term liabilities (Note 25) include a $14 million financial liability in respect of the fixed
cumulative preferred dividends of $1 million per year payable to Sojitz.

Yuzhkuzbassugol, the major coal supplier, was the Group’s associate. In 2005, the Group sold coal to processing mills of
Yuzhkuzbassugol. The transactions were made at prevailing market prices at the dates of transactions.The entity provides ap-
proximately 50% of volume of the Group’s coal purchases. In 2007, Yuzhkuzbassugol became the Group’s subsidiary (Note 4).

Compensation to Key Management Personnel
Key management personnel totalled 48, 46 and 33 persons as at December 31, 2007, 2006 and 2005, respectively. Total
compensation to key management personnel were included in general and administrative expenses in the accompanying
income statement and consisted of the following:

US$ million

Salary

Performance bonuses

Social security taxes

Share-based payments (Note 23)

Termination benefits

Other benefits

7
0
0
2

$25

$69

6
0
0
2

$18

–

$54

5
0
0
2

$11

–

$41

Annual Report 2007

Evraz Group S. A.

192

US$ million

Input VAT

Other taxes

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

18. OTHER TAXES RECOVERABLE
Taxes recoverable were denominated in roubles and consisted of the following as of December 31:

7
0
0
2

$270

$343

6
0
0
2

$264

$331

5
0
0
2

$384

$461

Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT
payable to the tax authorities on the Group’s revenue or direct cash receipts from the tax authorities. Management periodically
reviews the recoverability of the balance of input value added tax and believes it is fully recoverable within one year.

19. EQUITY
Share Capital
As described in Note 1, Evraz Group was formed through a series of transactions between entities under common control
with the Group. Prior to the reorganisation of the Group, in which 95.83% of Mastercroft shares were contributed into
Evraz Group, share capital of the Group comprised the share capital of Mastercroft.

Share Capital of Mastercroft
At December 31, 2004, the authorised and issued share capital of Mastercroft comprising 300,019,666 ordinary shares
of $1 each was paid up to $169 million.

In January 2005, prior to the completion of the Group’s reorganisation, Mastercroft called up for payment the remaining
$131 million for shares issued in 2003 and received this amount from Crosland.

As Mastercroft is a subsidiary of Evraz Group at December 31, 2007, 2006 and 2005, the share capital of Mastercroft is
eliminated on consolidation.

Share Capital of Evraz Group

Number of shares

Authorised

Ordinary shares of €2 each

Issued and fully paid

Ordinary shares of €2 each

7
0
0
2

6
0
0
2

5
0
0
2

157,204,326

118,309,653

117,499,606

116,904,326

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

193

As of December 31, 2004, Evraz Group issued 15,500 ordinary shares with par value of €2 each, which resulted in the share
capital of €31,000 ($42 thousand at the exchange rate as of December 31, 2004). As of December 31, 2004, these shares
were fully paid. On April 5, 2005, Evraz Group issued additional 107,204,325 ordinary shares with a par value of €2 each
in exchange for the contribution of 95.83% of Mastercroft shares. On the same date, the share capital of Evraz Group was
reduced by the cancellation of 15,499 ordinary shares with par value of €2 each. As the consideration for these addi-
tional shares issued subsequent to year end has been accounted for in the consolidated financial statements as at De-
cember 31, 2004, the April 5, 2005 issue of shares resulted in a capitalisation of reserves within equity.

On May 17, 2005, the Group’s shareholders resolved to increase authorised share capital to €314,408,652 represented
by 157,204,326 shares with par value of €2 each.

On June 7, 2005, 29,100,000 global depositary receipts, representing additionally issued 9,700,000 shares with par value
of €2 each (totalling $24 million at the exchange rate as of June 7, 2005) were placed on the London Stock Exchange for $422
million. Share premium arising on the share issue amounted to $376 million, net of transaction costs of $22 million.

In 2006, some of the share options granted under the Company’s Incentive Plan (Note 23) were exercised. The Company is-
sued 595,280 shares with par value of €2 each and received $26 million in cash from the Plan’s participants. Share pre-
mium of $24 million arising on the transaction was included in additional paid-in capital.

In 2007, the grantees exercised additional share options. The Company issued 810,047 shares with par value of €2 each
and received $35 million in cash from the Plan’s participants. Share premium of $33 million arising on the transaction was
included in additional paid-in capital.

Starting from May 23, 2007, the Group made a decision to cease the issuance of new shares under the share options
plans. Since that date the Group acquires its own shares on the open market for the grantees. During 2007, the Group pur-
chased 299,528 treasury shares for $41 million and sold 298,991 shares to participants at exercise prices determined in
the Incentive Plans. The excess of the purchase cost of treasury shares over the proceeds from their sale amounting to $27
million was charged to accumulated profits.

As of December 31, 2007, the Group had 535 treasury shares.

Shareholders of Evraz Group are entitled to standard rights provided under the laws of Luxembourg to shareholders of stock
companies (“société anonyme”). These rights comprise the right to vote at the shareholders meetings and the right to re-
ceive dividends.

Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted aver-
age number of ordinary shares in issue during the period.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the
weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary
shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.

As the number of shares has increased as a result of the reorganisation of the Group in transactions between entities under
common control, the earnings per share for the year ended December 31, 2005 have been calculated based on the assump-
tion that the number of shares issued on April 5, 2005 was outstanding from the beginning of the earliest period presented.

Annual Report 2007

Evraz Group S. A.

194

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

19. Equity / Earnings per Share (Continued)

In 2005–2007, share options granted to participants of the Group’s Incentive Plans (Note 23) had a dilutive effect. The Group
has no other potential dilutive ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

7
0
0
2

6
0
0
2

5
0
0
2

US$ million

Weighted average number of ordinary shares for basic earnings per share

118,076,909

117,073,156

112,731,997

Effect of dilution: share options

890,306

829,804

132,141

Weighted average number of ordinary shares adjusted for the effect of dilution

118,967,215

117,902,960

112,864,138

Profit for the year attributable to equity holders of the parent, US$ million

Basic earnings per share

Diluted earnings per share

$2,144

$18.16

$18.02

$1,377

$11.76

$11.68

$918

$8.14

$8.13

Dividends
On January 13, 2005, directors of Mastercroft approved distribution of dividends of $131 million to Crosland and other
shareholders registered as of December 31, 2004, which represents $0.44 of dividends per share.

Dividends declared by Evraz Group S.A. were as follows:

n
o
i
t
a
r
a
l
c
e
d

f
o

e
t
a
D

t
a
d
e
r
e
t
s
i
g
e
r

s
r
e
d
o
h
o
T

n
o

s
d
n
e
d
i
v
i
D

,
d
e
r
a
l
c
e
d

i
l
l
i

m
$
S
U

Interim for 2005

Final for 2005

Interim for 2006

Final for 2006

Interim for 2007

27/07/2005

31/05/2005

24/11/2005

20/06/2006

14/11/2006

20/06/ 2007

20/06/2007

04/10/2007

19/10/2007

200

193

158

229

390

568

r
e
p
$
S
U

e
r
a
h
s

1.87

1.65

1.35

1.95

3.30

4.80

The final dividends for 2006 and 2005 were distributed from accumulated profits to the extent that distributable amounts
were available as of December 31, 2006 and 2005, respectively. Distributable profits were determined based on separate
financial statements of Evraz Group S.A. prepared in accordance with the statutory requirements. The amount of $283 mil-
lion and $117 million representing the excess of declared dividends over the Company’s distributable accumulated profits
as of December 31, 2006 and 2005, respectively, reduced additional paid-in capital in 2007 and 2006, respectively.

In addition, in 2007, 2006 and 2005, certain subsidiaries of the Group declared dividends. The share of minority share-
holders in those dividends was $40 million, $50 million and $23 million, respectively.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

195

Legal Reserve
According to the Luxembourg Law, the Company is required to create a legal reserve of 10% of share capital per the Lux-
embourg statutory accounts by annual appropriations which should be at least 5% of the annual net profit per statutory
financial statements. The legal reserve can be used only in case of a bankruptcy.

Acquisitions of Minority Interests by a Joint Venture
In 2005, Corber, the Group’s joint venture, acquired additional 1.43% ownership interest in Raspadskaya, Corber’s subsidiary,
for cash consideration of $1 million. The 50% of excess of the carrying value of acquired minority interest over the amount
of consideration paid by the joint venture amounting to $3 million was recorded in additional paid-in capital (Note 11).

Acquisitions of Minority Interests by an Associate
In 2006, Yuzhkuzbassugol, the Group’s associate, acquired an additional 13% ownership interest in OAO Kuznetsk-
pogruztrans, Yuzhkuzbassugol’s subsidiary, for cash consideration of $1 million. The 50% of excess of the carrying value
of acquired minority interest over the amount of consideration paid by the associate amounting to $1 million was recorded
in additional paid-in capital (Note 11).

Sale of Shares in a Joint Venture’s Subsidiary
In November 2006, Corber sold 18% shares in Raspadskaya to public investors for cash consideration of $301 million.
The 50% of the excess of the amount of consideration over 18% of the net assets of Raspadskaya at the date of the sale
amounting to $58 million was included in additional paid-in capital (Note 11).

Acquisitions of Minority Interests in Subsidiaries
In 2006 and 2005, the Group acquired minority interests in certain subsidiaries (Note 6). The excess of acquired minority in-
terests over the consideration amounting to $1 million and $2 million, respectively, was recorded as additional paid-in
capital and the excess of consideration over the carrying value of minority interests amounting to $42 million and $131
million, respectively, was charged to accumulated profits.

Allocation of Losses of Prior Periods to Minority Shareholders
Prior to 2006, losses of the minority in Caplink (Note 1) exceeded the minority interest in Caplink’s consolidated equity.
These losses were allocated to the Group due to the minority had no obligations to cover losses. In 2006, a minority share-
holder paid $5 million to the charter capital of Caplink and the Group recovered the accumulated losses.

20. LOANS AND BORROWINGS
Short-term and long-term loans and borrowings were as follows as of December 31:

US$ million

Bank loans

8.25 per cent notes due 2015

10.875 per cent notes due 2009

8.875 per cent notes due 2006

Unamortised debt issue costs

Interest payable

7
0
0
2

6
0
0
2

5
0
0
2

$5, 604

$1,556

$1,132

750

300

–

(82)

750

300

–

(40)

750

300

175

(36)

$6, 611

$2,596

$2,350

Annual Report 2007

Evraz Group S. A.

196

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

20. Loans and Borrowings (Continued)

As of December 31, 2007, 2006 and 2005, total interest bearing loans and borrowings consisted of short-term loans and
borrowings in the amount of $1,116 million, $608 million and $500 million, respectively, and long-term loans and bor-
rowings in the amount of $5,538 million, $1,998 million and $1,857 million, respectively, including the current portion of
long-term liabilities of $804 million, $104 million and $310 million, respectively.

In the years ended December 31, 2007, average effective annual interest rates were as follows:

Russian rouble

US dollar

Euro

South African rand

Canadian dollar

Czech koruna

7
0
0
2

6
0
0
2

5
0
0
2

7
0
0
2

6
0
0
2

Long-term borrowings

Short-term borrowings

9.1%

7.9%

5.9%

–

7.3%

–

8.6%

8.3%

5.6%

–

12.5%

8.7%

5.9%

–

8.0%

6.2%

5.5%

12.5%

–

7.1%

6.6%

3.8%

–

The liabilities are denominated in the following currencies:

7
0
0
2

6
0
0
2

5
0
0
2

8.2%

6.1%

4.1%

–

2.8%

5
0
0
2

US$ million

Russian rouble

US dollar

Euro

Canadian dollar

Czech koruna

Unamortised debt issue costs

$182

6,195

311

–

(82)

$6,611

$24

2,308

304

–

(40)

$2,596

$18

1,987

354

–

(36)

$2,350

Some of the loan agreements and terms and conditions of guaranteed notes provide for certain covenants in respect of
Evraz Group S.A. and its subsidiaries. The covenants impose restrictions in respect of certain transactions and financial ra-
tios, including restrictions in respect of indebtedness and profitability.

At December 31, 2007, the Group’s borrowings included the loan from ZAO Raiffeisen Bank with the carrying amount of
$19 million. In Setember 2007, one of the loan covenants related to the level of the sales proceeds passing through the
lender’s account was breached. In October 2007, the Group obtained a waiver letter from the lender in respect of this
covenant violation.

The Group pledged its rights under some export contracts as collateral under the loan agreements. All proceeds from sales of
steel pursuant to these contracts can be used to satisfy the obligations under the loan agreements in the event of a default.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

197

At December 31, 2007, 2006 and 2005, the Group had equipment with a carrying value of $121 million, $39 million and
$156 million, respectively, pledged as collateral under the loan agreements. In addition, the Group pledged finished goods
with a carrying value of $415 million, $194 million and $204 million as of December 31, 2007, 2006 and 2005, respec-
tively.

Guaranteed Notes
In September and December 2003, EvrazSecurities, the Group’s subsidiary, issued notes amounting to $175 million. The
notes bore interest of 8.875% per annum payable semi-annually and matured on September 25, 2006. Mastercroft Lim-
ited, Ferrotrade Limited, Zapsib, NTMK, NKMK and KGOK, the Group’s subsidiaries, jointly and severally, guaranteed the
due and punctual payments of all amounts in respect of the notes except that NKMK’s and KGOK’s liabilities were limited
to $138 million and $202 million, respectively. On September 25, 2006, EvrazSecurities repaid all its liabilities under the
guaranteed notes.

In August and September 2004, EvrazSecurities issued notes amounting to $300 million. The notes bear interest of
10.875% per annum payable semi-annually and mature on August 3, 2009. Mastercroft Limited, Ferrotrade Limited,
Zapsib, NTMK, NKMK and KGOK jointly and severally, guaranteed the due and punctual payments of all amounts in re-
spect of the notes except that the liability of Zapsib and NTMK, each, is subject to a limit of $300 million and KGOK’s li-
abilities are limited to $202 million.

In November 2005, Evraz Group S.A. issued notes amounting to $750 million. The notes bear interest of 8.25% per
annum payable semi-annually and mature on November 10, 2015. Mastercroft Limited unconditionally and irrevocably
guaranteed the due and punctual payments of all amounts in respect of the notes.

Bearer Coupon Debt Securities
On December 6, 2002, Financial Company EvrazHolding, the Group’s subsidiary, issued 1,000,000 of bearer coupon
bonds with a par value of 1,000 roubles each. These securities were issued at par value and matured on December 5,
2005. Interest payments on the coupons were due semi-annually from the date of issuance. First coupon bore inter-
est of 17.70% per annum; second coupon bore 16.50% per annum; third and fourth coupons bore 15.00% per annum;
fifth and sixth coupons bore 12.50% per annum. In December 2005, the Group repaid its liabilities under the debt se-
curities.

Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and arrangement costs paid by the Group in relation to the
arrangement of loans and issue of notes.

Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of December 31:

US$ million

Unutilised borrowing facilities

7
0
0
2

6
0
0
2

5
0
0
2

$863

$2,428

$716

Annual Report 2007

Evraz Group S. A.

198

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

21. FINANCE LEASE LIABILITIES
The Group has several lease agreements under which it has an option to acquire the leased assets at the end of lease term
ranging from 2 to 14 years. The estimated remaining useful life of leased assets varies from 3 to 21 years.

The leases were accounted for as finance leases in the consolidated financial statements. The carrying value of the leased
assets was as follows as at December 31:

US$ million

Machinery and equipment

Transport and motor vehicles

7
0
0
2

$17

$110

6
0
0
2

$10

$85

5
0
0
2

$55

The leased assets are included in property, plant and equipment in the consolidated balance sheet (Note 9).

Future minimum lease payments were as follows at December 31, 2007:

e
u
l
a
v

t
n
e
s
e
r
P

m
u
m
n
m

f
o

s
t
n
e
m
y
a
p

e
s
a
e
l

m
u
m
n
M

s
t
n
e
m
y
a
p

e
s
a
e
l

e
u
l
a
v

t
n
e
s
e
r
P

m
u
m
n
m

f
o

s
t
n
e
m
y
a
p

e
s
a
e
l

m
u
m
n
M

s
t
n
e
m
y
a
p

e
s
a
e
l

m
u
m
n
M

s
t
n
e
m
y
a
p

e
s
a
e
l

s
t
n
e
m
y
a
p
e
s
a
e
l

e
u
l
a
v

t
n
e
s
e
r
P

m
u
m
n
m

f
o

US$ million

Not later than one year

Later than one year and not later than five years

Later than five years

Less: amounts representing finance charges

2007

2006

2005

$22

(19)

$69

$15

–

$69

$16

(13)

$53

$11

–

$53

$11

(13)

$37

–

$37

In the years ended December 31, 2007, 2006 and 2005, the average interest rates under the finance lease liabilities were
9.6%, 10.4% and 12.5%.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

199

22. EMPLOYEE BENEFITS
Russian Plans
In 2007, the Russian subsidiaries of the Group continued to provide regular lifetime pension payments and lump-sum
amounts payable at the retirement date. These benefits generally depend on years of service, level of compensation and
amount of pension payment under the collective bargaining agreements. Other post-employment benefits consist of dif-
ferent compensations and certain non-cash benefits. The Group funds the benefits when the amounts of benefits fall due
for payment.

In 2006, the Group started the process of changing the system of post-employment benefits at its certain Russian sub-
sidiaries and it is planned that lifetime pension payments will be cancelled for employees retiring after January 1, 2009 and
lump-sum amounts payable at the retirement date will be stopped during 2009–2010. These benefits are planned to be
replaced by new defined benefit plans under which the contributions have to be made to a separately administered non-
state pension fund. Under the new plan, the Group matches 100% of the employees’ contributions to the fund up to 4%
of their monthly salary. The Group’s contributions become payable at the participants’ retirement dates.

USA and Canadian Plans
The Group’s subsidiaries in the USA and Canada have non-contributory defined benefit pension plans, post-retirement
healthcare and life insurance benefit plans and supplemental retirement plans that cover all eligible employees. Certain
employees that were hired after September 1, 2005 are no longer eligible to participate in the defined benefit plans. Those
employees are instead enrolled in a defined contribution plan and receive a contribution funded by the Group’s subsidiaries
equal to 3% of annual wages.

The new defined contribution plan is funded annually, and participants’ benefits vest after three years of service. The sub-
sidiaries also offer qualified Thrift (401(k)) plans to all of their eligible employees.

Other Plans
Defined benefit pension plans and a defined contribution plan are maintained by the subsidiaries located in South Africa,
Italy and the Czech Republic.

Defined Contribution Plans
The Group’s expenses under defined contribution plans were as follows:

US$ million

Expense under defined contribution plans

7
0
0
2

6
0
0
2

5
0
0
2

$220

$181

$143

Defined Benefit Plans
The Russian and the Other defined benefit plans are mostly unfunded and the USA and Canada plans are partially funded.

The components of net benefit expense recognised in the consolidated income statement for the years ended December
31, 2007, 2006 and 2005 and amounts recognised in the consolidated balance sheet as of December 31, 2007, 2006 and
2005 for the defined benefit plans were as follows:

Annual Report 2007

Evraz Group S. A.

200

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

22. Employee Benefits (Continued)

Net benefit expense (recognised in cost of sales and general and administrative expenses)

Year ended
December 31, 2007

US$ million

Current service cost

Interest cost on benefit obligation

Expected return on plan assets

Net actuarial (gains)/losses recognised in the year

Past service cost

Net benefit expense

Year ended
December 31, 2006

US$ million

Current service cost

Interest cost on benefit obligation

Expected return on plan assets

Net actuarial (gains)/losses recognised in the year

Past service cost

Net benefit expense

Year ended
December 31, 2005

US$ million

Current service cost

Interest cost on benefit obligation

Expected return on plan assets

Net actuarial (gains)/losses recognised in the year

Past service cost

Net benefit expense

Actual return on plan assets was as follows:

US$ million

Actual return on plan assets

including:

USA & Canadian plans

Russian plans

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$(8)

(15)

–

n
a
i
s
s
u
R

s
n
a
l
p

$(5)

(9)

–

(1)

r
e
h
t
O

s
n
a
l
p

$(1)

(1)

–

l
a
t
o
T

$(14)

(25)

(1)

$(14)

$(8)

$(2)

$(24)

n
a
i
s
s
u
R

s
n
a
l
p

$(4)

(6)

–

(9)

$(18)

n
a
i
s
s
u
R

s
n
a
l
p

$(2)

(5)

–

(22)

$(29)

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$ –

(1)

–

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

r
e
h
t
O

s
n
a
l
p

$ –

–

(1)

$(1)

r
e
h
t
O

s
n
a
l
p

$ –

–

$ –

7
0
0
2

$19

6
0
0
2

–

l
a
t
o
T

$(4)

(7)

(10)

$(17)

l
a
t
o
T

$(2)

(5)

–

(22)

$(29)

5
0
0
2

$ –

–

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Benefit liability

December 31, 2007

US$ million

Benefit obligation

Plan assets

Unrecognised net actuarial gains/ (losses)

Unrecognised past service cost

Benefit liability

December 31, 2006

US$ million

Benefit obligation

Plan assets

Unrecognised net actuarial gains/ (losses)

Unrecognised past service cost

Benefit liability

December 31, 2005

US$ million

Benefit obligation

Plan assets

Unrecognised net actuarial gains/ (losses)

Benefit liability

n
a
i
s
s
u
R

s
n
a
l
p

$183

(2)

181

(24)

$179

n
a
i
s
s
u
R

s
n
a
l
p

$89

(1)

(13)

$97

n
a
i
s
s
u
R

s
n
a
l
p

$79

–

(2)

$77

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$275

(199)

–

$94

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$36

(23)

–

$14

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$ –

–

$ –

201

l
a
t
o
T

$479

(201)

278

(9)

$291

l
a
t
o
T

$131

(24)

107

(12)

$117

l
a
t
o
T

$81

–

(2)

$79

r
e
h
t
O

s
n
a
l
p

$21

–

(3)

–

$18

r
e
h
t
O

s
n
a
l
p

–

r
e
h
t
O

s
n
a
l
p

–

Annual Report 2007

Evraz Group S. A.

202

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

22. Employee Benefits (Continued)

Movements in benefit obligation

US$ million

At January 1, 2005

Interest cost on benefit obligation

Current service cost

Past service cost

Change in liability due to business combinations

Benefits paid

Actuarial (gains)/losses on benefit obligation

Translation difference

At December 31, 2005

Interest cost on benefit obligation

Current service cost

Past service cost

Change in liability due to business combinations

Benefits paid

Actuarial (gains)/losses on benefit obligation

Translation difference

At December 31, 2006

Interest cost on benefit obligation

Current service cost

Past service cost

Change in liability due to business combinations

Benefits paid

Actuarial (gains)/losses on benefit obligation

Curtailment gain

Translation difference

At December 31, 2007

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$ –

–

$ –

–

(1)

(2)

–

$36

–

235

(13)

–

n
a
i
s
s
u
R

s
n
a
l
p

$52

(8)

(3)

$79

(13)

(6)

$89

–

(12)

$182

$275

r
e
h
t
O

s
n
a
l
p

–

(1)

–

(2)

$22

l
a
t
o
T

$52

(8)

(3)

$81

(12)

(7)

$131

–

319

(26)

$479

The amount of contributions expected to be paid to the defined benefit plans during 2008 approximates to $28 million.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Changes in the fair value of plan assets

US$ million

At January 1, 2006

Change in plan assets due to business combinations

Expected return on plan assets

Contributions by employer

Benefits paid

Actuarial gains/(losses) on plan assets

Translation difference

At December 31, 2006

Change in plan assets due to business combinations

Expected return on plan assets

Contributions by employer

Benefits paid

Actuarial gains/(losses) on plan assets

Translation difference

At December 31, 2007

n
a
i
s
s
u
R

s
n
a
l
p

$ –

–

(6)

–

(12)

–

n
a
i
d
a
n
a
C
&

s
n
a
l
p

A
S
U

$ –

(1)

–

153

(13)

$199

At December 31, 2007, the major categories of plan assets as a percentage of total plan assets were as follows:

USA & Canadian plans:

Equity funds and investment trusts

Corporate bonds and notes

Property

Cash

7
0
0
2

58%

22%

203

l
a
t
o
T

$ –

(7)

–

153

(26)

$201

5
0
0
2

–

r
e
h
t
O

s
n
a
l
p

$ –

–

(1)

–

$ –

6
0
0
2

25%

67%

–

Annual Report 2007

Evraz Group S. A.

204

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

22. Employee Benefits / Changes in the fair value of plan assets (Continued)

The following table is a summary of the present value of the benefit obligation, fair value of the plan assets and experi-
ence adjustments for the current year and previous four annual periods:

US$ million

Defined benefit obligation

Plan assets

(Deficit)/surplus

Experience adjustments on plan liabilities

Experience adjustments on plan assets

7
0
0
2

$479

201

(278)

(18)

6
0
0
2

$131

(107)

–

5
0
0
2

$81

–

(81)

–

4
0
0
2

$52

–

(52)

–

The principal assumptions used in determining pension obligations for the Group’s plans are shown below:

n
a
i
s
s
u
R

s
n
a
l
p

n
a
i
d
a
n
a
C

&
A
S
U

s
n
a
l
p

r
e
h
t
O

s
n
a
l
p

n
a
i
s
s
u
R

s
n
a
l
p

n
a
i
d
a
n
a
C

&
A
S
U

s
n
a
l
p

r
e
h
t
O

s
n
a
l
p

n
a
i
s
s
u
R

s
n
a
l
p

n
a
i
d
a
n
a
C

&
A
S
U

s
n
a
l
p

3
0
0
2

$29

–

(29)

–

r
e
h
t
O

s
n
a
l
p

Discount rate

Expected rate of return on assets

Future benefits increases

Future salary increase

Healthcare costs increase rate

2007

2006

2005

6.8% 5.0–6.4% 4.7–8.3%

12% 7.8–8.5%

–

3–4%

7–10%

–

0–3%

3–5%

–

6.8%

12%

–

5.8% 3.9–4.0%

7.8%

–

0–3%

3–4%

–

4.0%

–

0–3%

3–4%

–

The expected long-term rate of return on defined benefit pension plan assets represents the weighted-average asset return
for each forecasted asset class return over several market cycles.

A one percentage point change in the assumed rate of increase in healthcare costs would have insignificant effects on the
Group’s current service cost and the defined benefit obligation.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

205

23. SHARE-BASED PAYMENTS
On April 25, 2005 and September 5, 2006, the Group adopted Incentive Plans under which certain members of the Board
of Directors, senior executives and employees (“participants”) may acquire shares of the Company. The exercise price of
the options granted on June 15, 2005 under the Incentive Plan 2005 was fixed at $27.75 and $43.5 per share. Share op-
tions granted on September 5, 2006 under the Incentive Plan 2006 can be exercised for $65.37 per share.

The options become exercisable from eight months to three years from the grant date. The vesting dates under Plan 2005
are determined by the reference to the grant date, which is June 15, 2005, and become vested on the first, second and
third anniversary of the grant date. Under Plan 2006, the vesting date for each tranche is the date falling 15 days after the
date when the Board of directors decides to announce annual results. The actual and expected vesting dates are as follows:

December 15, 2005

June 15, 2006

May 11, 2007

June 15, 2007

April 16, 2008

June 15, 2008

April 16, 2009

6
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

–

99,282

5
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

63,685

555,170

–

750,000

148,904

–

1,250,000

248,183

–

496,369

2,618,855

The plans are administrated by the Board of Directors of the Company. The Board of Directors has the right to accelerate
vesting of the grant. In the event of a participant’s employment termination, all options granted to that participant,
whether vested or not, expire on termination date. All options granted to the participants, whether vested or not, become
immediately exercisable in the event of a change in the controlling shareholder.

The Group accounted for its share options at fair value pursuant to the requirements of IFRS 2 “Share-based Payment”. The
weighted average fair value of options granted during 2006 and 2005 was $14.15 and $10.88 per share, respectively. The
fair value of these options was estimated at the date of grant using the Black-Scholes-Merton option pricing model with
the following inputs, including assumptions:

Dividend yield (%)

Expected volatility (%)

Risk-free interest rates (%)

Expected life of options (years)

Market prices of the shares at the grant dates

6
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

4 – 6

45.37

5
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

6 – 8

55.00

5.42 – 5.47

4.36 – 4.59

0.7 – 2.7

$66.06

0.5 – 3

$42.90

Annual Report 2007

Evraz Group S. A.

206

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

23. Share-Based Payments (Continued)

The industry average volatility has been used for valuation of the share options granted in 2005, while for the share op-
tions granted in 2006 the historical volatility has been taken. The expected volatility reflects the assumption that it is in-
dicative of future trends which may not necessarily be the actual outcome.

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in,
share options during the years:

.
o
N

P
E
A
W

.
o
N

P
E
A
W

2007

2006

2005

.
o
N

–

2,618,855

(51,724)

–

$43.10

65.37

43.50

27.75

–

P
E
A
W

$ –

43.10

43.50

–

Outstanding at January 1

Granted during the year

Forfeited during the year

Exercised during the year:

by issue of shares

2,266,580

$48.29

2,567,131

–

496,369

(224,258)

65.37

(137,955)

(810,047)

43.50

(595,280)

by sale of shares by the Company’s parent

by purchase of shares on the open market

Outstanding at December 31

–

(298,991)

933,284

–

47.12

(63,685)

–

$48.72

2,266,580

$48.29

2,567,131

$43.10

Vested at December 31

Exercisable at December 31

176,842

42,619

$45.00

44.02

813,915

537,703

$43.50

43.50

63,685

$27.75

27.75

The weighted average share price at the dates of exercise was $111.33 and $69.92 in 2007 and 2006, respectively.

In 2006, the vesting date of the share options held by certain participants resigned from the Group was accelerated. There
have been no other modifications or cancellations to the plans during 2005–2007.

The revised expected time schedule of exercise of the share options outstanding at December 31, 2007 is presented below:

Number of shares

Immediately exercisable

April 16, 2008

June 15, 2008

April 16, 2009

6
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

1,009

90,061

5
0
0
2
n
a
l
P

e
v
i
t
n
e
c
n
I

41,610

–

669,059

131,545

222,615

–

710,669

The weighted average remaining contractual life of the share options outstanding as at December 31, 2007, 2006 and 2005
was 0.54, 0.82 and 1.68 years, respectively.

In the years ended December 31, 2007, 2006 and 2005, compensation expense arising from the share option plans
amounted to $5 million, $17 million and $8 million, respectively.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

24. PROVISIONS
In the years ended December 31, 2007, 2006 and 2005, the movement in provisions was as follows:

n
o
i
t
a
r
o
t
s
e
r

s
t
s
o
c

e
t
i
S

s
m
i
a
l
c

l
a
g
e
L

s
n
o
i
s
i
v
o
r
p

r
e
h
t
O

US$ million

At December 31, 2004

Additional provisions

Increase from passage of time

Effect of change in estimated costs and timing

Change in provisions due to business combinations

Translation difference

At December 31, 2005

Additional provisions

Increase from passage of time

Effect of change in the discount rate

Change in provisions due to business combinations

Utilised in the year

Translation difference

At December 31, 2006

Additional provisions

Increase from passage of time

Change in provisions due to business combinations

Utilised in the year

Unused amounts reversed

Translation difference

At December 31, 2007

$20

–

(9)

–

(1)

$13

–

(2)

–

(6)

–

(2)

(9)

–

$128

$11

$ –

–

$11

–

(10)

–

(24)

(8)

–

$40

Site Restoration Costs
Under the legislation, mining companies and steel mills have obligations to restore mining and certain other sites. As of
December 31, 2007, 2006 and 2005, the Group accrued a provision for site restoration costs in the amount of $128 mil-
lion, $38 million and $13 million, respectively. The liabilities were measured based on estimates of restoration costs which
are expected to be incurred in the future discounted at the annual rate ranging from 6.85% to 8.5% in 2007 and 2006.
In 2005, the discount rates varied from 17.6% to 20.9%.

207

l
a
t
o
T

$21

(9)

(1)

$29

(16)

138

(28)

(17)

$179

Annual Report 2007

Evraz Group S. A.

208

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

25. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following as of December 31:

US$ million

Earn out and synergy payments (Note 4)

Dividends payable under cumulative preference shares of a subsidiary to a related party (Note 17)

Employee income participation plans and compensations

Tax liabilities

Other liabilities

Less: current portion (Note 26)

7
0
0
2

$34

(27)

$56

6
0
0
2

$22

(1)

$47

5
0
0
2

$ –

–

(7)

Restructured taxes
Restructured taxes payable, that are included in tax liabilities in 2005, represent tax liabilities restructured in accordance
with State restructuring programme. In 2001–2003, certain of the Group’s subsidiaries agreed with the tax authorities to
restructure their liabilities under social insurance taxes, road users’ tax, other taxes and related fines and penalties.

Restructured taxes payable were carried at amortised cost being the present value of liabilities determined based on the
future cash payments discounted at the prevailing market rates at the date of each restructuring or a business combina-
tion, whichever was later.

In 2005, the tax authorities approved the forgiveness of certain restructured tax-related fines and penalties. The gain on
the forgiveness of the tax-related fines and penalties of $14 million was included in gain on financial assets and liabilities
in the consolidated income statement for the year ended December 31, 2005. Loss arising from the early repayment of
restructured taxes of $2 million was included in loss on financial assets and liabilities in the consolidated income statement
for the year ended December 31, 2005.

In 2006, the Group fully repaid its outstanding liabilities under restructuring agreements.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

209

26. TRADE AND OTHER PAYABLES
Trade and other payables consisted of the following as of December 31:

US$ million

Trade accounts payable

Long-term promissory notes with current maturities

Accrued payroll

Termination benefits

Other long-term obligations with current maturities (Note 25)

Other payables

Maturity profile of the accounts payable is shown in Note 28.

7
0
0
2

6
0
0
2

5
0
0
2

$590

$308

$249

–

193

–

123

–

102

–

$933

$462

$404

27. OTHER TAXES PAYABLE
Taxes payable were mainly denominated in roubles and consisted of the following as of December 31:

US$ million

Social insurance taxes

VAT and related fines and penalties

Property tax

Land tax

Personal income tax

Other taxes, fines and penalties

7
0
0
2

$36

$138

6
0
0
2

$27

$96

5
0
0
2

$22

138

–

$189

Annual Report 2007

Evraz Group S. A.

210

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash
and trade accounts receivable.

To manage credit risk related to cash, the Group maintains its available cash, mainly in US dollars, in reputable international
banks, Russian affiliates of international banks and major Russian banks. Management periodically reviews the credit-
worthiness of the banks in which it deposits cash.

The Group’s trade receivables consist of a large number of customers, spread across diverse industries and geographical
areas. The most part of the Group’s sales are made on terms of letter of credit. In addition, the Group requires prepayments
from certain customers.

The Group does not require collateral in respect of trade and other receivables, except when a customer asks for a pay-
ment period which is longer than normal terms. In this case, the Group requires bank guarantees or other liquid collateral.

The Group developed standard payment terms and constantly monitors the status of accounts receivable collection and
the creditworthiness of the customers.

Certain of the Group’s long-standing Russian customers for auxiliary products, such as heat and electricity, represent mu-
nicipal enterprises and governmental organisations that experience financial difficulties. The most part of doubtful debts
allowance consists of receivables from such customers. The Group has no practical ability to terminate the supply to these
customers and negotiates with regional and municipal authorities the terms of recovery of these receivables.

There are no significant concentrations of credit risk within the Group. The Group defines counterparties as having simi-
lar characteristics if they are related entities. Concentration of credit risk did not exceed 5% of gross monetary assets at
any time during the year.

The maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed below.

US$ million

Restricted deposits at banks

Financial instruments included in other non-current assets

Trade and other receivables

Loans receivable

Receivables from related parties

Short-term investments and notes receivable

Cash and cash equivalents

7
0
0
2

1,144

106

327

$1,670

6
0
0
2

$219

–

556

842

$1,723

5
0
0
2

$32

375

641

$1,163

The ageing analysis of trade and other receivables, loans receivable and receivables from related parties is presented in the
table below.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

211

t
n
e
m

r
i
a
p
m

$(1)

(53)

(9)

(5)

(39)

$(54)

5
0
0
2

$45

(7)

(3)

$54

t
n
u
o
m
a

s
s
o
r
G

t
n
e
m

r
i
a
p
m

t
n
u
o
m
a

s
s
o
r
G

t
n
e
m

r
i
a
p
m

US$ million

Not past due

Past due

less than six months

between six months and one year

over one year

2007

2006

2005

$1,167

222

133

$1,389

$(3)

(76)

(4)

(68)

$(79)

$519

177

101

$696

$(2)

(57)

(3)

(7)

(47)

$(59)

t
n
u
o
m
a

s
s
o
r
G

$410

110

$520

In the years ended December 31, 2007, 2006 and 2005, the movement in allowance for doubtful accounts was as follows:

US$ million

At January 1

Charge for the year

Utilised

Translation difference

At December 31

7
0
0
2

$59

–

$79

6
0
0
2

$54

(6)

$59

Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s ap-
proach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously moni-
toring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Group prepares a financial plan on a monthly basis which ensures that the Group has sufficient cash on demand to
meet expected operational expenses, financial obligations and investing activities for a period of 30 days. In addition, the
Group maintains credit lines and overdraft facilities that can be drawn down to meet short-term financing needs.

The Group developed standard payment periods in respect of trade accounts payable and monitors the timeliness of pay-
ments to its suppliers and contractors.

All of the Group’s financial liabilities represent non-derivative financial instruments. The following tables summarise the ma-
turity profile of the Group’s financial liabilities based on contractual undiscounted payments, incluing interest payments.

Annual Report 2007

Evraz Group S. A.

212

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

28. Financial Risk Management Objectives and Policies / Liquidity Risk (Continued)

Year ended
December 31, 2007

US$ million

Fixed-rate debt

Loans and borrowings

Principal

Interest

Finance lease liabilities

Financial instruments included in long-term liabilities

Total fixed-rate debt

Variable-rate debt

Loans and borrowings

Principal

Interest

Finance lease liabilities

Total variable-rate debt

Non-interest bearing debt

Financial instruments included in long-term liabilities

Trade and other payables

Payables to related parties

Amounts payable under put options
for shares of subsidiaries

Dividends payable

Total non-interest bearing debt

d
n
a
m
e
d
n
O

$ –

–

225

$225

n
a
h
t

s
s
e
L

s
h
t
n
o
m
3

$35

–

398

486

–

580

–

618

s
r
a
e
y
2
o
t

s
r
a
e
y
5
o
t
2

s
r
a
e
y
5
r
e
t
f
A

l
a
t
o
T

$412

110

527

947

190

1,152

–

$176

202

399

2,393

234

2,657

–

$792

$1,546

191

624

1,023

2,256

–

5,108

744

5,915

713

888

2
1
o
t
3

s
h
t
n
o
m

$131

248

1,356

235

1,604

–

$1,163

$1,896

$1,680

$3,056

$1,039

$9,059

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

Year ended
December 31, 2006

US$ million

Fixed-rate debt

Loans and borrowings

Principal

Interest

Financial instruments included in long-term liabilities

Total fixed-rate debt

Variable-rate debt

Loans and borrowings

Principal

Interest

Finance lease liabilities

Total variable-rate debt

Non-interest bearing debt
Trade and other payables

Payables to related parties

Amounts payable under put options
for shares of subsidiaries

Dividends payable

Total non-interest bearing debt

d
n
a
m
e
d
n
O

$ –

–

154

$155

n
a
h
t

s
s
e
L

s
h
t
n
o
m
3

–

250

–

250

$328

213

l
a
t
o
T

$1,531

731

2,306

1,075

1,240

346

176

609

s
r
a
e
y
2
o
t

$117

117

240

265

303

–

s
r
a
e
y
5
o
t
2

$577

243

829

130

179

–

s
r
a
e
y
5
r
e
t
f
A

$780

249

1,050

–

2
1
o
t
3

s
h
t
n
o
m

$48

154

631

683

–

176

–

205

$1,042

$543

$1,008

$1,079

$4,155

Annual Report 2007

Evraz Group S. A.

214

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

28. Financial Risk Management Objectives and Policies / Liquidity Risk (Continued)

Year ended
December 31, 2005

US$ million

Fixed-rate debt

Loans and borrowings

Principal

Interest

Payables to related parties

Principal

Interest

Total fixed-rate debt

Variable-rate debt

Loans and borrowings

Principal

Interest

Finance lease liabilities

Total variable-rate debt

Non-interest bearing debt
Trade and other payables

Payables to related parties

Financial instruments included in long-term liabilities

Amounts payable under put options
for shares of subsidiaries

Dividends payable

Total non-interest bearing debt

d
n
a
m
e
d
n
O

$ –

–

150

$150

n
a
h
t

s
s
e
L

s
h
t
n
o
m
3

$16

131

145

186

275

–

461

$673

s
r
a
e
y
2
o
t

$74

111

–

185

–

s
r
a
e
y
5
o
t
2

$488

269

–

757

125

164

–

s
r
a
e
y
5
r
e
t
f
A

$776

311

–

l
a
t
o
T

$1,597

822

1,087

2,440

–

760

880

298

315

704

$320

$922

$1,142

$4,024

2
1
o
t
3

s
h
t
n
o
m

$243

101

–

344

420

454

–

$817

Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will
affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management
is to manage and control market risk exposures, while optimising the return on risk.

Interest Rate Risk
The Group borrows on both a fixed and variable rate basis and has other interest-bearing liabilities, such as finance lease
liabilities and obligations under cumulative preference shares of one of the Group’s subsidiary.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

The Group incurs interest rate risk on liabilities with variable interest rate. The Group’s Treasury function performs analy-
sis of current interest rates and prepares forecasts for the next year. Depending on that, the management makes deci-
sions whether it would be more beneficial to obtain financing on a fixed-rate or variable-rate basis. In case of changes in
the current market fixed or variable rates the management may consider refinancing of a particular debt on more favourable
terms.

The Group does not have any financial assets with variable interest rate.

Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial asstes or liabilities at fair value through profit or loss. Therefore,
a change in interest rates at the reporting date would not affect the Group’s profits.

The Group does not account for any fixed rate financial assets as assets available for sale. Therefore, a change in interest
rates at the reporting date would not affect the Group’s equity.

Cash Flow Sensitivity Analysis for Variable Rate Instruments
Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the
reporting date would have changed profit before tax (“PBT”) by the amounts shown below. This analysis assumes that all
other variables, in particular foreign currency rates, remain constant.

s
t
n
o
p

s
i
s
a
B

T
B
P
n
o

t
c
e
f
f
E

s
t
n
o
p

s
i
s
a
B

T
B
P
n
o

t
c
e
f
f
E

s
t
n
o
p

s
i
s
a
B

215

T
B
P
n
o

t
c
e
f
f
E

Liabilities denominated in US dollars

Decrease in LIBOR

Increase in LIBOR

Liabilities denominated in euro

Decrease in EURIBOR

Increase in EURIBOR

US$ million

2007

2006

2005

(125)

(150)

$24

(14)

$(1)

(100)

(50)

150

(5)

$(3)

(50)

100

(50)

150

(5)

$(3)

Currency Risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than
the respective functional currencies of the Group’s subsidiaries. The currencies in which these transactions primarily are
denominated are euro and US dollars.

The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, manage-
ment believes that the Group is secured from currency risks as foreign currency denominated sales are used to cover re-
payment of foreign currency denominated borrowings.

Annual Report 2007

Evraz Group S. A.

216

US$ million

USD/RUB

EUR/USD

EUR/RUB

EUR/CZK

USD/CZK

USD/ZAR

USD/RUB

EUR/USD

EUR/RUB

EUR/CZK

USD/CZK

USD/ZAR

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

28. Financial Risk Management Objectives and Policies / Market Risk / Currency Risk (Continued)

The Group’s exposure to currency risk determined as the net monetary position in respective currencies was as follows:

7
0
0
2

$25

193

(313)

(102)

6
0
0
2

$147

185

(245)

(180)

(88)

5
0
0
2

$(277)

150

(149)

–

Sensitivity Analysis
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other
variables held constant, of the Group’s profit before tax. In estimating a reasonably possible change the Group used for-
eign exchange rates of forward contracts for one year at each reporting date.

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x
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)

(

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f
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)
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o

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l
i

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$
S
U

(

e
g
n
a
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c
x
e

)

(

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f
f
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)
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o

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l
l
i

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$
S
U

(

e
g
n
a
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)

(

e
t
a
r

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a
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B
P
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f
f
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)
n
o

i
l
l
i

m
$
S
U

(

2007

2006

2005

(5.80)

4.20

(7.35)

7.35

(5.45)

3.25

(4.10)

4.10

(9.40)

9.40

(17.70)

13.00

(1)

(14)

(10)

(3)

(10)

(6)

(6.10)

4.50

(9.25)

9.25

(7.00)

4.70

(3.50)

3.50

(8.40)

10.10

(15.00)

15.00

(8)

(17)

(11)

(2)

(18)

(13)

(8.35)

5.00

(10.75)

10.75

(10.00)

5.70

(4.75)

4.75

–

(14)

(16)

(8)

(3)

–

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

217

Fair Value of Financial Instruments
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts
receivable and payable, short-term and long-term loans receivable and payable with variable interest rate, promissory
notes, and restructured taxes, approximate their fair value.

The following table shows financial instruments which carrying amounts differ from fair values.

US$ million

Long-term fixed-rate bank loans

8.25 per cent notes due 2015

10.875 per cent notes due 2009

8.875 per cent notes due 2006

g
n
i
y
r
r
a
C

t
n
u
o
m
a

e
u
l
a
v

r
i
a
F

g
n
i
y
r
r
a
C

t
n
u
o
m
a

e
u
l
a
v

r
i
a
F

2007

2006

2005

$436

742

314

–

$370

747

316

–

$462

740

314

–

$406

776

330

–

g
n
i
y
r
r
a
C

t
n
u
o
m
a

$338

739

314

178

e
u
l
a
v

r
i
a
F

$313

745

332

179

$1,492

$1,433

$1,516

$1,512

$1,569

The fair value of the notes was determined based on market quotations. The fair value of long-term fixed-rate bank loans
was calculated based on the present value of future principal and interest cash flows, discounted at the Group’s market
rates of interest at the reporting dates. The discount rates ranged from 6.8% to 7.7% fro US dollar and from 5.2% to 6.5%
for euro.

Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise the return to shareholders. The Board of directors reviews the
Group’s performance and establishes key performance indicators. In addition, the Group and certain of its subsidiaries
are subject to externally imposed capital requirements (loans and bonds covenants) which are used for capital monitor-
ing. There were no changes in the objectives, policies and processes during 2007.

Capital includes equity attributable to the equity holders of the parent entity. Revaluation surplus which is included in cap-
ital is not subject to capital management because of its nature (Note 4).

The Group manages its capital structure and makes adjustments to it by issue of new shares, dividend payments to share-
holders, purchase of treasury shares. The Group monitors the compliance of the amount of legal reserve with the statu-
tory requirements and makes appropriations of profits to legal reserve. In addition, the Group monitors distributable
profits on a regular basis and determines the amounts and timing of dividends payments. The capital requirements imposed
by certain loan agreements include the following:

❘❚ consolidated equity less goodwill should be at least $2,000 million.

Annual Report 2007

Evraz Group S. A.

218

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

29. NON-CASH TRANSACTIONS
Investing and financing transactions that did not require the use of cash or cash equivalents were as follows in the years
ended December 31:

US$ million

Liabilities for purchases of property, plant and equipment

Liabilities for purchases of shares in subsidiaries and other entities

Liabilities for purchase of interest in associates/joint ventures

Refinancing of a bridge loan

Offset of restricted deposit with amounts payable to Credit Suisse
for the purchase of 24.9% of Highveld’s shares (Notes 4 and 13)

Offset of loan receivable with amounts payable for the purchase of non-current assets

Loans paid by banks to vendors for property, plant and equipment

7
0
0
2

$50

–

1,535

207

–

6
0
0
2

$20

–

5
0
0
2

$28

296

–

30. COMMITMENTS AND CONTINGENCIES
Operating Environment of the Group
Whilst there have been improvements in the Russian economic situation, such as an increase in gross domestic product
and a reduced rate of inflation, Russia continues economic reforms and development of its legal, tax and regulatory frame-
works as required by a market economy. The future stability of the Russian economy is largely dependent upon these re-
forms and developments and the effectiveness of economic, financial and monetary measures undertaken by the
government.

Taxation
Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur fre-
quently. Management's interpretation of such legislation as applied to the transactions and activity of the Group may be
challenged by the relevant regional and federal authorities. Recent events within the Russian Federation suggest that the
tax authorities are taking a more assertive position in its interpretation of the legislation and assessments and, as a result,
it is possible that transactions and activities that have not been challenged in the past may be challenged. As such, signif-
icant additional taxes, penalties and interest may be assessed.

Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has ac-
crued tax liabilities based on the management’s best estimate of the probable outflow of resources embodying economic
benefits, which will be required to settle these liabilities. Possible liabilities, which were identified by management at the
balance sheet date as those that can be subject to different interpretations of the tax laws and other regulations and are
not accrued in the accompanying financial statements could be up to approximately $19 million.

Contractual Commitments
At December 31, 2007, the Group had contractual commitments for the purchase of production equipment and con-
struction works for an approximate amount of $677 million.

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

219

Social Commitments
The Group is involved in a number of social programmes aimed to support education, health care and social infrastructure
development in towns where the Group’s assets are located. In 2008, the Group plans to spend approximately $133 mil-
lion under these programmes.

Environmental Protection
In the course of the Group’s operations, the Group may be subject to environmental claims and legal proceedings. The
quantification of environmental exposures requires an assessment of many factors, including changing laws and regula-
tions, improvements in environmental technologies, the quality of information available related to specific sites, the as-
sessment stage of each site investigation, preliminary findings and the length of time involved in remediation or settlement.
Management believes that any pending environmental claims or proceedings will not have a material adverse effect on
its financial position and results of operations.

The Group has a constructive obligation to reduce environmental polutions and contaminations in the future in accor-
dance with an environmental protection programme. In the period from 2008 to 2012, the Group is obligated to spend
approximately $245 million under this programme.

Legal Proceedings
The Group has been and continues to be the subject of legal proceedings, none of which has had, individually or in ag-
gregate, a significant effect on the Group’s operations or financial position.

The Group is involved in several litigations that may have an impact on the assets of Vitkovice Steel, the Group’s sub-
sidiary acquired in 2005 (Note 4). Accounts receivable of Vitkovice Steel include 409 million Czech koruna ($23 million at
the exchange rate as of December 31, 2007) due from OSINEK, the former parent company of Vitkovice Steel. This amount
is under dispute between OSINEK and VYSOKE PECE Ostrava, a.s. Management believes that this receivable will be re-
covered.

Stratcor, the Group’s subsidiary, together with IBM Corporation, Anglo Americam Plc., Gold Fields Ltd., UBS AG and some
other companies, acts as a defendant in an action filed in 2004. Plaintiffs allege that the defendants engaged in conspir-
acy with the Apartheid era government of South Africa in violation of international law and participated in genocide, ex-
propriation and other wrongful acts. Plaintiffs are seeking unspecified compensatory damages and exemplary damages
of $10,000 million. The Group’s potential losses under this litigation are limited to the net assets of Stratcor being $78 mil-
lion as of December 31, 2007. The management believes that the risk of losing this case is very remote.

31. SUBSEQUENT EVENTS
Acquisition of Claymont Steel
On January 16, 2008, the Group acquired 16,415,722 shares of Claymont Steel Holdings, Inc. (“Claymont Steel”) through
a tender offer, representing approximately 93.4% of the outstanding ordinary shares of Claymont Steel. Claymont Steel
is a plates producer located in the United States.

Following the acquisition of the controlling interest in Claymont Steel, the company was merged with the Group’s wholly
owned subsidiary and untendered shares were converted into the right to receive $23.50 in cash which is the same price
per share paid during the tender offer. Total cash consideration for the acquisition of a 100% ownership interest in Clay-
mont Steel amounts to approximately $422 million.

Annual Report 2007

Evraz Group S. A.

220

N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS Y E A R E N D E D D E C E M B E R 31, 2 0 0 7

31. Subsequent Events / Acquisition of Claymont Steel (Continued)

In addition to the information disclosed in respect of this acquisition, IFRS 3 “Business Combinations” requires the Group
to disclose the amounts to be recognised at the acquisition date for each class of the acquiree’s assets, liabilities and con-
tingent liabilities. It is impracticable to disclose this information because the Group has not completed purchase price al-
location in accordance with IFRS 3 “Business Combinations” and the acquired entity did not prepare IFRS financial
statements prior to the date of its acquisition.

Acquisition of Steel and Mining Businesses in the Ukraine
On December 12, 2007, Lanebrook, the ultimate parent of the Group, acquired majority shares in selected production as-
sets in the Ukraine which include the following:

❘❚ a 99.25% share holding in the Sukha Balka iron ore mining and processing complex;

❘❚ a 95.57% share holding in the Dnepropetrovsk Iron and Steel Works; and

❘❚ three coking plants (Bagleykoks – 93.74%, Dneprkoks – 98.65%, and Dneprodzerzhinsk Coke Chemical Plant – 93.83%

of shares outstanding).

Lanebrook has acquired these production assets on the working capital free and debt free basis. The share purchase agree-
ment gives the seller approximately three months (the “Settlement period”) to settle the current assets, liabilities and debt
that existed at the acquisition date and receive net settlement from Lanebrook.

On December 5, 2007, the Group signed an agreement with Lanebrook to acquire these assets. The transfer of the shares
from Lanebrook to the Group is expected to occur upon the completion of the settlement period by the end of April 2008.
Total cash consideration for the acquisition of these businesses amounts to approximately $2,031 million, comprising cash
in the amount of $1,060 million and 4,195,150 Evraz Group’s shares that will be issued for the settlement of this acquisi-
tion.

Purchase of Shares of Steel and Mining Businesses in China
On February 18, 2008, the Group entered into a Share Purchase Agreement (the “Agreement”) to acquire up to approxi-
mately 51.05% of the issued share capital of Delong Holdings Limited (“Delong”), a hot-rolled coil manufacturer, head-
quartered in Beijing (China), over an agreed period of time. This transaction is subject to anti-trust clearance by the
regulatory authorities of China.

The Share Purchase Agreement entered into between the Group, Best Decade and the shareholders of Best Decade includes
an initial sale to the Group of approximately 10% of the issued share capital of Delong (the “Initial Sale”) at 3.9459 Singapore
dollar (S$) per share (the “Offer Price”) or S$211 million ($150 million at the exchange rate as of the date of the agreement).

Best Decade has also granted the Group a call option to acquire an additional 32.08% of the issued share capital of De-
long (the “Call Option”) that is conditional upon the satisfaction of certain conditions, including obtaining antitrust approval
and clearance from Ministry of Commerse and State Administration of Industry and Commerce of China. The Call Op-
tion is exercisable within six months after February 18, 2008. The Group has granted Best Decade a put option with re-
spect to 32.08% of the issued share capital of Delong (the “Put Option”), exercisable during the same period. Both the
Call Option and the Put Option have a strike price equal to the Offer Price of S$3.9459 per share. Total consideration under
Call and Put option is S$677 million ($480 million at the exchange rate as of the date of the agreement).

Annual Report 2007

Evraz Group S. A.

MAKING THE WO RLD ST RO NGER

221

In addition, the beneficial shareholders of Best Decade have signed an undertaking to sell approximately 8.97% of the is-
sued share capital of Delong to the Group at the Offer Price when certain restrictions in place due to existing financing
arrangements are released. The purchase price of additional shares is fixed at S$3.9459 per share or S$189 million ($134
million at the exchange rate as of the date of the agreement).

Following completion of these transactions, the Group will control approximately 51.05% of the issued share capital of De-
long.

In accordance with the Singapore Code on Takeovers and Mergers, the Group will be required to make a mandatory cash
offer for the remaining Delong shares at the Offer Price upon acquisition of 30% of shares in the company.

The maximum consideration payable under that mandatory cash offer by the Group will be approximately S$484 million
($343 million at the exchange rate as of the date of the agreement), assuming a full acceptance of the mandatory offer.

Agreement to Acquire IPSCO Canada
On March 14, 2008, the Group entered into an agreement to acquire IPSCO’s Canadian plate and pipe business (“IPSCO
Canada”). IPSCO Canada is a leading North American producer of steel plate, as well as pipe for the oil and gas industry.

Under the structure of the agreed transaction, the Group will acquire the IPSCO Tubulars business from SSAB for $4,025
million. The Group has also entered into definitive back-to-back agreements with OAO TMK and its affiliates (“TMK”), the
Russian leading tubular player, to sell certain of the acquired US businesses for $1,200 million. In addition, the Group
signed an option agreement to sell the remaining acquired US businesses of IPSCO Tubulars to TMK for approximately $510
million in 2009. All of these transactions are subject to certain closing adjustments and conditions. As a result of these
transactions, the net cost of the acquisition for the Group is expected to be approximately $2,314 million.

Extension of Sale of Highveld Divestment Package
On January 20, 2008, the European Commission has further extended the divestiture period during which Highveld is
obliged to dispose of certain vanadium assets till April 20, 2008 (Note 12).

Borrowings
Subsequent to December 31, 2007, the Group signed bank loan agreements for $618 million, which include the following:

s
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w
o
r
r
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b

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s
g
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o
r
r
o
b

m
r
e
t
-
t
r
o
h
S

Russian rouble

US dollar

US$ million

Interest rate

US$ million

Interest rate

$82

$117

7.48%

4.57%

$102

399

$501

4.50–7.25%

Annual Report 2007

Evraz Group S. A.

222

Abbreviations

BRIC
Brazil, Russia, India and China

IISI
International Iron and Steel Institute

RoW
Rest of the world

Annual Report 2007

Evraz Group S. A.

223

MAKING THE WO RLD ST RO NGER

Glossary

Blast furnace
❘❚ The blast furnace is the classical production unit to re-
duce iron ore to molten iron, called hot metal. It operates
as a counter-current shaft system, where iron ore and coke
is charged at the top. While this charge descends towards
the bottom, ascending carbon containing gases and coke
reduces the iron ore to liquid iron. To increase efficiency
and productivity, hot air (often enriched with oxygen) is
blown into the bottom of the blast furnace. In order to save
coke, sometimes coal or other carbon containing materials
are injected together with this hot air. Modern blast fur-
naces can produce over 10,000 tonnes of hot metal per day.

Brownfield project
❘❚ A development or exploration project in the vicinity of
an existing operation.

Coke
❘❚ A product made by baking coal without oxygen at high
temperatures. Unwanted gases are driven out of the coal.
(The unwanted gases can be used as fuels or processed fur-
ther to recover valuable chemicals). The resulting material
(coke) has a strong porous structure. This makes it ideal for
use in a blast furnace.

Consumption
❘❚ The physical use of steel by end users. Consumption
predicts changes in inventories, unlike demand figures.

Crude steel
❘❚
Steel in its solidified state directly after casting. This is
then further processed by rolling or other treatments, which
can change its properties.

Ferroalloy
❘❚ A metal product commonly used as a raw material feed
in steelmaking, usually containing iron and other metals, to
aid various stages of the steelmaking process such as de-
oxidation, desulfurisation, and adding strength. Examples:
ferrochrome, ferromanganese, and ferrosilicon.

Flat-rolled steel
❘❚ Category of steel that includes shapes such as sheet,
strip, and tin plate.

Greenfield project
❘❚ The development or exploration of a new project not
previously examined.

Iron ore
❘❚ Chemical compounds of iron with other elements,
mainly oxygen, silicon, sulphur or carbon. Iron ore is very
abundant in the Earth’s crust. Only very pure (rich) iron-
oxygen compounds are used for steelmaking. Since the iron
is chemically bound to the accompanying elements, energy
is needed to break these bonds. This makes ore-based steel
production more energy intensive than production based
on recycled steels, where only melting is usually required.

Open-hearth furnace
❘❚ A vessel used to produce steel, which has been largely
superseded by the basic oxygen furnace (BOF). The open-
hearth method is about 10 times slower than the BOF.

Pig iron
❘❚ The solidified iron produced from a blast furnace. The
traditional moulds for pig iron were formed in sand. They
consisted of a shallow central channel with deeper depres-
sions at right-angles to the channel. Hot metal was run
along the central channel and filled the deeper depressions,
forming ingots of iron. It was thought that the ingots (also
called pigs) looked like piglets suckling on their mother. In
liquid form, pig iron is known as hot metal.

Semi-finished steel
❘❚
then rolled and processed into beams, bars, sheets, etc.

Steel products such as blooms, billets, or slabs that are

Sintering
❘❚ A process that combines iron-bearing particles into small
pellets that were recovered from environmental control fil-
ters. The pellets can be used as charge in a blast furnace.

Slab
❘❚ A very common type of semi-finished steel usually meas-
uring 10 inches thick by 30–85 inches wide, and averaging
20 feet in length. After casting, slabs are sent to a strip mill
where they are rolled and coiled into sheet and plate products.

Slag
❘❚ The impurities in a molten pool of iron. Flux may be
added to congregate the impurities into a slag. Slag is
lighter than iron and will float allowing it to be skimmed.

Vanadium
❘❚ A grey metal that is normally used as an alloying agent
for iron and steel. It is also used as a strengthener of tita-
nium-based alloys.

Vanadium pentoxide
❘❚ The chemical compound with the formula V2O5, this
orange solid is the most important compound of vanadium.
Upon heating it reversibly loses oxygen.

Annual Report 2007

Evraz Group S. A.

224

Reference Information

Feedback
If you have any comments regarding this Report please
contact:
Corporate Affairs and Investor Relations
15 Dolgorukovskaya, bldg. 4-5, Moscow 127006, Russia
Tel.: +7 (495) 232-13-70
Fax: +7 (495) 232-13-59
ir@evraz.com

❘❚ This Report, as well as the Articles of Association, cor-
porate codes and internal policies of Evraz Group S.A. are
available online via our website at www.evraz.com.

❘❚ To receive free hardcopy of this Report or the audited
financial statements please contact us at +7 495 232 1370
or through a request to ir@evraz.com.

Evraz Group S.A.
1 Allée Scheffer, L—2520, Luxembourg
R.C.S. Luxembourg B 105615
www.evraz.com
info@evraz.com

EvrazHolding, OOO
15 Dolgorukovskaya, bldg 4-5, Moscow 127006, Russia
Tel.: +7 (495) 234-46-31
info@evraz.com

GDR programme
The Bank of New York Mellon
Depositary Receipts Division
101 Barclay Street
22nd Floor
New York, NY 10286
www.adrbny.com

The Bank of New York Mellon
Shareowner Services
PO Box 11258
Church Street Station
New York, NY 10286-1258
USA
www.stockbny.com

External auditor
Ernst & Young LLC
Sadovnicheskaya Nab., 77, bld.1, Moscow, 115035, Russia

Annual Report 2007

Evraz Group S. A.

This document contains “forward-looking statements”, which include
all statements other than statements of historical facts, including,
without limitation, any statements preceded by, followed by or that
include the words “targets”, “believes”, “expects”, “aims”, “intends”,
“will”, “may”, “anticipates”, “would”, “could” or similar expressions or
the negative thereof. Such forward-looking statements involve
known and unknown risks, uncertainties and other important fac-
tors beyond Evraz’s control that could cause the actual results, per-
formance or achievements of Evraz to be materially different from
future results, performance or achievements expressed or implied by
such forward- looking, including, among others, the achievement of
anticipated levels of profitability, growth, cost and synergy of recent
acquisitions, the impact of competitive pricing, the ability to obtain
necessary regulatory approvals and licenses, the impact of develop-
ments in the Russian economic, political and legal environment,
volatility in stock markets or in the price of our shares or GDRs, fi-
nancial risk management and the impact of general business and
global economic conditions.

Such forward-looking statements are based on numerous assump-
tions regarding Evraz’s present and future business strategies and the
environment in which Evraz Group S.A. will operate in the future. By
their nature, forward-looking statements involve risks and uncer-
tainties because they relate to events and depend on circumstances
that may or may not occur in the future. These forward-looking state-
ments speak only as at the date as of which they are made, and Evraz
expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statements contained
herein to reflect any change in Evraz’s expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statements are based. The information contained in
this document is provided as at the date of this document and is sub-
ject to change without notice.

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