Guide to the world of eVrAZ
Annual Report and Accounts 2010
Nizhny TagilKuzbassCalgaryCamroseSheregeshRed DeerHot SpringsPortlandNovokuznetskKachkanarOstravaeMalahleniSan Giorgio di NogaroClaymontPuebloReginaNakhodka 2 AnnuAl RepoRt And Accounts 2010
+37%
revenue growth
in 2010
for more info see page 35
+90%
eBItdA growth
in 2010
for more info see page 35
–64%
short-term debt
decrease in 2010
for more info see page 12
+9%
steel sales increase
in 2010
for more info see page 12
#1
long steel
producer in Russia
for more info see page 35
#1
Rail producer
in Russia and the usA
for more info see page 35
LEADING
world vanadium
producer
for more info see page 35
LARGEST
crude steel
producer in Russia
for more info see page 87
BB-/Stable
by Fitch Ratings
for more info see page 79
B1/Positive
by Moody’s
for more info see page 79
B+/Stable
By standard & poor’s
for more info see page 79
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90° EVRAZ
OpERAtiOns mAp
(As of 30 April 2011)
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EVRAZ Red Deer
EVRAZ Calgary
EVRAZ Camrose
EVRAZ Regina
EVRAZ Surrey
Moscow
Vanady(cid:31)Tula
EVRAZ NTMK
ZSMK
NKMK
Evrazruda
Nikom
EVRAZ Vitkovice Steel
EVRAZ Bagliykoks
EVRAZ VGOK
EVRAZ KGOK
Raspadskaya
Yuzhkuzbassugol
EVRAZ DMZ Petrovskogo1
EVRAZ NMTP
EVRAZ Portland
EVRAZ Claymont
EVRAZ Pueblo
Stratcor
East Metals
EVRAZ Palini e Bertoli
EVRAZ DKHZ
EVRAZ Sukha Balka
Type of business:
Steel Production
Iron Ore Mining and Enrichment
Coal Mining
Equity Investment (coal)
Coke Production
Vanadium Production
Logistics
Vametco
EVRAZ Highveld Steel and Vanadium
Mapochs Mine
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1 : 100 000 000
0
800
1 600
2 400
4 800
1 From 1 April 2011 EVRAZ DMZ Petrovskogo includes production facilities of Dneprokoks coking plant
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EVRAZ’S WORLD MAP 1 AnnuAl RepoRt And Accounts 2010
CoNteNtS
4 Company overview
4
6
8
9
10
11
Who We Are
Key Events
Corporate Structure
Major Assets
Production by Region 2010
Key Performance Indicators 2006-2010
14 messages
15
17
Chairman’s Statement
Chief Executive’s Report
61 Corporate governanCe
61
62
63
65
66
71
73
76
76
78
Introduction
The Board of Directors and Senior Management
The Board
Role of the Board
Senior Management
Board and Senior Management Remuneration
Board Committee Reports
Risk Management
Internal Control
Shareholder Information
22 eConomiC and industry
overview
Overview of the Global Macroeconomic
Environment
Overview of the Steel Industry
Overview of the Coking Coal Market
Overview of the Iron Ore Market
Overview of the Vanadium Market
22
25
26
28
30
82 management report
82
Responsibility Statement of the Directors in
Respect of the Annual Report and the Financial
Statements
Independent Auditor's Report on Legal
and Regulatory Requirements Related to
Consolidated Annual Management Report
Selected Consolidated Financial Information
84
87 Management’s Discussion and Analysis of
83
33 Business overview
Our Vision and Strategy
33
Our Business
35
Steel
36
36 Steel: Russia
38 Steel: Ukraine
39 Steel: Western Europe
39 Steel: South Africa
40 Steel: North America
41 Mining
41 Mining: Coal
42 Mining: Iron Ore
Vanadium
Outlook for 2011
Key Investment Projects
45
47
48
50 Corporate responsiBility
50
51
54
Introduction
Economic Prosperity
HSE Information and Developments
54 Health and Safety
56 Environment
Our People
58
Financial Condition and Results of Operations
110 Consolidated FinanCial
statements
Independent Auditor's Report
110 Contents
112
113 Consolidated Financial Statements for the Years
Ended 31 December 2010, 2009 and 2008
121 Notes to the Consolidated Financial Statements
for the Years Ended 31 December 2010, 2009
and 2008
194 evraz group s.a. parent
Company FinanCial
statements
194 Contents
195 Responsibility Statement of the Directors
in Respect of the Annual Accounts of Evraz
Group S.A.
Independent Auditor's Report
196
197 Parent Company Financial Statements
199 Notes to the Annual Accounts for the Year Ended
31 December 2010
211 Abbreviations and Acronyms
212 Glossary of Selected Terms
214
Interesting Facts about EVRAZ
Symbols
Address
Phone
Fax
Weblink
E-mail
Information
Geographic latitude
and longitude
Greenwich Mean Time
Founded
Population
Area
Diagram
Table
Data source
Flora
Fauna
Sights
Food and drinks
Active leisure
The photograph on Pages 52-53 is one of the winners of EVRAZ’s Photo & Picture competition which attracted entries from employees on a global
basis and was organised by the EVRAZ Talent Committee. The authors of the photo are Ludmila Chirkina and Anna Chirkina of EVRAZ NTMK
page 41
page 7
page 5
About Kachkanar
Russia
Kachkanar is a town in Sverdlovsk Oblast, situated
between the Isa and Vyya Rivers, 205 kilometres
(127 miles) north of Yekaterinburg in the Tura River
basin. Originally founded as an ore mining settlement
in 1957, Kachkanar received urban-type settlement
status in 1959 and town status in 1968.
The original meaning of Kachkanar, the Kachkanar
Mountain that gave birth to the Kachkanarsky Ore
Mining and Processing Plant (now EVRAZ KGOK),
is unclear. The Tatar translation is ‘Hidden’ or
‘Disappearing’ mountain while the Turco equivalent
is 'kesh-kener’ or ‘double-humped camel'. Curiously,
the Ukrainian version is 'kachka' which translates
into ‘Duck Mountain’. The exploration of Kachkanar’s
titanomagnetite ores commenced in 1957, and KGOK
subsequently pioneered the enrichment of low-iron
content ores.
KAchKAnAR
Russian fedeRation
General information
58°42’18”N 59°28’59”E
GMT+05:00
1957
42,563 people
318,39 km2
4 AnnuAl RepoRt And Accounts 2010
Company overview
i
y
n
A
p
m
o
C
W
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i
v
r
e
v
o
Who We Are
EVRAZ Group S.A. is a global, vertically-integrated, steel,
mining and vanadium business with operations in the
Russian Federation, Ukraine, the Czech Republic, Italy,
the USA, Canada and South Africa.
We are ranked by Steel Business Briefing the 20th largest
steel company in the world, based on 2010 crude steel
production volumes.
Following an Initial Public Offering in June 2005, EVRAZ
Group’s shares are listed and traded on the London Stock
Exchange in the form of Global Depositary Receipts. Each
GDR is equivalent to one third of one Ordinary share in
EVRAZ Group S.A.
our Business
Our principal activities, which span four continents, are:
The manufacture and sale of steel and steel products
Iron ore mining and enrichment
Coal mining and processing
The manufacture and sale of vanadium products
Trading operations and logistics
EVRAZ is a premier producer of infrastructure products,
one of the world’s leading manufacturers of construction
steel and the world’s No 1 producer of rails.
In 2010:
Group revenues achieved US$13.4 billion
Employees worldwide totalled 110,000
The steel division produced 16.3 million tonnes of
crude steel and sold 15.5 million tonnes of rolled steel
products
The mining division produced 19.8 million tonnes
of iron ore, 7.5 million tonnes of raw coking coal
and 3.8 million tonnes of steam coal
The vanadium division produced 20,969 tonnes
of vanadium1 and sold 19,776 tonnes of vanadium
products.
The majority of EVRAZ’s iron ore and coking coal
requirements for steel making is supplied by its mining
operations.
our Story
The Company’s history dates back to 1992 when
Evrazmetall, a small Russian metal trading firm,
was founded. In the space of almost 20 years this
company, the forerunner of the EVRAZ Group, has been
transformed, via a programme of domestic and cross
border acquisitions, into a multinational steelmaking and
mining corporation with a US$17.6 billion asset base.
1 Primary vanadium (slag) production
5 AnnuAl RepoRt And Accounts 2010
Company overview
our mission
We are a global steel and mining Company delivering
value to our infrastructure customers.
We make the world Stronger, Safer and Cleaner.
The acquisitive growth of EVRAZ, focused on the creation
of a geographically diversified steelmaking capability
alongside a complementary resource of raw material
provides us with a stable platform for further growth.
our Values
EVRAZ is a distinctive company with distinctive values.
We believe that our responsibilities encompass all
our stakeholders including shareholders, customers,
employees and communities in the areas where we
operate. We endeavour to deliver ongoing growth and
value while, at the same time, pursuing environmentally
responsible policies within a framework of sustainability.
KAChKANAr dePoSit
Although Mount Kachkanar’s iron ore deposits would
have been visibly apparent to the Mansi, the indigenous
people of the region, they used the mountain primarily as
a sanctuary. After the Middle Urals and Trans-Urals were
integrated within the principality of Moscow during the
16th century, Russian mining industrialists focused their
attention on Kachkanar. Akinfiy Demidov, a member of
the prominent family dynasty of industrialists, wanted to
buy the entire mountain from the Mansi but the deal never
materialised.
Platinum fever subsequently broke out and led to the
construction of the historic Kachkanar mine, owned by
Count Shuvalov. In the event, the rich platinum placers
were quickly depleted and Kachkanar became the focus of
scientific research.
The systematic study of ore deposits at Kachkanar began
in the early 1930s as did research into ways in which to
enrich the Kachkanar ores and sinter the iron-vanadium
concentrate. Various pilot projects were introduced
which proved the technical feasibility of mining and
processing ores that possessed a low iron content. During
1946-1953, company Uralchermetrazvedka, carried out a
detailed exploration of the Kachkanar deposits.
The development of titanium magnetite ores at Mount
Kachkanar was first undertaken in 1957 under the
initiative of a group of mining industry executives and
professional representatives of the Urals Institute for
Mining Projects. The town of Kachkanar was founded to the
southeast of the mountain the same year. Today, mining at
the Kachkanar Mountain is conducted by EVRAZ KGOK.
6 AnnuAl RepoRt And Accounts 2010
Company overview
Key eVeNtS
2010
Ò marCh
EVRAZ won the licence to develop the Mezhegey coking
coal deposit (estimated reserves of 213.5 million tonnes
of category A+B+C1 hard coking coal) in the Republic of
Tyva, Russia.
EVRAZ’s subsidiary, OOO EvrazHolding Finance,
announced the issue of a 15 billion Rouble-denominated
bond (approx. US$506 million) with an annual coupon of
9.25% due in 2013.
EVRAZ Inc. NA announced a restructuring of its
manufacturing and commercial operations focused on
three key product groups: ‘Flat Rolled’, ‘Tubular’ and
‘Long.’
Ò april
EVRAZ sold the Koksovaya coal mine, an offshoot of
the Company’s Yuzhkuzbassugol subsidiary, to the
Raspadskaya coal company in order to derive maximum
synergies from the future development of the coal field.
EVRAZ Highveld launched Project Zero Tolerance, a
‘three-card’ health and safety programme designed to
monitor and control potential dangers in the workplace.
Ò may
At the Company’s AGM, shareholders approved the
Board’s proposal not to pay a dividend in respect of 2009.
The number of directors was reduced from ten to nine.
EVRAZ fully repaid a US$1,007 million loan to VEB utilising
a US$950 million loan from Gazprombank which will
mature in 2015.
Ò June
EVRAZ created a Health, Safety and Environmental
Committee of the Board of Directors and appointed a Vice
President of Health, Safety and Environment.
Ò oCtoBer
EVRAZ won the tender to develop the Eastern field of
the Western part of the Ulug-Khemsky coal deposit
(inferred hard coking coal – grade Zh under Russian
classification – reserves of more than 550 million tonnes
and out-of-balance reserves of more than 100 million
tonnes) in the central part of the Republic of Tyva, East
Siberia.
EVRAZ completed the first stage of the rail mill
modernisation at NKMK, initiated in June 2010.
EVRAZ’s subsidiary, OOO EvrazHolding Finance, issued
a 15 billion 5-year Rouble-denominated bond (approx.
US$490 million) with an annual coupon of 9.95% for the
purpose of refinancing EVRAZ’s existing debt.
Ò novemBer
EVRAZ Vitkovice Steel resumed steelmaking after
reaching an agreement with ArcelorMittal Ostrava
regarding supplies of liquid pig iron.
EVRAZ appointed Scott Baus, a specialist in corporate
efficiency with 25-years experience, Director of Lean.
EVRAZ signed a US$950 million structured credit facility
scheduled to mature in 2015.
EVRAZ completed a two-stage modernisation programme
at NTMK’s steel manufacturing facilities, initiated in June
2010.
Ò deCemBer
EVRAZ’s Board of Directors approved investment in
the construction of the Yuzhny Rolling Mill in the Rostov
Region of Southern Russia and the Kostanay Rolling
Mill in Kazakhstan with a combined annual production
capacity of approximately 900,000 tonnes of light
sections and rebars.
EVRAZ Highveld formed the EVRAZ eMalahleni
Community Forum – a vehicle through which all Socio-
Economic Development investments are approved and
managed.
EVRAZ acquired INPROM and amalgamated the latter’s
distribution network with that of EvrazMetall under a
new company which will become one of the largest steel
distribution enterprises in the CIS.
Moody’s adjusted EVRAZ’s rating outlook from positive to
stable.
Ò July
EVRAZ temporarily closed the steel shop at EVRAZ
Vitkovice Steel due to the failure to negotiate prices for
hot iron supplied by ArcelorMittal Ostrava.
EVRAZ initiated Pulverised Coal Injection (PCI) technology
at Zapsib and NTMK, a development that will reduce
coke consumption by more than 20% with benefit to the
environment.
Ò septemBer
EVRAZ Inc. NA Canada secured a CAD300 million (approx.
US$285 million) four-year committed revolving credit
facility to finance working capital requirements and other
corporate disbursements.
7 AnnuAl RepoRt And Accounts 2010
Company overview
2011
Ò January
EVRAZ signed a long-term contract with Praxair
Rus for the supply of industrial gases to NTMK and
the construction by Praxair of air separation plants on
NTMK’s site.
EVRAZ announced plans to relocate the headquarters
of the North American operations, EVRAZ Inc. NA, from
Portland, Oregon, to Chicago, Illinois, in June 2011.
Old order mining rights were converted into new order
mining rights in respect of Mapochs Mine (a subsidiary of
EVRAZ Highveld) in South Africa.
EVRAZ Vitkovice Steel signed an agreement, in common
with other Industrial companies, designed to further air
protection in the Moravian Silesian region.
Ò FeBruary
EVRAZ appointed two new Vice Presidents: Vice President
of Sales and Vice President of Procurement.
EVRAZ announced plans to consolidate two of its Russian
steel mills, OAO ‘ZSMK’ and OAO ‘NKMK’ under the name
EVRAZ – Consolidated West Siberian Metallurgical Plant.
Ò marCh
EVRAZ announced the launch of «EVRAZ New Leaders
2011», a multi-module integrated programme designed to
further the development of the Company’s personnel.
Standard and Poor’s Rating Service upgraded EVRAZ’s
long-term corporate credit rating to ‘B+’ (Stable).
Ò april
EVRAZ commenced the rebranding of a number of
Russian and Ukranian enterprises with ‘EVRAZ’ added as
a prefix to the existing names.
EVRAZ received awards for Best Financial Disclosure
Procedure 2011 and Best Progress in Europe 2011 from
IR Global Rankings.
Fitch upgraded EVRAZ’s long-term foreign currency Issuer
Default Rating (IDR) from ‘B+’ (Stable) to ‘BB-’ (Stable).
Fitch also upgraded EVRAZ’s senior unsecured rating to
‘BB-‘ from ‘B+’ and assigned its prospective Eurobond
issue an expected ‘BB-(exp)’ rating.
EVRAZ launched an US$850 million issue of Eurobonds,
due 2018, with a 6.75% coupon.
Ò may
Shareholders at EVRAZ’s AGM approved the Directors'
Report and the consolidated and stand-alone financial
statements for the year ending 31 December 2010, the new
composition of the Board of Directors, determined the level
of the directors’ and CEO’s remuneration and re-appointed
Ernst & Young as the Company’s external auditor.
EVRAZ NTMK became the first Russian company to master
the production technology of extrahard railway wheels.
ZapSib became the first enterprise in the Kemerovo
region to receive audited confirmation that the company’s
integrated system of management (covering the three
key elements of quality, ecology and health and safety)
conforms to international standards.
EVRAZ Pueblo was recognised with a Community
Involvement Award from the Steel Manufacturers
Association.
Ò June
EVRAZ priced a 20 billion 5-year rouble bond (approx.
US$710 million) at a coupon rate of 8.40% per annum.
mouNtAiN KAChKANAr
Kachkanar is one of the tallest peaks in the Middle Urals
close to the natural dividing line between Europe and Asia.
Mount Kachkanar is part of the mountain group in the
northern part of the Middle Urals bearing the same
name. It is located on the east bank of the Is River in
the Sverdlovsk Oblast. Kachkanar, geologically, is the
youngest of all the mountains in the Urals range.
The word ‘Kachkanar’ can be traced back to Turkic
origins, where ‘kachka’ means ‘bald’ and ‘nar’ means
‘camel’, i.e. a bald mountain resembling a camel. Mount
Kachkanar’s peak is covered in bizarrely shaped rocks,
many of which have names of their own, ‘camel’ being
the most popular. An alpine ski piste is located on the
south-eastern slope of the mountain.
8 AnnuAl RepoRt And Accounts 2010
Company overview
CorPorAte
StruCture
(As of 30 April 2011)
eVrAZ GrouP S.A.
STEEL
IRON ORE
COAL
VANADIUM
SALES, SERVICES
AND LOGISTICS
EVRAZ
Bagliykoks
94.37%
EVRAZ DKHZ
93.86%
EVRAZ KGOK
100%
Raspadskaya 6
40%
Nikom
100%
East Metals AG
100%
Evrazruda
100%
Yuzhkuzbassugol 100%
Stratcor 7
78.76%
EvrazEK
100%
EVRAZ DMZ
Petrovskogo 1
96.03%
EVRAZ
Sukha Balka
99.42%
Vanady-Tula
100%
EVRAZ
Metall Inprom 8
100%
EVRAZ VGOK
100%
EVRAZ NMTP
100%
Evraztrans
100%
MEF
100%
Sinano
100%
TC EvrazHolding
100%
EVRAZ
Highveld 2
85.12%
EVRAZ Inc. NA 3
100%
EVRAZ Inc. NA
Canada 4
100%
EVRAZ NTMK
100%
EVRAZ
Palini e Bertoli
100%
EVRAZ
Vitkovice Steel
100%
NKMK 5
100%
ZSMK 5
100%
1 From 1 April 2011 EVRAZ DMZ Petrovskogo includes production
facilities of Dneprokoks coking plant
2 EVRAZ Highveld Steel and Vanadium produces both steel and
vanadium products. Highveld’s shares have a primary listing on
the Johannesburg Stock Exchange.
5 During 2011 ZSMK and NKMK are in the process of merger. The
combined enterprise will be named EVRAZ – Consolidated West
Siberian Metallurgical Plant
6 40% interest in Raspadskaya is held by its management, while
20% is free float.
3 EVRAZ Inc. NA headquartered in Portland (Oregon, USA)
incorporates steel manufacturing facilities in Portland, Pueblo
(Colorado, USA), Claymont (Delaware, USA), Camrose (Alberta,
Canada), and General Scrap business (Canada, USA).
4 EVRAZ Inc. NA Canada comprises a steelmaking and rolling mill
in Regina (Saskatchewan), tubular operations in Regina, Calgary
and Red Deer (Alberta), a cut-to-length processing centre in Surrey
(British Columbia) and a sales office in Calgary.
7 Strategic Minerals Corporation comprises two divisions: Stratcor
(Hot Springs, Arkansas, USA) and Vametco Alloys (Brits, South
Africa).
8 During 2010 EVRAZ merged its distribution network EvrazMetall
with metal service company INPROM under name EVRAZ Metall
Inprom.
9 AnnuAl RepoRt And Accounts 2010
Company overview
Major assets
(As of 30 April 2011)
EVRAZ DMZ Petrovskogo1 (‘EVRAZ DMZ Petrovskogo’),
Ukraine, an integrated steel mill specialising in the
manufacture of pig iron, steel and rolled products.
EVRAZ Inc. NA together with EVRAZ Inc. NA Canada
represents one of the most diversified steel
manufacturers in North America. EVRAZ’s facilities in
the USA and Canada, established in 2008 through the
combination of EVRAZ Oregon Steel Mills, Claymont Steel
and IPSCO’s Canadian plate and pipe business, produce
higher margin specialty and commodity steel products.
EVRAZ Highveld Steel and Vanadium (‘EVRAZ
Highveld’), one of the largest steel producers in South
Africa with primary positions in medium and heavy
structural sections and ultra thick plate and a leading
producer of vanadium slag.
EVRAZ Palini e Bertoli in northern Italy produces
customised, high-quality steel plate products.
EVRAZ Vitkovice Steel, the largest producer of steel
plates in the Czech Republic.
Evrazruda Iron Ore Mining and Processing Complex
(‘Evrazruda’) produces iron ore concentrate with
operating mines in Kemerovo region, the Republic of
Khakassia and south Krasnoyarsk Krai.
EVRAZ Metall Inprom2 (‘EVRAZ Metall Inprom’), one
of the largest steel distribution companies in the CIS with
43 metal centres in industrially developed regions of
Russia and the CIS..
EVRAZ Kachkanarsky Ore Mining and Processing
Plant (‘EVRAZ KGOK’) produces sinter and pellets from
vanadium-rich iron ore.
EVRAZ Nakhodka Trade Sea Port (‘EVRAZ NMTP’), one
of the largest ports in the Far East of Russia, from where
EVRAZ ships the majority of its exports.
Nikom, a ferrovanadium producer located in the Czech
Republic.
EVRAZ Nizhny Tagil Metallurgical Plant (‘EVRAZ NTMK’),
an integrated steel plant that primarily produces railway
and construction long products, pipe blanks and semi-
finished products.
Novokuznetsk Iron and Steel Plant3 (‘NKMK’)
specialises in the production of rolled long metal products
for the railway sector and semi-finished products.
Strategic Minerals Corporation (‘Stratcor’), one of the
world’s leading producers of vanadium alloys
and chemicals for the steel and chemical industries.
EVRAZ Sukha Balka (‘EVRAZ Sukha Balka’) operates
two underground mines in Ukraine for the production of
lumping iron ore.
Vanady-Tula (‘Vanady-Tula’), the largest Russian
producer and one of the leading world producers of
vanadium products.
EVRAZ Vysokogorsky Ore Mining and Processing
Plant (‘EVRAZ VGOK’) produces sinter from its iron ore
resources, as well as iron ore concentrate, limestone,
crushed stone and other products.
West Siberian Iron and Steel Plant3 (‘ZSMK’),
an integrated steel plant that primarily produces
construction long products and semi-finished products.
Yuzhkuzbassugol Coal Company (‘Yuzhkusbassugol’),
one of the largest coal companies in Russia that produces
both coking and steam coal.
Ukrainian coking plants – EVRAZ Bagliykoks (‘EVRAZ
Bagliykoks’), Dnepropetrovsk Coke Chemical Plant1
(‘Dneprokoks’) and EVRAZ Dniprodzerzhynsky Coke
and Chemical Plant (‘EVRAZ DKHZ’) – supply their coke
production to EVRAZ DMZ Petrovskogo and various local
steelmakers in Eastern Europe.
1 With effect from 1 April 2011 Dneprokoks was merged with EVRAZ DMZ Petrovskogo.
2 During 2010 EVRAZ merged its distribution network EvrazMetall with metal service company INPROM under name EVRAZ Metall Inprom.
3 Merge of ZSMK and NKMK will be effected during 2011. The combined enterprise will be named EVRAZ – Consolidated West Siberian
Metallurgical Plant.
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10 annual RepoRt and accounts 2010
Company overview
Guide to EVRAZ’s WORld 10
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pROductiOn
by REGiOn 2010
pROductiOn, mininG sEGmEnt
(thousand tonnes)
russia
Mining segment:
Iron ore concentrate 5,822
Sinter 3,999
Pellets 5,616
Coking coal mined 7,509
Steam coal mined 3,830
ukraine
Mining segment:
Lumping ore 2,044
south afriCa
Mining segment:
Iron ore fines 6011
1 Total production by the Mapochs mine (structurally a division
of EVRAZ Highveld) includes both production of lumpy ore for
the Company’s internal consumption at the EVRAZ Highveld
steelmaking operations and fines ore sold to third parties.
35.2% Tubular
34.5% Flat(cid:31)rolled
15.5% Railway
14.8% Construction
North
America
85.6% Flat(cid:31)rolled
12.5% Construction
Europe
1.9% Other
58.3% Flat(cid:31)rolled
30.6% Construction
6.0% Semi(cid:31)finished
South
Africa
5.1% Other
52.2% Construction
42.3% Semi(cid:31)finished
Ukraine
5.5% Other
42.9% Semi(cid:31)finished
35.2% Construction
13.8% Railway
5.2% Other
2.9% Flat(cid:31)rolled
Russia
pROductiOn, VAnAdium sEGmEnt
(tonnes, calculated in pure vanadium equivalent)
Ferrovanadium 13,507
Nitrovan® 2,408
Oxides, vanadium aluminium and chemicals 1,317
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15°
0°
15°
30°
45°
60°
75°
90°
105°
120°
135°
150°
165°
180°
165°
150°
1 : 100 000 000
0
800
1 600
2 400
4 800
75°
11 AnnuAl RepoRt And Accounts 2010
Key Performance IndIcators
2006-2010
Revenues
US$ million
Adjusted eBItdA
US$ million
25,000
20,000
15,000
10,000
5,000
0
CAPeX
1,200
1,000
800
600
400
200
0
20,380
12,859
13,394
8,292
9,772
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
6,215
4,305
2,594
2,350
1,237
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
US$ million
OPeRAtIng CAsh FlOw
US$ million
1,103
744
651
5,000
4,000
3,000
832
4,563
2,994
441
2,000
2,084
1,698
1,662
1,000
0
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
12 AnnuAl RepoRt And Accounts 2010
STEEl SAlES VOluMES
million tonnes
ASSETS
US$ million
20
15
10
5
0
16.0
16.4
17.0
15.5
15,000
14.3
16,952
17,601
20,000
19,451
18,637
10,000
8,510
5,000
0
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
TOTAl DEBT
US$ million
REVENuES BY REGION 2010
9,986
3,922
6,756
2,103
7,923
1,992
7,811
714
35.0% Russia
23.6% Americas
20.0% Asia
10.6% Europe
7.2% CIS (excl. Russia)
3.6% Africa
10,000
8,000
6,000
4,000
2,000
0
2,596
741
2006
2007
2008
2009
2010
Short(cid:31)term debt
page 41
page 19
page 20
page 19
About Portland
Russia
Big city excitement combined with small town charm
make Portland, Oregon, a popular destination in the
West. Portland is situated approximately 70 miles from
the Pacific in an awesome setting between the sparkling
waters of the Columbia and Willamette Rivers. Portland is
often acknowledged as the ‘Greenest City in America’, and
ranks among the world's Top Ten environmentally friendly
cities.
Tourist attractions include Portland's historic old town,
numerous galleries and museums, the Saturday Market
(complete with live music and exotic food) and a host
of theatre opportunities. Likewise, the city’s lush green
parks are synonymous with picnics and relaxation. For the
more adventurous, Portland is only a short distance from
the Willamette valley wineries, skiing at Timberline Lodge
and the magnetic pull of Oregon's spectacular ocean
beaches. Portland is home to no less than 28 breweries,
more than any other city in the United States.
Portland’s climate, with mild, damp winters and relatively
dry, warm summers, is ideal for growing roses and, in
2003, Portland was officially nicknamed ‘The City of
Roses’ as testament to a profusion of rose gardens --
most notably the International Rose Test Garden.
The steel industry's history in Portland predates World
War II and, by the 1950s, the industry had become the
city's principal employer. Although EVRAZ Inc. NA will
move its headquarters to Chicago in 2011, EVRAZ will
remain an important part of the Oregon manufacturing
community through its ongoing operations at the Portland
steel mill. The Portland steel facility, which enjoys ready
access to Canada’s Western Provinces, is the only plate
mill in the Western United States. Products include plate
and coil, large diameter line pipe and structural tubing.
PortlAnd
United StateS Of america
General Information
45°31’24”N 122°40’34”W
GMT –08:00
1845
583,776 people
376.5 km2
15 AnnuAl RepoRt And Accounts 2010
15 AnnuAl RepoRt And Accounts 2010
ChAirmAN’S StAtemeNt
Dear Stakeholders,
In my letter to you a year ago I highlighted the
unprecedented challenges faced by the global steel
industry as a result of the 2008 economic downturn.
Major challenges can, however, also provide valuable
opportunities and I am pleased to report that, due
to the swift and decisive actions taken by EVRAZ’s
management, we have improved efficiency, reduced
costs and reorganised important areas of our
business. Since mid-2009 we have seen a measured
recovery in the global economy accompanied by an
increase in steel demand, a trend that continued
through 2010 and into the beginning of 2011.
I am also pleased to report that our key strategic
priorities, namely cost leadership, vertical
integration into raw materials, geographic
diversification, a manufacturing focus on
infrastructure and the development of downstream
operations in regions where value added products
enjoy high consumption, have stood the test of time
and remain unchanged.
Our strategic and managerial decisions are
synonymous with our mission statement: to be a
global steel and mining company delivering value
to our infrastructure customers. Equally, such
decisions walk hand in hand with certain specific
principles that we endeavour to bring to bear
throughout our operations. Each of these common
values is represented by one of the letters in the
Company’s name:
Enrichment through collaboration. We appreciate
that working together as a team will enable us to
achieve the best results.
Value created for our customer. Through
continually improving our products and services,
we strengthen our long-term partnerships with our
customers.
Respect for people. The utmost regard for safety,
the development of our people and support for local
communities represent integral aspects of EVRAZ’s
corporate culture.
Accountability for actions and results. We aspire
to achieve our goals and are responsible for the
results.
Zeal for continuous improvement. The
development and implementation of new ideas can
further our undertaking to make the world Stronger,
Safer and Cleaner.
16 AnnuAl RepoRt And Accounts 2010
messages
GuIde to eVrAZ’S world 16
I should emphasise that these are not merely a collection
of dictums, they are central to what we refer to as ‘the
EVRAZ way of doing business.’
We continue to focus our efforts on achieving further
growth of the business and we do so in the knowledge
that we can support such growth through what, in this
instance, we refer to as key strategic pillars namely:
health, safety and environmental protection; human
capital; customer focus and the EVRAZ Business System.
In December 2010, Russia won the bid to host the
2018 FIFA World Cup and the Russian Government has
committed to invest US$50 billion in preparation for this
event, including US$3.8 billion in respect of stadiums
and US$11 billion on infrastructure projects. EVRAZ
estimates that 2018 World Cup steel requirements for
the construction of stadiums (13 stadiums to be built and
three to be renovated), hotels and local infrastructure
(highways, bridges, etc.) may amount to 2-2.5 million
tonnes.
EVRAZ remains committed to the highest standards
of transparency and corporate governance and we
were delighted to receive awards for the Best Financial
Disclosure and Best Progress in Financial Disclosure in
Europe in the 2011 IR Global Rankings survey. This is the
first time that this prestigious award has been presented
to a company headquartered in Russia. We are proud that
our financial disclosure and investor relations practices
have received such notable commendations.
I am confident that EVRAZ is well positioned, as a quality
driven, geographically diversified and socially responsible
business, to capitalise on the prospective investment
in global infrastructure and gainfully progress the
Company’s growth targets.
Ongoing improvements in health and safety standards in
relation to the well-being of our employees remain at the
forefront of our priorities. We increased our emphasis in
this regard during 2010 by setting up a Health, Safety and
Environmental Committee of the Board of Directors and
hiring Vice President of Health, Safety and Environment.
We are intent on meeting the objectives of our
stakeholders and, to this end, we will endeavour to
grow shareholder value while continuing to address
the occupational and social needs of employees,
including our support for community projects which is of
unquestionable benefit to those who reside in the regions
where we operate.
EVRAZ has always taken the view that employees
represent our most important asset and are integral
to the Company’s success. Our achievements would
not have been possible without the hard work and
commitment of our people around the world and I would
like to take this opportunity to thank each of them for their
outstanding contributions.
It is encouraging to note that EVRAZ is well positioned to
benefit from an abundance of infrastructure investments
– both private and public – and I would like to draw
your attention to the fact that our products feature in a
number of recent and ongoing landmark infrastructure
projects. These include the Soccer World Cup stadiums
and the associated infrastructure in South Africa, the
2014 Olympic Games site in Sochi, Russia, and the
construction of the infrastructure required to host the
Asia-Pacific Economic Cooperation summit in the Russian
Far East in 2012.
Alexander Abramov
Chairman of the Board
17 AnnuAl RepoRt And Accounts 2010
17 AnnuAl RepoRt And Accounts 2010
Chief exeCutiVe’S rePort
Dear Stakeholders,
The year 2010 saw a continuation of the recovery
in steel demand across all of EVRAZ’s key markets.
Our steelmaking capacity in Russia was fully utilised
and we significantly increased the utilisation rates
at our international plants.
By way of illustration, the proportion of steel sales
from our Russian and Ukrainian mills to Russia and
other CIS countries increased from 44% to 58%.
This allowed us to fully utilise our rolling capacities in
Russia, thereby shifting our product mix from semi-
finished steel to higher margin products.
Our North American operations registered notable
volume increases driven by strong demand for
pipes, to facilitate shale gas exploration projects,
and construction plate in respect of infrastructure
investment on behalf of local governments.
As a result, we improved our financial performance
in 2010, generating US$2.35 billion of EBITDA and
US$282 million of free cash flow.
The focus of our financial management was on the
refinancing of short-term debt through longer-term
instruments. Capital markets were available to us,
notably with regard to Rouble bond issuance, but
we were also able to access bank lending both on
a bilateral basis and with a group of international
lenders in respect of a pre-export finance facility.
In 2010 we had two Rouble bond issues totalling
to RUB30 million and entered into US$950 million
5-year structured credit facility. In April 2011,
EVRAZ launched an issue of US$850 million
Eurobonds, due 2018, carrying an interest rate
of 6.75%, the lowest ever coupon in respect of an
EVRAZ Eurobond issue. Part of the proceeds from
the issue was used to purchase approximately
US$622 million in aggregate of the principal amount
of the outstanding bonds due 2013. We have also
issued RUB20 billion of bonds in early June 2011
in order to replace more expensive and short-term
bank loans.
Our refinancing activities, focused on a realignment
of our short- and long-term debt, have significantly
improved our debt maturity profile.
Subject to the results for 1H 2011 meeting the
Board’s expectations, consideration will be given to
the dividend payment.
18 AnnuAl RepoRt And Accounts 2010
messages
GuIde to eVrAZ’S world 18
As part of the ongoing development of our raw material
base we acquired the licence to develop the Mezhegey
coal deposit in Russia, a project that will significantly
enhance our coking coal mining volumes over a period
of several years. The mineable reserves associated with
these deposits amount to in excess of 700 million tonnes
of coking coal. We also commenced construction of a new
mine in Kemerovo region which will provide EVRAZ with
2 mtpa of high quality coking coal with effect from 2013.
In order to further capitalise on our iron ore asset base,
we plan to commence exploration of the Sobstvenno-
Kachkanarskoye iron ore deposit, a development which
will ultimately enable KGOK to produce 11 mtpa of
saleable iron ore products for several decades. We are
also seeking prime greenfield projects in Russia and on a
global basis.
In order to strengthen EVRAZ’s position in current
markets we commenced the construction of new rolling
facilities in regions where we have identified growing
demand, namely Southern Russia and Kazakhstan.
We also created one of the largest steel distribution
companies in the CIS by acquiring INPROM, a metal
service enterprise, and combining its operations with our
own trading network. Ongoing modernisation of our rail
mills, the expansion of our product mix and the upgrade of
the wheels shop will all serve to underwrite our production
focus on value-added products.
We have strengthened our focus on health and safety
issues and the appointment of a Vice President of Health,
Safety and Environment is designed to ensure that
developments in this area receive the due attention of
management and employees and the necessary level of
investment. We believe that this course of action will have
a positive impact on our safety performance.
We continued to drive efficiency gains through operational
improvements. The introduction of a pulverised coal
injection project, scheduled for completion in 2012,
will increase our energy efficiency, eliminate the need
for natural gas in blast furnaces and reduce our coking
coal consumption by almost 20%. Existing cost saving
programmes are currently yielding annual efficiency gains
of US$20-30 million at each Russian steel plant.
In 2010, we appointed Scott Baus as Director of Lean.
We have every confidence that Mr Baus’s 25-plus years
of experience in business system optimisation will help
us progress our ambitious targets in relation to cost-
saving and production efficiencies. To this end we have
introduced Lean principles at EVRAZ’s plants.
Management teams have been strengthened within our
international subsidiaries, a new pricing formula has
been agreed in respect of hot metal supply to EVRAZ
Vitkovice Steel, our Czech subsidiary, and a number of
organisational and environmental improvements have
been introduced at our North American operations.
Accordingly, our shaping of a powerful, integrated and
diverse steel manufacturing enterprise in North America
advanced during 2010 and will progress further through
2011. The establishment of critical integrated functions
such as supply chain planning, manufacturing excellence
and business development across all three divisions
(Flat, Tubular and Long) is integral to the maintenance of
EVRAZ’s competitive strength in North America.
In January 2011 we successfully converted old order
mining rights into new order mining rights in respect of the
Mapochs iron ore mine in South Africa.
Global steel markets, while remaining distinctly sensitive,
have made a promising start to 2011 which points to an
ongoing broad-based recovery. The prices and availability
of steelmaking raw materials – iron ore, coking coal and
scrap – will remain the key drivers of steel prices.
Based on our sales at the beginning of 2011, we expect
Russian demand for construction steel to increase
by upwards of 10% in 2011 compared with 2010.
We are also experiencing improved demand from our
international markets.
We are confident that EVRAZ’s credentials as one of the
lowest cost steel producers in the world will enable us
to maximise the benefits from any significant upturn in
global infrastructure markets.
Alexander Frolov
Chief Executive Officer
19 AnnuAl RepoRt And Accounts 2010
iNterNAtioNAl roSe
teSt GArdeN
roSe GArdeN
Portland enjoys a marine west coast climate which is
characterised by warm, dry summers and rainy but
mild winters. This climate is ideal for growing roses and,
for more than a century, Portland has been known as
‘The City of Roses’. The city is home to numerous rose
gardens – most notably the International Rose Test
Garden.
The International Rose Test Garden, located in
Portland’s Washington Park, contains more than
7,000 rose plants encompassing approximately
550 varieties. The roses bloom from April through
October and, depending on the weather, peak in June.
New rose cultivars are constantly received from many
parts of the world and are tested for colour, fragrance,
disease resistance and various other attributes. One of
the most popular areas (particularly for weddings) is the
Shakespeare Garden which harbours a plaque of the
playwright and his quote: ‘Of all flowers methinks a rose
is best’. The garden is the oldest ongoing public rose
test garden in the United States.
The Rose Garden, commonly known as the Rose
Garden Arena, is Portland’s principal indoor sports
arena. Major indoor events staged at the arena include
basketball, ice hockey, rodeos, circuses, conventions,
ice shows, concerts, and drama productions. The
arena can accommodate close on 20,000 basketball
spectators, with a smaller capacity utilised for other
events. State -of-the-art acoustics are accompanied by
various amenities for the benefit of visitors.
The arena is located in Portland’s sports and
entertainment district known as the Rose Quarter,
an area in inner northeast Portland that also houses
the Memorial Coliseum arena and various facilities
including restaurants and parking complexes.
The reason why the ‘Rose Garden’ is more commonly
known as the ‘Rose Garden Arena’ is to differentiate
it from the International Rose Test Garden, also
located in Portland. The name was chosen to reflect
Portland's reputation as ‘The City of Roses’ and as an
acknowledgement of the importance of the Boston
Garden and Madison Square Garden arenas to
basketball’s heritage.
20 AnnuAl RepoRt And Accounts 2010
eAStBANK eSPlANAde
SmAlleSt PArK
iN the world
The Eastbank Esplanade (officially the Vera Katz
Eastbank Esplanade) is a pedestrian and bicycle path
that follows the east shore of the Willamette River in
Portland. The path, which runs through the Kerns,
Buckman, and Hosford-Abernethy neighbourhoods,
was designed to replace the Interstate 5 bicycle bypass
which was washed away by the Willamette Valley Flood
of 1996. The esplanade was renamed after Vera Katz,
Portland’s former mayor, in 2004 and features a statue
of her near the Hawthorne Bridge.
The esplanade, which extends 2.4 kilometres from
the Steel Bridge to the Hawthorne Bridge, includes a
370 metre floating walkway (the longest of its kind in
the United States) which is connected to a 37 metre
public dock. The 13 markers alongside the esplanade
correspond to the eastside street grid.
Portland is also home to Mill Ends Park, the world's
smallest park. According to the Guinness Book of
Records, which officially granted such recognition in
1971, the circular park has a two-foot-diameter and
a total area of 452 square inches or approximately
0.3 square metres. The park was established on St.
Patrick's Day, 1948 as, in the words of Dick Fagan, its
creator: ‘the only leprechaun colony west of Ireland’.
The story of the park's origin goes like this. Fagan looked
out of a window and spotted a leprechaun digging
a hole. He ran outside and grabbed the leprechaun,
thereby earning himself a single wish. He wished for
a park of his own but, because he had not specified
the size of the park, the leprechaun only gave him the
small hole. Fagan, who worked at the Oregon Journal,
often featured the park and Patrick O’Toole, its head
leprechaun, in his whimsical column.
The park, which Fagan perceived as an ideal location
for snail races, has proved the receptacle of several
unusual items over the years including a swimming
pool for butterflies – complete with a diving board -- a
horseshoe, a fragment of the Journal building, and a
miniature Ferris wheel delivered with due care by a full
size crane.
page 41
page 31
page 27
page 29
About Nizhny Tagil
Russia
Nizhny Tagil is a city in the Sverdlovsk Region of Russia. It
is situated approximately 25 kilometres east of the virtual
border between Europe and Asia. Nizhny Tagil spans
22 kilometres from north to south and 21 kilometres
from east to west; rivers and ponds cover one third of the
city's territory. The city is built around the extinct volcano,
Mount Lisya (‘fox’s hill’). This mountain, which has a
watch-tower at its summit, is the symbol of Nizhny Tagil.
The city was officially founded in October 1722 by way of
an amalgamation of various settlements connected with
the construction of the Vyysky copper smelting plant, an
enterprise owned by Nikolay Demidov, the founder of the
mining and metallurgical industries in the Urals. Over the
following decades, the city developed into one of the early
centres of Russian industrialisation and became a major
producer of cast iron and steel.
Nizhny Tagil’s geological structure is complex and, with
an altitude that ranges from 170 to 380 metres, the area
is one of the Earth’s rare natural store-rooms. Numerous
mineral deposits, containing 63 different elements of the
periodic table, are to be found here.
The seeds of the city’s history were sown in 1696 with the
opening of the Vysokogorsky iron ore quarry. The deposits
discovered were particularly rich and included lodes of
pure magnetic iron.
Today, Nizhny Tagil remains a major industrial centre
in the Middle Urals. More than 600 manufacturing
companies are based in the city, including EVRAZ NTMK
(one of Russia’s largest integrated steel mills) and EVRAZ
VGOK (one of the largest iron ore mining and processing
enterprises in the Urals).
NizhNy TAgil
Russian fedeRation
general information
57°55’0”N 59°58’0”E
GMT+05:00
1722
361,900 people
4,601 km2
22 AnnuAl RepoRt And Accounts 2010
Economic and industry ovErviEw
iii
Overview
Of the GlObal
MacrOecOnOMic
envirOnMent
The dual effects of a slow recovery in developed markets
and robust growth in emerging markets were the
principal drivers of the global economy during 2010.
A broad advance following the 2009 downturn translated
into 4.4% global GDP growth and positive prospects
for 2011. China and India continued to effectively
underwrite key commodity sectors, courtesy of the
ongoing growth in Asia, and the prices of most
commodities either returned to pre-crisis levels or are
expected to do so in 2011.
The EU and the Euro remained under pressure
throughout 2010 as events in Europe fuelled concern
over member-states’ debt issues. Such anxieties
persist although signs that the broader based economic
scenario may have stabilised have encouraged recovery
hopes.
Both the US and the EU are looking to reduce their
respective budget deficits against inflation. Capital
markets have largely recovered in relation to equity
and debt transactions, as reflected in a significant
increase in corporate fund raising activity, a trend
that is expected to continue in 2011.
In China, rising raw material prices and high industrial
production growth rates has led to higher interest rates
in an effort to cool the Chinese economy.
In the wake of 2010’s progress, the consensus outlook
for the key sectors of the global economy in 2011
is positive.
y
r
t
s
u
d
n
i
d
n
a
i
c
M
O
n
O
c
e
w
e
i
v
r
e
v
O
23 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
REAl GDP GROWTH
15
10
5
0
(5)
(10)
(15)
6.5
(3.5)
(3.8)
(5.1)
(9.3)
8.1
(3.1)
(4.1)
(5.1)
(11.0)
9.5
(2.0)
(2.7)
(4.3)
(8.6)
11.3
11.9
3.9
3.1
2.4
0.7
0.9
0.2
(2.2)
(2.9)
10.3
5.2
4.3
3.0
2.0
9.6
4.2
3.2
2.7
2.2
percents
9.0
4.9
3.8
2.9
2.4
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
China
Russia
World
EU(cid:31)27
USA
Global Insight
percents
15.9
10.9
9.9
7.4
7.3
13.5
7.8
6.8
6.4
6.0
13.0
6.2
6.2
5.7
5.4
INDuSTRIAl PRODuCTION GROWTH
20
15
10
5
0
(5)
(10)
(15)
(20)
5.7
(11.6)
(13.4)
(15.5)
(16.7)
12.4
(8.3)
(8.6)
(9.6)
(13.0)
9.0
(12.3)
(12.7)
(13.6)
(16.5)
19.6
9.5
8.3
3.4
2.7
17.9
1.9
(0.9)
(3.8)
(6.3)
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
China
Russia
World
EU(cid:31)27
USA
SElECTED FX RATES
RUB/US$, RUB/€
50
45
40
35
30
25
Global Insight
ZAR/US$
12
10
8
6
4
2
Jan’09
Aug’09
Apr’10
RUB/USD
RUB/EUR
ZAR/USD
Dec’10
Factset
24 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
lIBOR AND EuRIBOR RATES
percents
2.5
2.0
1.5
1.0
0.5
0
Jan’09
Aug’09
Apr’10
LIBOR
EURIBOR
Dec’10
Factset
wAtCh tower AtoP the liSyA mouNtAiN
Lisya Mountain is the jewel in Nizhny Tagil’s crown. It rises
majestically on the western side of the city and provides a
classic observation point overlooking the entire cityscape.
The tower, built on Lisya Mountain, the symbol of Nizhny
Tagil, in 1818, has remained largely unchanged for the
best part of two centuries. The edifice has been used as an
observation tower by guards and a fire tower.
The building is a three-tiered brick structure with a rotunda
and high semicircular arches decorated with pilasters. The
slender, graceful tower is topped with a spired dome and
its location, at the highest point, adds to the aesthetics.
Occasionally used for astronomical observations, the Lisya
Mountain tower has also served as a ‘public observatory’.
The tower’s urban fire watch function utilised a special
signalling system which involved a red lantern and a bell.
25 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
oVerView of the Steel
iNduStry iN 2010
The steel industry recovered in 2010 as capacity utilisation
reached 80% on an annualised basis: a significant
improvement compared with 2009. Second half demand,
however, failed to match first half levels and led to reduced
capacity utilisation and, in turn, price corrections.
Global crude steel production expanded by 15% to 1,412 mt
in 2010 driven by growth in China and India and the
respective recoveries in North America and Europe. China
continued to expand its share of global steel consumption
and would appear to be on track to account for 50% of
worldwide steel consumption by 2014-2015. The global steel
industry’s scale of exposure to the performance of China’s
economy remains a point of concern.
In addition to the growth fuelled demand from China and
India, 2010 also witnessed improved sentiment and
strong market fundamentals in other parts of Asia, Latin
America and the CIS.
In 2010 Russia was selected to host the 2018 FIFA World
Cup and the Russian Government’s commitment to invest
US$50 billion in preparation for the event will inevitably
lead to a significant increase in domestic demand for
steel. Requirements in relation to the construction of
stadiums, hotels and local infrastructure projects are
currently estimated at approximately 2–2.5 mt.
Cost pressure in the shape of rising raw material prices
added 10-15% to total costs in 2010 compared with
2009, much of which translated into global end product
price increases. Global steel production is expected
to further expand in 2011 and while analysts do not
expect prices to revisit 2007/2008 levels, the outlook for
corporate margins is encouraging.
CRuDE STEEl PRODuCTION
mt
500
400
300
200
100
0
SHARE OF CRuDE STEEl PRODuCTION
& FINISHED STEEl DEMAND IN 2010
percents
44.4% China
12.2% EU
7.8% Japan
5.7% USA
4.7% Russia
4.7% India
2.4% Ukraine
18.1% ROW
46.6% China
12.6% EU
8.4% NA
5.1% Japan
4.8% Africa / ME
4.6% India
4.1% South Korea
4.0% CIS / Russia
9.8% ROW
Total
Production:
1,412 mt
Total
Demand:
1,299 mt
Morgan Stanley Research, Worldsteel
Utilisation Rate, %
85
80
75
70
65
60
55
50
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Total Production
Capacity Utilisation
Worldsteel
26 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
oVerView of the CoKiNG CoAl
mArKet iN 2010
The global coking coal industry experienced a strong
year due to growth in demand and constraints on
the supply side. High quality coking coal is a scarce
resource and represents the key restriction in terms
of the expansion of integrated steel production on a
global basis.
The global coking coal seaborne market rose by 19%
to 243 mt in 2010. The principal coking coal exporting
countries are Australia, which exported 148 mt (+13%
versus 2009), USA 45 mt (+30%) and Russia 13 mt
(+58%). These three countries together accounted for
85% of total worldwide exports.
Coal prices and asset prices rose significantly over the
year. In 2010 Japan, China and India imported 128 mt
of coking coal or 52% of total imports. Steel producers
displayed a marked enthusiasm for obtaining access
to coal supplies and continued to compete with
mining houses for the relatively few assets available:
a scenario that points to further such transactions
during 2011.
A number of Greenfield projects are scheduled to
begin extraction in 2012-2014, although the net
deficit is expected to persist over the mid-term.
Despite the strength of the market, there was less
price volatility than in 2009 however overall price
level has increased significantly. In a market driven by
spot sales, the contract - spot spread narrowed in the
second half of the year with Australian coal FOB prices
stabilising at slightly above $200/t.
SHARE OF COKING COAl SEABORNE
EXPORTS AND IMPORTS IN 2010
61.0% Australia
18.5% USA
8.8% Canada
5.2% Russia
3.1% Mongolia
3.4% ROW
26.6% Japan
23.6% Europe
13.2% India
12.7% China
8.9% South Korea
8.2% Americas
6.8% Brazil
Total
Exports
Production:
243 mt
Total
Imports
Production:
244 mt
Morgan Stanley Research
SPOT VS. CONTRACT HARD COKING COAl PRICES
uS$/t FOB Australia
400
300
200
100
0
Jan’09
Aug’09
Apr’10
Dec’10
Australian Contract
Australian Spot
CRU Steelmaking Raw Material Monitor
27 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
mt
555
COKING COAl PRODuCTION
400
432
478
478
512
600
500
400
300
200
100
0
2005
2006
2007
2008
2009
2010
China
Australia
USA
Russia
ROW
CRU Coking Coal Outlook
ComPlex of SPriNGBoArdS oN dolGAyA mouNtAiN
In 2009, the renovation of ski jumps at Dolgaya Mountain
commenced as part of the special federal programme:
‘Development of Physical Fitness and Sports in Russia in
2006-2015’.
Following the completion of this project, the ski jump
complex will have been transformed into one of Russia’s
most advanced training centres for teams participating in
the biathlon and springboard ski jumping.
The Dolgaya development will include four ski jumps,
a ski stadium and a sports and hotel complex. A roller
ski track, which will allow athletes to train during the
summer, represents a key facility. Jump specifications will
be fully compliant with the International Ski Federation’s
requirements which were adopted in 2008. NIzhny Tagil is
thus set to host top-level competitions and will become a
major training centre for athletes during the run up to the
2014 Sochi Olympics.
28 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
oVerView of the iroN ore
mArKet iN 2010
The iron ore industry experienced renewed growth during
2010 as improved economic perceptions found reflection
in increased production levels and a favourable pricing
environment.
Global iron ore production rose by 12% to 1,778 mt in
2010. The ‘Big Four’ iron ore producer countries added
capacity in response to the positive global trend with
Australia producing 443 mt (+13% versus 2009), Brazil
359 mt (+20%), China 292 mt (+24%) and India 225 mt
(+3%). These countries accounted for 74% of total
production worldwide. Russia’s iron ore output increased
by 2% to 107 mt.
Ongoing global projects designed to further expand
capacity are largely on track.
China continued to dominate the seaborne market
importing 613 mt of iron ore, or 62% of total seaborne
traded iron ore.
Further positive sentiment for the sector was reflected in
iron ore fines CIF China prices which rose by an average
of 82% in 2010. Sales structure for the industry has
moved towards a larger share of spot contracts.
Expectations that spot contracts will play an increasingly
important role in the sector’s sales structure encouraged
global steel players to continue to pursue vertical integration
with a view to reducing volatility at the bottom line, a trend
that signals further M&A activity during 2011.
SHARE OF IRON ORE SEABORNE
SuPPlY AND DEMAND IN 2010
43.4% Australia
30.3% Brasil
9.9% India
5.0% South Africa
3.1% Canada
8.3% ROW
61.8% China
13.1% Japan
11.1% Europe
4.8% South Korea
9.2% ROW
Total
Seaborne
Supply:
1,022 mt
Total
Seaborne
Demand:
922 mt
Morgan Stanley Research
SPOT VS. CONTRACT IRON ORE FINES PRICES
uS$/t
200
150
100
50
0
Jan’09
Aug’09
Apr’10
Dec’10
China CIF (Spot, 63.5% Fe)
Australia CIF (contract)
Brazilian CIF (contract)
CRU Steelmaking
Raw Material Monitor
29 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
IRON ORE PRODuCTION
2,000
1,500
1,394
1,572
1,699
1,680
1,582
mt
1,778
1,000
500
0
2005
2006
2007
2008
2009
2010
Brasil
China
Australia
India
ROW
Morgan Stanley Research
tAGil trAyS
SHARE OF IRON ORE PRODuCTION IN 2010
percents
24.9% Australia
20.2% Brasil
16.4% China
12.7% India
6.0% Russia
4.0% Ukraine
3.4% South Africa
12.4% ROW
Total
Production:
1,778 mt
Morgan Stanley Research
Tagil tray production is one of the most important crafts
in the Urals. The practice came into being in the mid
18th century at factories operated by the Demidov family
in Nevyansk and Nizhny Tagil. The painted trays attracted
worldwide popularity and were presented as gifts to
princes, Russian tsars and European kings.
Tagil painting, utilising oil paints, is unique. Dark and light
paints are put on a brush at the same time to produce
a two-colour stroke and the painting, when complete, is
covered in several layers of varnish. Each tray represents
a unique creation reflecting the talent and imagination
of the painter. The defining features of the art are an
inherent richness of color and a sense of elegance that
lends itself to the artistic portrayal of flowers and wildlife,
particularly certain birds, together with ornamental
script. These characteristics have been retained and
developed over a period of 250 years and Nizhny Tagil’s
tray painting museum provides master classes in the art
for the benefit of residents and tourists alike.
30 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
oVerView of the VANAdium
mArKet iN 2010
Vanadium is primarily used as an alloying agent in
a wide range of specialty steels to provide greater
strength, hardness and durability.
SHARE OF VANADIuM PRODuCTION
AND RESERVES IN 2010
Demand for vanadium is ultimately determined by
the steel industry and the upturn in the steel market,
together with supply constraints in the producer
countries, led to a modest market recovery in 2010.
Vanadium reserves are concentrated in China, Russia
and South Africa. It is estimated that world resources
of vanadium exceed 63 mt, although, due to the fact
that vanadium is usually recovered as a by-product,
established world resources of the element are not
fully indicative of available supplies.
Production in 2010 increased by 5% to 56,000 t
of vanadium content globally. Most of the output
increase was attributable to China (+10% versus 2009)
and South Africa (+6%), while production in Russia
declined by 3%.
Prices for ferrovanadium (85% of vanadium sales)
showed a slight recovery during 2010 but remained
volatile. The FeV price stabilised at around US$ 30/kg
towards the end of the year, while the average price in
2010 was approximately 20% higher versus 2009.
The price of Vanadium pentoxide (V2O5), the source
of ferrovanadium, performed similarly.
41.1% China
32.1% South Africa
25.0% Russia
1.8% ROW
37.4% China
36.6% Russia
25.7% South Africa
0.3% ROW
Total
Production:
56,000 t1
1 of Vanadium content
Total
Reserves:
13.6 mt
US Geological Survey
Some fACtS ABout eVrAZ
ntmK (the urals)
The only open air ‘steel manufacturing’ museum in
Russia is situated in Nizhny Tagil, on the site of the old
Demidovsky iron plant, where first records of pig iron
production date back to Christmas Day 1725. Almost
half of the production was for export, primarily to the
United Kingdom.
NTMK’s universal beam mill is the only unit in
Russia and the CIS that produces large beams
and column sections with lengths that range
from 150 to 1,000 millimetres.
Documents relating to the work of a group of innovative
industrialists at NTMK to develop progressive
manufacturing solutions, were published in Forbes
Magazine in 2008.
31 AnnuAl RepoRt And Accounts 2010
eConomiC and industry overview
CIF EuROPE V2O5 AND FEV PRICES
uS$/kg
40
30
20
10
0
Jan’09
Aug’09
Apr’10
Dec’10
V2O5 (min 98%)
FeV (70(cid:31)80%)
London Metal Bulletin
moNumeNt to the firSt ruSSiAN SteAm loComotiVe
Father and son, Yefim Cherepanov (1774–1842) and Miron
Cherepanov (1803–1849) were Russian inventors and industrial
engineers who built the first Russian steam locomotive. They
worked for the Demidovs – a famous dynasty of factory owners.
Starting in 1810, Yefim Cherepanov constructed a pioneering
machine-building plant (Vyisky mechanical plant), equipped
with a complete range of innovative metal-cutting equipment
including-screw cutting and gear-cutting lathes and serrating
machines. From 1822 until his death, Yefim was the chief
mechanic of all factories in Nizhny Tagil. His son, Miron, became
his apprentice and was appointed his deputy in 1819, eventually
succeeding his father following Yefim’s death in 1842.
The Cherepanovs were responsible for significant
improvements in the quality of the machinery used in
blast-furnace operations, iron and copper works, gold-
mining, sawmills and flourmills. However, the Cherepanovs
earned a special place in history through their work on the
steam engine which they persistently tried to introduce into
industrial production. From 1820 onwards, the Cherepanovs
built some 20 steam engines with a horsepower range of
between two and 60. During 1833-1834 they built the first
Russian steam locomotive, followed by a second, more
powerful version, in 1835. They also built a cast-iron railroad
that connected one of their factories to a copper mine.
page 34
page 36
page 46
About Ostrava
Russia
Ostrava is the third largest city in the Czech Republic
and the second largest urban agglomeration after
Prague. Located close to the Polish border, it is also
the administrative centre of the Moravian-Silesian
Region.
Ostrava was an important crossroad on the
prehistoric trading route known as the Amber Road.
Archaeological finds have proved that the area
surrounding Ostrava has been continually inhabited for
25,000 years. Today’s Moravian Ostrava, whose name
was first brought up in the will of the Olomouc bishop
Bruno of Schauenburg in 1267, was awarded town
status by 1279.
The city’s history and growth have been largely
influenced by the utilisation of high-quality black coal
deposits discovered in the second half of the 18th
century.
During the 19th century, several mine towers were
raised in and around the city and the first steel
works were established at Vitkovice by the Olomouc
Archbishop Rudolf Habsbursky in 1828.
EVRAZ Vitkovice Steel, which is located in Ostrava,
is a leading European manufacturer of rolled steel
products and one of Europe’s foremost producers of
heavy plate.
Museums have been established where mines once
stood and although not being in the top ten list of
tourist attraction in the Czech Republic, Ostrava, while
retaining its rich industrial heritage, has effectively
transformed itself into an administrative, social and
cultural centre.
OstrAvA
CzeCh RepubliC
General Information
49°50’8”N 18°17’33”E
GMT +01:00
1267
310,464 people
214 km2
33 AnnuAl RepoRt And Accounts 2010
Business Overview
iv
w
e
i
v
r
e
v
O
s
s
e
n
i
s
u
B
Our visiOn
and strategy
evraZ is…
enrichment through Collaboration
Working together as one team, we achieve best results
value Created for Our Customer
Continually improving our products and services,
we strengthen our long-term partnerships with our
Customers
respect for People
Safe working conditions, development of our people and
local communities are integral parts of EVRAZ business
accountability for actions and results
We persistently aspire to achieve our goals and are
responsible for the results
Zeal for Continuous improvement
Developing and implementing new ideas, we make the
world stronger, safer and cleaner
growth strategy
enhancement of raw Materials Base
We believe that being just self-sufficient in coal and iron
ore falls short of enabling us to take full advantage of the
potential of these markets. Consequently, EVRAZ intends
to significantly expand its mining platform.
In 2010, as a first step towards fulfilling this goal, EVRAZ
acquired licences to develop coking coal deposits in
the Republic of Tyva, Russia. The mineable reserves
associated with these deposits amount to in excess
of 700 million tonnes of coking coal. We expect total
production from the deposits to reach 10 mtpa of coking
coal in 2019. Output on this scale will allow us to not only
cover our own needs but, in addition, enjoy an export
exposure to the Asian coking coal market. We also
commenced construction of a new mine in Kemerovo
region which will provide EVRAZ with 2 mtpa of high
quality coking coal with effect from 2013.
34 AnnuAl RepoRt And Accounts 2010
Business overview
In order to expand our iron ore asset base, we are
planning to commence exploration of the Sobstvenno-
Kachkanarskoye iron ore deposit which will enable us to
reach KGOK’s production of 11 mtpa of saleable iron ore
products for several decades. We are also seeking prime
Greenfield projects in Russia and on a global basis.
Completion of the reconstruction of the 4th BOF and
3rd slab continuous casting machine at NTMK has
served to increase crude steel output by up to 0.5 mtpa.
Management is also considering various options to
facilitate a 2 mtpa increase in steel production at either
NTMK or Zapsib.
reinforcing eVrAZ’s Position in Current markets
Cost-Saving measures
We are reinforcing EVRAZ’s position in its current markets
by (i) enhancing the quality of our products; (ii) developing
our distribution network; and (iii) widening our product
portfolio. We are also progressing various initiatives in
order to take advantage of the prospective demand for
construction steel products that we have identified in
certain regions of Russia and overseas. It is important
that we continue to expand our business downstream in
order to reduce EVRAZ’s exposure to semi-finished steel
products.
By way of a significant step in this direction EVRAZ has
undertaken the construction of two new rolling mills, the
Yuzhny Mill in the Rostov Region of Southern Russian,
where construction activity is booming, and the Kostanay
Mill in Northern Kazakhstan. These new facilities will
enable EVRAZ to expand its product mix in line with the
local demand (e.g. new rebar grades).
In December 2010, EVRAZ acquired the metal
distribution and service company INPROM and integrated
its distribution operations with EVRAZ’s sales network
under a new enterprise that will become the largest steel
distributor in the CIS with the ability to provide a wide
range of client services in metal processing. In 2010,
EVRAZ's distribution network achieved total steel sales of
approximately 1.2 million tonnes.
The reconstruction of EVRAZ’s rails and beams shop at
NKMK and the wheel shop at NTMK, designed to improve
quality and enhance the product range, remains on
schedule.
raising Steel Production Volumes
Alongside the projected expansion of our raw material
base we plan to expand our steel production in order to
increase EVRAZ’s market share in existing markets and
establish a presence in new markets with promising
growth potential.
In response to rising raw material prices around the globe
and the higher cost dynamics of gas and electricity in
Russia, EVRAZ plans to reduce costs through the use of
state-of-the-art technologies and best industry practices.
During 2010 EVRAZ started the implementation of
the Pulverized Coal Injection technology at Zapsib and
NTMK, a development that will bring about a significant
reduction in steelmaking costs.
the miNiuNi, oStrAVA
The Miniuni in Ostrava is an interesting attraction
suitable for children and adults alike. An area of
around 1.5 hectares houses more than 30 replicas
of landmark buildings located in European cities,
including: London’s Big Ben, Prague’s Old Town Hall and
Berlin’s Brandenburg Gate, all of which are dominated
by a 12 metre-high model of the Eiffel Tower. All the
models are built to a scale of 1:25 and reproductions of
the Wonders of Ancient Times are a recent innovation.
Miniature trains on railway lines run across the grounds
and a steamship traverses the small waterways. Special
exhibitions and entertainment events are regularly
organised for children, while the Miniuni’s restaurant
offers a variety of European specialties.
35 AnnuAl RepoRt And Accounts 2010
Business overview
our BuSiNeSS
EVRAZ is a global vertically integrated steel and mining
business.
The Company has three principal operating segments:
Steel, Mining and Vanadium.
EVRAZ’s manufacturing facilities produce a wide range
of products with a specialised focus on infrastructure.
In 2010, the Company’s share of the Russian market
in beams, channels and rebars totalled 86%, 56% and
22% respectively. EVRAZ accounts for 90% of rail sales
in Russia and ranks second in the country’s rail wheel
market.
EVRAZ is also a major supplier of semi-finished
products – slabs and billets – to world markets.
EVRAZ is a prominent player in the European plate
market.
In the USA EVRAZ is the No 1 producer of rails, one of
the largest manufacturers of plate, being the largest
manufacturer of armour plate, and is acknowledged as
the No 1 North American producer of tubular products,
particularly in respect of large diameter pipes.
EVRAZ’s mining operations ensure high levels of self-
sufficiency in respect of supplies of iron ore and coking
coal required for the Company’s steelmaking processes.
The Company is an important player in the world
vanadium market and produces various vanadium
products including ferrovanadium, Nitrovan®, high
purity vanadium oxides and a full range of vanadium
chemicals that are widely used in steelmaking and other
applications.
CONSOlIDATED REVENuE BY SEGMENT
US$ million
9,772
765
363
1,456
8,978
(1,790)
2009
13,394
815
566
2,507
12,123
(2,617)
2010
Steel
Mining
Vanadium
Other operations
Eliminations
CONSOlIDATED ADjuSTED EBITDA BY SEGMENT
US$ million
2,350
190
935
53
1,439
(267)
2010
1,237
167
279
927
(12)
(124)
2009
Steel
Mining
Vanadium
Other operations
Unallocated & Eliminations
36 AnnuAl RepoRt And Accounts 2010
Business overview
Steel
Steel: russia
NtmK
GENERAl OVERVIEW
Several key projects were successfully concluded at
NTMK during 2010, the principal development being
the completion of the modernisation of the BOF (Basic
Oxygen Furnace) shop. Production of 40K beams (out
of shaped blanks supplied from ZSMK) was resumed.
NTMK’s manufacturing capabilities were strengthened
with the launch of a project aimed at the production of
continuously cast billets for the rolling of large beams
(40K, 60Sh and 70Sh). NTMK, situated in Nizhny Tagil, in
the Urals, is Russia’s sole producer of columns for bridge
cranes utilising 40K shaped blanks.
This year NTMK significally expanded the plant’s output
of high quality American Petroleum Institute-certified
(API-grade) slabs for delivery to EVRAZ’s North-American
operation. The reconstruction of the fourth and final
converter in the BOF workshop was duly finalised.
Finalisation of the upgrading of heat treatment facilities
represented the completion of a six-year modernisation
of NTMK’s wheel shop which now ranks as one of
the most complex wheel manufacturing units in the
world fully equipped to meet European and American
specifications. The introduction of a further turning
lathe will serve to increase the wheel shop’s production
capacity by 19,000 wheels per annum. Negotiations
were successfully concluded regarding an extension
of the wheel shop which will include the acquisition of
additional turning lathes and the reconstruction of the
existing lathes, thereby raising prospective capacity of the
wheel shop to 520,000 wheels per annum. Certification
procedures in respect of rail wheels have been launched
in relation to the European and the USA markets. Further
developments include the production of backing plate
ZhBR 65, and expansion of the range of H-beams.
Improvements in the quality of iron ore (in conjunction
with KGOK) and coke together with optimal utilisation
of two blast furnaces resulted in record levels of pig iron
production which reached additional 13,000 tonnes per
month.
the Brewery muSeum
In the Czech Republic beer (Czech: pivo) has a long
and significant history. The first brewery in the region is
known to have existed as early as 1118. The Ostravar
Brewery opened in 1898, followed a year later by the
Branik Brewery, two enterprises that would later merge
with the Staropramen Brewery.
Today, Ostravar is a strong local brand in northern
Moravia. The beer is traditionally brewed using bottom
fermentation, known for its high concentration of carbon
oxide, well-rounded flavour and palatable bitterness.
Visitors are invited to tour the Ostravar Brewery, discover
the way in which the Czech national drink is brewed
and, finally, sample their favourite brand. One of the
Museum’s most popular attractions is a tap bar that is
more than 60 years old.
Numerous other exhibits linked to brewing include
various types of barrel, illustrations of how such barrels
were made, transport glass dating back to the 1920s
and an ancient barrelhead.
37 AnnuAl RepoRt And Accounts 2010
Business Overview
The installation of Pulverised Coal Injection Technology
is ongoing and, ultimately, will result in annual savings of
up to 650 million cubic metres of natural gas at NTMK
accompanied by a reduction of more than 20% in coke
consumption.
Various other measures designed to further productivity
were introduced by management during 2010 through a
programme dedicated to operational improvements.
The overall investment in the modernisation of the converter
shop, which increased annual steel capacity by 0.7 million
tonnes to 4.5 million tonnes, was US$310 million.
The installation of Pulverised Coal Injection Technology
is ongoing and, ultimately, will result in annual savings of
up to 650 million cubic metres of natural gas at NTMK
accompanied by a reduction of more than 20% in coke
consumption.
In addition, management initiated various courses of
action in relation to health, safety (with particular focus
on fire risk) and ecology. These included total compliance
with the recommendations from Rostekhnadzor, the
supervisory body within the Ministry of Natural Resources
and Ecology, enhanced utilisation of protective clothing,
the modernisation of communal facilities (e.g. showers,
canteens, etc) and certain ecological undertakings.
Key TargeTs 2011
In 2011 NTMK endeavours to achieve further
business growth and operational excellence through
implementation of the following measures:
The construction of a new ladle furnace (No 4)
Increase the annual production capacity of the wheel
shop to 520,000 wheels through the installation of six
new turning lathes
The construction of PCI facilities and commencement
of partial replacement of coke and natural gas with PCI
Concentrate production of rail fasteners in Nizhnyaya
Salda region through moving production out of
Novokuznetsk in 2011-2012
Increase vanadium extraction rate to 75%
Customer focus at NTMK will include further refinement
of the quality of slabs. The production of 40K beam
from continuously cast billets will be increased in line
with market demand while the rail wheels certification
processes in respect of the North American and Italian
markets will be finalised.
NTMK’s health, safety and environmental agenda for
2011, will focus on the implementation of EVRAZ’s new
health and safety rules, the organisation of additional
safety training in line with new corporate standards and
the carrying out of all scheduled maintenance activities.
The expansion of production facilities at NTMK will
open up new employment opportunities in 2011 with
candidates drawn from within NTMK. Policies designed to
retain key employees will also come into effect.
ZSMK
general Overview
Key investment projects at ZSMK during 2010 included the
installation of Pulverised Coal Injection (PCI) technology,
scheduled for completion in 2012, and the implementation
of a slitting process in order to increase production levels
of rebar at sections mill 250-1. Refinements were brought
to bear on certain aspects of production while efficiency
planning was directed at equipment maintenance. There was
also considerable focus on safety measures which included
total compliance with Rostekhnadzor’s recommendations,
the testing of protective clothing in relation to various
production processes and the enhancement of safety
equipment where appropriate. Working conditions benefited
from the implementation of special programme involving the
modernisation of the canteen and other communal areas.
During 2010 ZSMK commenced delivery of shaped
blanks to facilitate NTMK’s production of 40K beam.
ZSMK also increased production levels of high quality
rebar A500SP, a product that allows for a reduction in
the metallic component of reinforced concrete, thereby
significantly lowering construction costs.
Environmental protection remained a key priority and
various ecological programmes (in conjunction with the
Kemerovо region’s administration) were implemented.
The installation of Pulverised Coal Injection Technology
is ongoing and, ultimately, will result in annual savings of
up to 600 million cubic metres of natural gas at ZSMK
accompanied by a reduction of more than 20% in coke
consumption.
Key TargeTs 2011
ZSMK’s principal business objectives in 2011 include:
Creation of a LEAN office as part of the implementation
of the EVRAZ Business System programme
Further implementation of the PCI project: design work
and preparation of surface for construction (scheduled for
2011–2012) of PCI facilities. The finalisation of the project
is expected to come to fruition in the beginning of 2013.
In 2011 ZSMK will launch the project to increase
capacity of West Siberian Heat and Power Plant
(‘Zapsib Power Plant’) from 250 to 400MW
38 AnnuAl RepoRt And Accounts 2010
Business overview
Merge NKMK and ZSMK into one legal entity. This step
will allow simplification of managerial processes and
formulation of single standards in the sphere of health
safety and environment, railway, automobile and
warehouse logistics, procurement, social policy and
human resources management.
In 2011 ZSMK is planning to increase the production
capacity of the rolled products section. Efficiency
of production will be significantly enhanced by the
implementation of Single-Minute Exchange of Die (SMED).
ZSMK will continue to work on the Health, Safety and
Environmental programme during 2011 and will be
working closely with the ‘talent pool’ in relation to
employee development.
NKmK
GENERAl OVERVIEW
The completion of the first stage of the rail mill
modernisation programme at NKMK, located in
Novokuznetsk, Siberia, marked the principal development
at the plant during 2010. Plant capacity amounts to
750,000 tonnes of rail per annum and investment in
state-of-the-art technology has ensured the production
of premium quality rails consistent with the most
advanced standards in Europe. Management approved
the second stage of the modernisation project, scheduled
for completion in 2012, which will pave the way for the
production of 25 metre and 100 metre rails dedicated
to high speed transportation. Further investment
encompassed the installation of power generator No 4.
The focus on health and safety issues at NKMK largely
mirrored the programme undertaken at ZSMK. Priorities
included total compliance with Rostekhnadzor’s
recommendations, the testing of protective clothing
worn by employees in relation to various manufacturing
processes and investment in new safety equipment of the
highest quality. As with ZSMK, various communal areas
and amenities within the plant were modernised and
refurbished.
Similarly, NKMK also worked closely with the Kemerovo
region’s administration in relation to various ecological
initiatives.
KEY TARGETS 2011
The second stage of the rail mill modernisation
programme will continue during 2011 which will also see
the introduction of a non-destructive inspection line.
NKMK’s principal business objectives in 2011 include:
Maximise production that does not utilise pig iron in
order to reduce costs
Undertake cost reduction project,designed to
ultimately cut fixed costs by 20-50%
Formation and deployment of a LEAN office in
accordance with the implementation of the EVRAZ
Business System programme
Merge NKMK and ZSMK into one legal entity. This step
will allow simplification of managerial processes and
formulation of single standards in the sphere of health
safety and environment, railway, automobile and
warehouse logistics, procurement, social policy and
human resources management.
NKMK will continue to pursue the plant’s Health, Safety
& Environmental programme during 2011 and, as with
ZSMK, will work closely with the ‘talent pool’ in order to
further employee development.
Steel: ukraine
GENERAl OVERVIEW 2010
Management’s focus in respect of the Group’s Ukrainian
assets during 2010 was primarily on the improvement of
the blast furnace workshop at EVRAZ DMZ Petrovskogo
and the implementation of programmes designed to
achieve operational improvements and increase the
output of high-marginal premium steel products.
EVRAZ’s Ukrainian coking plants increased their capacity
utilisation with overall production volumes reaching
1,849 thousand tonnes of coke per annum.
EVRAZ Sukha Balka completed the construction of a
dry magnetic separation complex for the production
of ore, with an estimated iron content of 60%, and
also constructed an independent railway facility which
provides free access to Ukrainian Railways’ rail network
and readily facilitates the shipment of ore to customers.
KEY TARGETS FOR 2011
The key priority for the Ukrainian plants in 2011 will
be the integration of all assets into a single business
unit (in terms of organisation and management) with
the dual objectives of increasing efficiency in relation
to the management of the assets and enhancing the
focus on financial performance. This integration will
be accompanied by improvement of cooperation with
distributors and consumers.
39 AnnuAl RepoRt And Accounts 2010
Business overview
One of the priorities, in terms of operational activity, will
be the optimisation of the blast furnace process with
greater focus brought to bear on the utilisation of key
performance indicators such as production rates, coke
consumption and Fe yield. Management will continue
to progress the improvement of the product mix with
focusing on of new types of sections.
Other specific developments will include:
The creation of a more effective sales model for coke
and ore with the key aim being the provision of stable
load density of coking batteries to ensure a regular
production flow through the coke ovens thereby
reducing the risk of earlier than planned end of life
cycle of coking batteries.
EVRAZ’s across the board focus on HSE issues will
encompass all of the Company’s Ukranian assets. In
addition to improvements and refinements to existing
safety precautions, management will implement a
series of employee training programmes.
The scheduled launch of LEAN, an integral aspect of
the EVRAZ Business System.
Steel: western europe
GENERAl OVERVIEW 2010
Steel markets continued their recovery in Europe during
2010, largely driven by the strong demand in Germany.
Prices staged a significant rally during the first half
of 2010 compared with the corresponding period of
2009 but as the year progressed demand faltered and
prices took their cue: a correction that inevitably exerted
pressure on margins.
ЕVrAZ Palini e Bertoli
EVRAZ Palini e Bertoli exceeded budgeted results with the
benefit of various initiatives including an increase in the
productivity of the rolling mill and a focused reduction in
conversion costs. These developments coincided with a
general recovery in key plate markets.
eVrAZ Vitkovice Steel
EVRAZ Vitkovice Steel’s results were adversely influenced
by the dispute with ArcelorMittal Ostrava in respect
of pig iron supplies, which led to a five-month idling of
the steel shop. In the event, the outcome resulted in a
supply agreement, which should yield benefits in 2011.
A number of initiatives led to a significant reduction in
conversion costs and a major turnaround in the results.
Other strategic initiatives – reorganised maintenance
procedures and changes to the energy (electric and
natural gas) procurement strategy in order to take
advantage of the EU’s liberalised energy markets - should
further enhance 2011’s performance.
Steel: South Africa
GENERAl OVERVIEW 2010
South African markets experienced a significant shrink
during the second half of the year, largely due to the
fact that, following the completion of construction
projects in preparation for the 2010 Soccer World Cup,
the government deferred the financing of various new
infrastructure projects. Relatively stable first half trading
gave way to a deterioration in demand which, combined
with a 15% appreciation of the South African Rand against
the US dollar and an increase in imports, led to a near
20% price decline towards the end of the year.
eVrAZ highveld Steel and Vanadium
Following a problematic start to the year, when steel
production was adversely affected by oxygen shortage,
the plant’s performance remained unsatisfactory
throughout 2010. Operational issues and equipment
malfunctions took their toll on production with
approximately 3,000 tonnes of output lost, on average,
each month. The aforementioned dynamics of the South
African market led to significantly higher exports towards
the end of the year which, reflecting the additional costs,
negatively influenced the bottom line.
A concerted effort on the part of management to address
the situation led to a number of initiatives including
improvements in the sales structure, quality, production
processes, maintenance procedures and procurement
practices. Considerable progress was achieved in
relation to South Africa’s Broad-Based Black Economic
Empowerment (B-BBEE) project with a higher than
anticipated assessment from the B-BBEE verification
agency expected for 2011. Management approval of
a long-term environmental plan paved the way for the
start of several projects towards the end of 2010. The
development of a 10-year strategy will serve to prioritise
and coordinate improvements in efficiencies and
restructuring exercises.
40 AnnuAl RepoRt And Accounts 2010
Business overview
Steel: North America
The creation of a powerful, integrated and diverse steel
company in North America has been one of EVRAZ’s
primary aims launched in 2010 and will continue through
2011. The establishment of critical integrated functions
such as supply chain planning, manufacturing excellence
and business development across all three divisions
(Flat, Tubular and Long) is integral to the maintenance of
EVRAZ’s North American competitive strength.
The vertical integration of our steel operations in Russia
with the Flat and Tubular divisions of EVRAZ Inc. NA led to
excellent financial results from EVRAZ’s North American
business in 2010. EVRAZ will continue to develop this
integration in 2011.
An excellent performance from the Long Division’s
rail business was all the more notable in view of the
challenging global economic conditions. Demand for
large-diameter tubular products in Regina, Canada,
proved sufficient to keep the EVRAZ Regina Spiral mill
fully utilised throughout 2010, a distinction unequalled
by any other large-diameter pipe mill in North America.
Encouraging scale of such demand reflects both the
quality of EVRAZ’s products and EVRAZ’s focus on clients’
requirements.
A number of strategically important CAPEX projects have
been initiated in the Flat and Tubular divisions, designed
to address both production volumes and margins. A major
capital investment project is under way at EVRAZ’s facility
in Claymont, Delaware, while, in Alberta, two projects at
Calgary and a further two projects at Red Deer will reinforce
our competitive position in the OCTG market in Canada
and the USA. EVRAZ Inc. NA is preparing a targeted capital
programme in respect of EVRAZ Rocky Mountain Steel
facility in Pueblo, Colorado, where the focus will be on raising
steel making production volumes and accommodating
clients’ requirements in respect of the rail product line.
A major capital project is also under way at Claymont in
relation to the plant’s environmental obligations.
EVRAZ Inc. NA’s scrap supply operation represents
an integral aspect of EVRAZ’s business and, in order
to maximise efficiencies, EVRAZ is in the process of
integrating scrap operations in Canada and the US’s
Pueblo and Claymont.
The scale of EVRAZ’s North American and Canadian asset
base is a reflection of management’s confidence in the
growth prospects. In line with this, further expansion of
the production capabilities of Flat and Long divisions will
represent an important part of EVRAZ’s growth strategy
in the US and Canada.
EVRAZ’s focus on Health and Safety issues at Group
level is mirrored across the Company’s operations in
North America. The safety of employees is of paramount
importance throughout the Group’s operations and
various initiatives were implemented at EVRAZ’s North
American plants during 2010. The general welfare of
employees, ranging from workplace business practices
to the quality of communal facilities, represents a further
priority which management sees as a mandatory aspect
of our business and which links with EVRAZ’s corporate
culture and values. Improvements and refinements in
relation to safety and employee welfare will continue
throughout 2011.
KEY TARGETS 2011
The process of integrating EVRAZ’s North American
operations will continue in 2011 as will the Company’s
focus on Health & Safety issues. Management’s plans to
improve operational performance include the introduction
of LEAN business practices and enhanced customer
focus across the Flat, Tubular and Long business areas:
Continue to implement Health & Safety measures
Increase sales and revenues in rail business
Increase sales in OCTG business and improve
profitability
Successful completion of capital projects in order to
capitalise on returns
Expand overall steelmaking capacity
Identify additional areas for growth in our Flat and
Tubular businesses.
Some fACtS ABout eVrAZ
vgoK (the urals)
Another initiative undertaken in 2010 involved the
integration of our maintenance operations, thereby taking
advantage of a range of tangible synergies. Considerable
benefits are envisaged in relation to the reliability of
production equipment, effective cost and investment
management and the sharing of knowledge and talent
across our locations. This exercise will prove ongoing
throughout 2011.
In 1836 miners working 80 metres below ground at
the Vysokogorsky ore deposit’s Mednorudyansky field
discovered one of the largest malachite formations
in the world. The boulder was 17 metres long and
weighed 380,000 tonnes. To put this in perspective
the creation of the unique Malachite Hall at Saint
Petesburg's famous State Hermitage Museum
required just 2,000 tonnes of malachite.
41 AnnuAl RepoRt And Accounts 2010
Business overview
miNiNG
mining: Coal
GENERAl OVERVIEW 2010
EVRAZ continued to focus on the ongoing improvement in
safety levels at Yuzhkuzbassugol, EVRAZ’s Siberian coal
mining subsidiary, during 2010. Various programmes,
encompassing advance warning and monitoring systems,
were implemented in line with the Company’s 2010-2011
safety targets in relation to production processes and
practices. The achievement of these targets has been
effectively guaranteed by the allocation of additional funds
to ensure that all post assessment recommendations
made by Rostekhnadzor, the supervisory body within the
Ministry of Natural Resources and Ecology, in respect of
Yuzhkuzbassugol, are fully addressed as a matter of priority.
During 2010, longwalls were repositioned at
Yuzhkuzbassugol’s following mines: Abashevskaya,
Yesaulskaya, Kusheyakovskaya, Tagaryshskaya,
Gramoteinskaya, Alardinskaya and Yubileynaya 2. Longwall
procedures are consistent with relatively stable levels of
output which, in turn, is integral to the security of supply to
EVRAZ’s steel manufacturing operations.
Management initiated various projects designed to
maintain production levels at Yuzhkuzbassugol’s mines
during 2010. These included a preliminary degasification
exercise at the Yesaulskaya mine, electrical modifications
at the Alardinskaya mine and commencement of the
development of the Alardinsky-Vostochny area. The
construction of an electricity generator with a capacity
of 35/6 Kw was completed at the Osinnikovskaya mine,
where work is underway in block No 4 in preparation for coal
extraction. Preparations were finalised for the extraction of
layer No 15 at the Abashevskaya mine in the Zyryanovsky
area. At the Yerunakovskaya-8 mine preparatory work for
the construction of the mine was completed. Operations
at the Yubileynaya and Tagaryshskaya mines were closed.
A further feature of 2010 was the introduction of an
automated system to measure electricity consumption
throughout the Yuzhkuzbassugol complex.
Coking coal production of 7.5 million tonnes in 2010
represented a decrease of 27% сompared with 2009.
This reflected a reduction in the economic efficiency
of the mines due to the repositioning of longwalls, the
delayed launch of the Ulyanovskaya mine, the sale of the
Tomusinskaya mine, the closures of the Yubileynaya and
Tagaryshskaya mines, temporary stoppages associated
with Rostekhnadzor’s monitoring activities, the introduction
of new equipment designed to improve safety levels and the
legacy of underinvestment in 2009.
eArlieSt City iN the world
The people of the Czech Republic are early risers in
general, none more so than the citizens of Ostrava who
regularly go about their business as the rest of Europe
sleeps. At 4 a.m., trams start running and the city’s first
train leaves for the capital. Newsstands open at 5.30 a.m.
and many pubs are already open at 6 a.m. In contrast,
10 p.m. is considered a late night in Ostrava.
Some fACtS ABout eVrAZ
dmz (ukraine)
In 1926 DMZ Petrovskogo (currently EVRAZ DMZ
Petrovskogo) commissioned an open-hearth furnace
with 100 tonnes of capacity: the largest in the world
at that time.
The sound of the EVRAZ DMZ Petrovskogo plant
hooter can be heard within a radius of 10 kilometres.
Souvenir hangers of Misha the Bear, the symbol of
the 1980 Moscow Olympic Games, were produced
by DMZ Petrovskogo (currently EVRAZ DMZ
Petrovskogo) in its consumer goods workshop.
42 AnnuAl RepoRt And Accounts 2010
Business overview
Steam coal production of 3.8 million tonnes in 2010
represented a decrease of 8% compared with 2009. The
decline reflected the closure of the Tagaryshskaya mine
together with difficult geological conditions in relation to
the repositioning of longwalls that resulted in the delayed
introduction of longwalls at the Kusheyakovskaya mine.
Meanwhile, indications are that production volumes at the
Gramoteinskaya mine in 2011 will be in line with the output
achieved in 2010.
KEY TARGETS 2011
In 2011 Yuzhkuzbassugol endeavours to achieve further
business growth and operational excellence through
implementation of the following measures:
Growth of the Business:
Launch of the Yerunakovskaya-8 project
Restructuring of Yuzhkuzbassugol’s assets in order
to maximise operational efficiency in line with Group
strategy
Ongoing pursuit of several separate initiatives
designed to raise the productivity of the mines
Operational excellence:
Creation of a LEAN office as part of the implementation
of the EVRAZ Business System programme
Improvement of the investment decision-making
process
Unification of mining equipment
Step by step process approach to managing each
operation throughout the business
Greater transparency regarding management of
supplementary operations (aeration, dewatering, etc).
During 2011 customer focus at Yuzhkuzbassugol will
centre around improvement of the quality of concentrate,
primarily through maintaining consistency in terms of ash
content, humidity and calorific value.
The introduction of additional safety measures and
ongoing improvements to existing precautions will remain
the keystone of Yuzhkuzbassugol’s health, safety and
environmental agenda during 2011. This includes the
development of a comprehensive mine degasification
programme, encompassing methane utilisation projects
at two mines.
The formation of the LEAN office, under the supervision
of EVRAZ’s senior management, and the implementation
of various aspects of EVRAZ Business System, will prove
the drivers of significant efficiencies at Yuzhkuzbassugol
during 2011. A further priority will be the selection of
some 30 prospective senior managers and the training
of management personnel as part of a project which will
serve to replenish coal sector expertise and facilitate
succession.
mining: iron ore
The year 2010 witnessed a significant recovery in
EVRAZ’s iron ore mining and enrichment operations
following the reduced levels of activity in 2009 caused by
the global economic malaise. The ore mining subsidiaries
within EVRAZ Iron Ore Division produced 68 million
tonnes of iron ore, a 7.9% increase over 2009 volumes.
Production of saleable iron ore products (iron ore
concentrate, sinter and pellets) in 2010 amounted to
17.5 million tonnes and accounted for 92% of EVRAZ’s
internal requirements in relation to the Company’s
Russian and Ukrainian operations.
The Division’s focus during 2010 was on building
up production at minimal capital expenditure while
enhancing efficiency and safety of production.
Accordingly, several improvement of programmes were
launched (for completion in late 2010 – early 2011) to
stabilise and increase production at EVRAZ KGOK and
Evrazruda. Special HSE program supported by external
experts and trainers was launched at EVRAZ VGOK.
Besides the Division started a 3-year program to upgrade
and modernise part of key mining, transportation and
grinding facilities at the plants. In the course of upgrading
the equipment special attention was paid to comfort-
at-work measures: installation of air conditioning units
and more comfortable seats in cabins of rock-drilling
and excavating machines. Dressing rooms and shower
compartments of the plants were started with major
reconstruction to comply with new corporate standards.
Progress continued on the implementation of an
integrated programme focused on development of
employees and strengthening relations with municipal
community at the town of Kachkanar, where EVRAZ KGOK
is located. The multi-faceted project was designed to
involve employees in operational improvements, increase
productivity, enhance further professional education
while giving more support to co-operative programs with
local government and key social groups within Kachkanar.
A number of measures were introduced to streamline
management operations at EVRAZ KGOK, EVRAZ
VGOK and EVRAZ Sukha Balka. A number of service
subdivisions were span-off and out-sourced.
A better-working-condition programme focused on the
modernisation of various communal facilities at mines
and plants throughout the Iron Ore Division was launched
and will be ongoing in 2011. Overall expenditure on social
programmes amounted to US$1.3 million in 2010, an
increase of 8% compared with 2009.
43 AnnuAl RepoRt And Accounts 2010
Business overview
In 2010 key investment projects designed to increase
production capacity, raise production volumes and
improve the quality and metallurgical value of the iron ore
produced included:
The reconstruction of Evrazruda’s Abagurskaya
enrichment plant started in 2009 was completed and
resulted in an increase of iron content in concentrate from
60.3% to 61.7%, thus giving extra value to EVRAZ ZSMK
as the only customer for the product.
eVrAZ KGoK
Improvement program along key stages of EVRAZ KGOK’s
production chain (including upgrade and replacement of
targeted equipment) contributed to an 11% increase in
concentrate production capacity (1Q 2011 vs. 1Q 2010).
A subsequent project designed to expand iron ore
production capacity at EVRAZ KGOK, in line with strategic
output objectives, started in late 2010 should result in
additional 10% capacity increase to reach 55 million
tonnes by the end of 2011. In accordance with the project
plan, the whole scope of upgrading mining, transportation
and grinding equipment is to be completed in early 2012.
The exploration of the Sobstvenno-Kachkanarskoye
field continued. It was marked by EVRAZ KGOK
selecting Worley Parsons as design engineers for the
new production complex at the field. Worley Parsons,
a premier international engineering enterprise, will
work in partnership with PiterGorProekt, the Russian
mining design and engineering company, which should
ensure, that the project complies with both highest
international technological standards and Russian
regulatory requirements. Implementation of this project
will effectively secure increased production of iron ore at
EVRAZ KGOK for dozens of years ahead in line with the
mounting requirements of its key customers - the steel
producers.
The modernisation of pellet-indurating machine No 2 at
EVRAZ KGOK led to a reduction in gas consumption of 0.8
cubic metres per tonne of pellet production.
evrazruda
Stabilisation of Evrazruda’s production was achieved
at the onset of 2011 as a result of operational
improvements and debottlenecking activities undertaken
at the company’s subsidiaries in 2010.
The debottlenecking (including upgrading and
replacement of equipment) was focused on the
production chains of Irbinsky and Teysky subsidiaries
of Evrazruda. It led to a significant increase in stripping
operations and expanded open pit iron ore production
capacity.
Much of the work to introduce a lime-based ore-
preparation technology at the Abagurskaya enrichment
plant was accomplished. The project is expected to be
completed by mid-2011.
The development of Evrazruda’s Sheregeshsky
underground mine was underway, which will effectively
double annual iron ore production capacity. As per the
updated project design and timeframe the estimated
investment period is expected to be reduced two years so
that now run-of-mine (r-o-m) production capacity of the
mine is projected to reach 3.7 million tonnes by 2014.
An investment programme, designed to double the
production capacity of the Abakansky underground mine
and to produce 4 million tonnes of raw ore per annum
starting from 2016, commenced. Design and engineering
work at the project was assigned to the Moscow-based
institute, Giprotsvetmet.
Besides, in its strategic endeavours to produce more from
open casts Evrazruda acquired a licence for development
of the Izykhsky iron ore deposit with reserves in excess of
4.1 million tonnes. The Izykhsky deposit will be developed
by Evrazruda’s branch of Irbinsky mine, Krasnoyarsk
region.
eVrAZ VGoK
The lime-based ore-preparation technology was
successfully put into operation at EVRAZ VGOK. This
facilitates regular, round the year delivery of iron ore
concentrate to consumers eliminating the need for a
costly heating and drying machines. It also enhanced
the metallurgical value of the ore concentrate and
significantly increased its sales price.
In 2010 EVRAZ VGOK continued search for technologies
to modernise its mining, enrichment and tailing facilities
to start with implementation in 2011.
It also launched a programme focused on industrial safety
comprising extensive training courses for personnel,
lower and mid-level managers, as well as adoption of
industrial best HSE practices. The program is supported
by external consulting and training company.
44 AnnuAl RepoRt And Accounts 2010
Business overview
eVrAZ Sukha Balka
In 2010 the mining company implemented a total
reconstruction of its rail infrastructure and rail-car loading
facilities. That secured the ore producer with free access
to Ukrainian Railways network, which led to a significant
increase in production volumes and shipments of sinter
ore to consumers. As a direct result of this project the
production in 2011 is planned to rise by 35%.
Sukha Balka successfully put into operations the new
technology of dry magnetic separation of martite-
hematite ores. The project at its Yubileynaya mine
was designed to improve the quality and increase
the commercial value of production, permitting the
production of ore with iron content of not less than 60%,
the quality of which commands a market premium.
Key investment projects in 2011 are as follows:
Completion of full-scale feasibility study of the
Sobstvenno-Kachkanarskoye deposit (EVRAZ
KGOK). Design and preparation works to continue in
preparation for ore production to start in 2014.
Construction of new sludge dump reservoir at EVRAZ
KGOK aimed at decreasing operational costs and
improving safety levels of waste storage; scheduled for
transition to new areas by 2017. Choice of technology
and selection of design engineering company will be
made during 2011.
Implementation of project designed to increase
EVRAZ KGOK’s raw iron ore production capacity from
current 50 million to 55 million tonnes per annum
in 2012. This development represents the first step
towards gradually raising annual capacity of the GOK
to 63 million tonnes.
Upgrade of pellet-indurating machine No 3 at EVRAZ
KGOK as part of modernisation of lumping workshop
designed to reduce pellet production unit costs while
enhancing quality.
Project designed to improve quality of iron ore raw
supplies from KGOK to EVRAZ NTMK should increase
durability of pellets and sinter.
Completion of second stage of reconstruction of
lime-based prevention technology line at Evrazruda’s
Abagurskaya enrichment plant.
Evrazruda will continue to invest in the development
of the Sheregeshsky, Kazsky and Abakansky
underground mines in order to expand its overall
annual production capacity by 25% in 5 years.
Tashtagolsky underground mine, a subsidiary of
Evrazruda, will finalise the introduction of back-fill
mining technology. Between 2011-2015 this project
is expected to provide access to valuable ore deposits
with the extraction volume projected to increase from
1.6 million to 1.9 million tonnes per annum.
Commencement of exploration and development of
smaller satellite deposits near Evrazruda’s major fields
in the Krasnoyarsk region and Khakassia. Exploration
of the Izikhsky depost with estimated reserves of
4.1 million tonnes during 2011 will give way to initial
project work with a projected annual production
of 0.6 million tonnes of iron ore in 2014.
The choice of technology to facilitate the concentration
(disposal) of tailings from EVRAZ VGOK’s enrichment
process will be made during 2011. This project is
expected to stabilise and further generate a 15-20%
increase in the production of iron ore raw materials.
Further expansion of EVRAZ VGOK’s iron ore base
will see design work commence in respect of ore
extraction from the Tsentralny open pit. This project is
expected to yield up to 7 million tonnes of ore between
2011 and 2020.
Modernisation of EVRAZ VGOK’s wet enrichment
facilities will be effected in 2011. As a result the
Yuzhnaya mine will start direct supplies of ore to wet
enrichment plant. This will raise the productivity of
VGOK’s enrichment plant by 7%.
Finalisation of a feasibility study regarding the
prospective construction of a sinter plant in order to
process EVRAZ Sukha Balka’s iron ore into raw sinter.
The activities above in 2010 enabled the iron ore sector
of EVRAZ to overcome the negative effects of recent crisis
and to lay down a firm basis for steady development and
expansion of the corporate iron ore base in the 5-year
period of 2011 - 2014.
Some fACtS ABout eVrAZ
vgoK (the urals)
Clerks of the Russian Imperator Peter the Great were
unable to scale the Vysokaya Mountain (mother of
the Vysokogorsky ore deposit) because their iron
heeled shoes got stuck in the mountain’s surface–
in those days the iron content of the ores mined
exceeded 60%.
EVRAZ Vysokogorsky Ore Mining and Processing
Plant, one of the oldest ore mining plants in the world,
is celebrating its 300th Anniversary in 2011.
45 AnnuAl RepoRt And Accounts 2010
Business overview
VANAdium
GENERAl OVERVIEW 2010
Strategic minerals Corporation
The vanadium segment achieved good results in 2010
benefiting from the recovery in the global economy and a
consequent improvement in the demand for steel. EVRAZ,
capitalising on its low cost competitive position and
ability to accelerate production in response to customers’
requirements, continued to increase its share of the world
vanadium market. All facilities in the vanadium division
performed with production increases of more than 50%
compared with 2009’s volumes.
The principal operational challenges faced by EVRAZ’s
management during 2010 included a return to the pre-
crisis levels of capacity and operational efficiency, the
utilisation of intra-group synergies and the improvement
of health, safety and environmental factors throughout all
facilities.
Vanady-tula
Following the acquisition of Vanady-Tula towards the end
of 2009, the focus during 2010 was on optimising the
plant’s efficiency. During the year an analysis of both the
cost structure and the production chain bottleneck was
carried out. This resulted in a set of proposals which, upon
implementation in 2011, will increase capacity by 3-5% in
that year and by up to 10% by 2013. A series of initiatives
were proposed with a view to achieving cost savings of up
to US$0.5 million per year.
In December 2010 Vanady-Tula was selected as a model
for implementation of the EVRAZ Business System (EBS)
utilising LEAN continuous improvement techniques.
During 2011 a major investment project, deploying EBS
techniques, will focus on improving safety, social and
environmental aspects of the facility.
Nikom
During 2010, the facility was mainly focused on improving
the Group synergies and efficiency by processing
vanadium trioxide produced by EVRAZ’s Vametco in South
Africa. Nikom also developed new techniques to process
a mixture of vanadium pentoxide supplied by Vanady-Tula
and vanadium trioxide to produce FeV, a development
that achieved extremely high vanadium yields. This has
allowed Vametco to operate at full capacity and improve
productivity while lowering costs at both plants. In 2011
the facility plans to further increase vanadium trioxide
processing levels that will have a commensurate impact
on the efficiency of ferrovanadium production.
In the second half of 2010, EVRAZ decided to halt
the divestiture of Stratcor in favour of growing the
corporation’s niche business. In the last quarter of
2010, a total of US$1.5 million was committed to the
modernisation of various aspects of the plant. Further
investment is planned in 2011 when the focus will be
on increasing production volumes and expanding the
range of specialty vanadium products available to the
chemical and titanium industries. Stratcor is committed
to maximising safety precautions in respect of employees
and, having suffered from its first ‘lost work day injury’ in
six years, will implement further safety improvements with
a goal to surpass its previous record.
Vametco
Vametco’s principal objective in 2010 was to improve
production efficiency through optimising the feed mix of
vanadium ore and vanadium slag to the process. This,
in conjunction with the Nikom collaboration, enabled
Vametco to raise production to full capacity during the
second half of 2010. Capital expenditure was focused
on infrastructure improvement and various safety
and environmental projects. In 2011 investment will
be directed at the elimination of bottlenecks, further
improvement in vanadium recovery rates and ongoing
projects in relation to safety improvements and
environmental undertakings.
In order to fully exploit intra-group synergies, management
initiated an inter-divisional project entitled ‘Increasing
vanadium production efficiency in the KGOK- NTMK-
Vanady-Tula production chain’. The project is designed
to analyse and optimise the entire vanadium production
chain and, to this end, will utilise LEAN problem-solving
instruments (VSA, Standard Work, KPIs, etc.).
In 2010, EVRAZ commenced a partnership with ChMZ
(Chusovskoy Metallurgical Works) with the intention
of using the latter’s idle vanadium slag processing
capacities to process NTMK’s slag. As a result, ChMZ
processed more than 5,000 tonnes of vanadium slag
in 2010. This fully illustrated the benefit of synergies
with VGOK (processing ChMZ’s by-product) and NTMK
(producing slag with the required composition and
utilising ChMZ’s by-product). This partnership will
continue through 2011.
46 AnnuAl RepoRt And Accounts 2010
Business overview
Reflecting the continuous drive to reduce expenses,
optimise productivity, increase efficiency and utilise intra-
group synergies, EVRAZ remains one of the lowest cost
producers of vanadium in the world.
oStrAVA Zoo
Key targets 2011
During 2011 the Company will seek to fully capitalise on
its competitive advantages in order to further expand its
presence in the world vanadium market. Key areas of
activity will include:
Ongoing focus on health, safety and environmental
issues at all facilities;
Implementation of EVRAZ Business System
throughout the division;
Maximisation of vanadium output at all of the
Company’s plants;
Improve market penetration and focus by channeling
all steel sector sales through East Metals;
Grow sales to the steel industry through increased
conversion of vanadium slag to final FeV products;
Enhanced marketing of EVRAZ’s value added
Nitrovan® product directed at the steel industry;
Expansion of market share of high value vanadium
products to chemical and titanium / aerospace
industries via Strategic Minerals Corporation’s
(Stratcor) operation in North America;
Ongoing cost optimisation and improvements in
efficiency at all facilities;
Identification and utilisation of all possible synergies
within the Group.
EVRAZ is confident that the advantages of constant
supplies of vanadium slag from EVRAZ Highveld and
NTMK, a low cost and efficient operational base and
focused marketing expertise will enable the Company to
offer its enhanced range of vanadium products at highly
competitive prices.
The health, safety and environmental agenda will remain
the focus in 2011 and is expected to be well received by
employees throughout the division.
Ostrava Zoo covers an area of 100 hectares and is
home to some 360 species including various predators,
giraffes, zebras, parrots, chimpanzees, lemurs,
elephants and rhinoceros to name but a few. The zoo,
founded in 1951, attracts a large number of visitors.
Falcon demonstrations take place during the summer,
while the feeding of the elephants is also a key
attraction. In winter, snow permitting, visitors are also
able to avail themselves of cross-country skiing facilities
within the zoo. In addition to animal feeding activities,
guided evening tours, designed to appeal to both
children and adults, are also well attended. Various
other popular events include: Children’s Day, lampion
parades and the decoration of the zoo’s Christmas tree.
There are several dedicated children’s corners within
the zoo which also features a children’s playground. A
Botanical Park was opened in 2007, while the following
year saw the construction of new enclosures for cranes
and red pandas. Years of planning culminated in the
zoo’s first night-time exhibition and a sea aquarium. In
2009 a new section of the zoo, ‘Mala Amazoni’, was
opened, the inhabitants of which include capuchin and
squirrel monkeys, tropical spiders and frogs.
47 AnnuAl RepoRt And Accounts 2010
Business overview
outlooK for 2011
The pattern of global economic recovery, which drove
market dynamics through 2010, has continued in 2011.
Global steel markets, while remaining distinctly sensitive,
have made a promising start to the year. The prices and
availability of steelmaking raw materials – iron ore, coking
coal and scrap – remain the principal drivers of steel
prices.
The aforementioned fund raising exercises are solely
for refinancing purposes. The Net Debt to last twelve
months (LTM) EBITDA ratio is expected to decrease below
2.5 times as of 30 June 2011.
In the medium-term we intend to maintain a Net Debt to
LTM EBITDA ratio of below two times.
Based on our sales at the beginning of 2011, we expect
Russian demand for construction steel to increase by
more than 10% in 2011 compared with 2010. We are
also witnessing improved demand from our international
markets as the global economy continues its recovery.
We are confident that EVRAZ Group, capitalising on its
strengths as a cost efficient vertically integrated and
geographically diversified company, is well positioned to
pursue its growth strategy and benefit from any upturn in
world markets.
In 2011, we expect EVRAZ’s Russian and North
American steelmaking operations to continue to run at
full capacity, while steelmaking capacity utilisation in
the Czech Republic and South Africa are expected to
increase as operational issues have been resolved and
infrastructure markets recover. Following modernisation,
completed in November 2010, EVRAZ’s steelmaking
plant in Nizhny Tagil, Russia, increased its annual capacity
by approximately 0.5 million tonnes. Consequently, we
expect our crude steel production volumes in 2011 to
increase by 6% compared with 2010’s output.
EBITDA in respect of 1Q 2011 totalled US$740 million:
75% higher than 1Q 2010 and 27% higher than 4Q 2010.
During 2Q 2011 steel prices in the Russian domestic and
international markets, having grown in the early part of
the year, showed some downward correction although the
average price is expected to be slightly higher than that
for the first quarter. We therefore expect 2Q 2011 EBITDA
to be slightly higher than in 1Q 2011.
Due to the volatility and low visibility of the global
commodities and steel markets, we cannot commit to
any firm guidance in respect of the second half or full year
2011 financial results.
We continue to refinance our short-term maturities
through various longer-term instruments in a market
where yields are close to their historic lows. In April 2011,
EVRAZ launched an US$850 million issue of Eurobonds,
due 2018, carrying an interest rate of 6.75%, the lowest
ever coupon in respect of an EVRAZ Eurobond issue. Part
of the proceeds from the issue was used to purchase
approximately US$622 million in aggregate of the
principal amount of the outstanding bonds due 2013.
We have also issued RUB20 billion of bonds in early
June 2011. The proceeds from this issue were used to
repay part of the US$950 million Gazprombank loan due
in 2014.
Some fACtS ABout eVrAZ
yuzhkuzbassugol (siberia)
Coal mined by Yuzhkuzbassugol is consumed in
numerous parts of the world including: Ukraine,
Romania, Austria, Poland, Slovenia, Slovakia,
Lithuania, Turkey, Bulgaria, Finland, Germany, Italy,
the UK, China, Japan and Korea.
nKmK (siberia)
Over a period of 79 years (as of March 2011)
NKMK produced 432,448 kilometres of rail.
This is further than the moon’s distance from
the Earth (384,400 kilometres) and is equivalent
to encircling the Earth 24 times.
zsmK (siberia)
Over a period of 46 years West Siberian Heat and
Power Plant (‘Zapsib Power Plant’ – an energy
generating branch of EVRAZ ZSMK) has produced
enough kWh of electricty to supply the requirements
of Italy’s entire population for one year and those of
the citizens of Moscow for five years.
48 AnnuAl RepoRt And Accounts 2010
Business overview
Key iNVeStmeNt
ProjeCtS
Ò Reconstruction of rail mill at nKMK
cApeX
project targets
uS$485m
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$225m
uS$130m
2011 CAPEX:
Capacity of 950k tonnes of high-speed rails, including 450k
tonnes of 100 metre rails
On-stream by 2013
Ò pulverised coal injection (pcI) at ntMK and ZsMK
cApeX
project targets
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$40m
uS$320m
2011 CAPEX:
uS$175m
Lower coke consumption from 420 to 320 kg/tonne
No need for gas consumption
On-stream by 2013
Ò construction of Yuzhny and Kostanay rolling mills
cApeX
project targets
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$0m
uS$260m
2011 CAPEX:
uS$80m
Ò expansion of Kachkanar mine
Capacity: 450 ktpa of construction products each mill
On-stream by 2013
cApeX
project targets
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$0m
uS$80m
2011 CAPEX:
uS$50m
Iron ore production to be increased to 55 mtpa
On-stream by 2012
Ò Reconstruction of rail mill at ntMK
cApeX
uS$60m
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$40m
uS$20m
2011 CAPEX:
project targets
Production of higher-quality rails
550k tonnes capacity
On-stream by 2012
Ò Reconstruction of mechanical area at ntMK wheel & tyre mill
cApeX
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$8m
uS$40m
2011 CAPEX:
uS$25m
project targets
Production of higher-quality wheels
On-stream by 2011
Ò development of Mezhegey and eastern field coal deposits (tyva, Russia)
cApeX
project targets
Total CAPEX:
Cumulative CAPEX by 31.12.10: uS$70m1
uS$27m
2011 CAPEX:
TBD
Maintaining self-sufficiency in high-quality hard coking coal after
depletion of existing deposits
On-stream by 2015 and 2021 respectively
1 Acquisition of Mezhegey and Mezhegey East licences
This photograph is one of the winners of EVRAZ’s Photo & Picture
competition which attracted entries from employees on a global
basis and was organised by the EVRAZ Talent Committee. The authors
of the photo are Ludmila Chirkina and Anna Chirkina of EVRAZ NTMK
page 11
page 59
SheregeSh
Russian fedeRation
general Information
52°55’30”N 88°2’0”E
GMT+05:00
1914
10,254 people
57,1 km2
page 51
page 52
About Sheregesh
Russia
Sheregesh is a Russian resort situated at the foot
of Mustag Mountain in the southern part of the
Kemerovo Region. Once a remote mining settlement,
the town, named after the Sheregeshev brothers who
discovered the area’s iron ore riches in 1912, is now a
popular winter sports destination.
The ski resort, which nestles in the nearby Zelenaya
Mountain, was created some two decades ago and
each winter thousands of enthusiasts, mainly from
Siberia, flock to Sheregesh to enjoy the skiing and
snowboarding facilities. Visitors from Moscow have to
endure the notorious Siberian frost during an eight-
hour journey, the attraction being a snow mantle with
an average depth of four metres, widely acknowledged
as ‘the best snow in Russia.’
The resort supports dozens of hotels and many
residents let their homes to visitors during the tourist
season which typically runs from November to March.
The Evrazruda mining company, a subsidiary of EVRAZ,
operates the Sheregeshsky mine which supplies
iron ore to two of EVRAZ’s metallurgical industrial
complexes, ZSMK and NKMK, based in the City of
Novokuznetsk.
50 AnnuAl RepoRt And Accounts 2010
Corporate responsibility
V
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s
n
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s
e
r
e
t
a
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o
C
introduCtion
EVRAZ’s approach to corporate responsibility reflects
various aspects of the Company’s corporate culture.
We believe in the creation of value for the benefit
of stakeholders, the constant pursuit of product
improvement and innovation, the importance of
accountability at all levels and the ongoing education of
our employees. Above all, we respect people and the
communities in which they live. It is these values and
perspectives that, in terms of corporate responsibility,
have led to the creation of three key areas of focus:
Enrichment through collaboration, Value created for our
Customer everyday, Respect for People, Accountability for
Actions and Results, Zeal for Continuous Improvement.
EVRAZ undertakes these priorities in a transparent
manner, mindful of sustainability and in compliance with
the highest standards of ethical and business conduct.
In view of the global scale of EVRAZ’s operations, the
Company utilises the OECD Guidelines for Multinational
Enterprises to ensure, as far as possible, a uniform
approach to business standards. EVRAZ fully endorses
the provisions of the Universal Declaration of Human
Rights and strives, at all times, to uphold such principles.
To facilitate the cohesion of EVRAZ’s approach to
corporate responsibility and the Company’s business
strategies we have developed a set of corporate
codes designed to regulate all aspects of the Group’s
operations. Our Code of Corporate Governance
defines EVRAZ’s total commitment to the highest
standards of corporate governance. The Code of Business
Conduct and Code of Ethics constitute the framework for
the management of sustainable development, while our
social funding and community activities are governed by
the Social Investment Guidelines. In addition, individual
entities within the Group have their own specific policies
in relation to health, safety and the environment which
are fully compliant with, and in many instances go beyond,
local legislation.
The growth of EVRAZ’s international business operations
is accompanied by parallel refinements to relevant
aspects of corporate responsibility. Against this
background, EVRAZ uses its best endeavors to comply
with all environmental laws and regulations applicable
in the territories in which it operates. In order to advance
our focus on the health and safety of employees,
together with environmental issues, EVRAZ’s Board of
Directors established a Health, Safety and Environmental
Committee during 2010 and created the position of Vice
President responsible for Health, Safety and Environment.
Such developments serve to underline the importance
management attaches to the issues of safety, sustainable
development and environmental protection.
51 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
eCoNomiC ProSPerity
At EVRAZ we strongly believe that the Company’s future
and its long-term sustainability depend not only on our
operational efficiency and financial stability but also on
the prosperity of the regions in which the Group operates.
EVRAZ makes every effort to build a constructive
dialogue with, and deliver value to, all of the Company’s
stakeholders and, in keeping with this, we contribute
to the development of the communities within which
we operate.
economic Contribution
EVRAZ, ranked as one of the world’s premier steel
producers and renowned for its infrastructure
specialisation, contributes to various global economies
both as a major employer and as a corporate taxpayer.
EVRAZ prides itself in ‘Making the World Stronger’ and
our products are in evidence in almost every country
around the globe.
EVRAZ is one of the world’s largest rail manufacturers,
being the only rail producer in Russia, major producer in
the CIS and second largest producer in North America. The
Company is the dominant operator in the world vanadium
market and one of the leaders in the plate and large
diameter pipe markets of Europe and North America.
The North American division is one of the world’s largest
producers of infrastructure plate, used in the construction
of roads and bridges. During 2010 the North American
operations supplied steel to various high profile projects
including the Willis Avenue Bridge in New York; the
Rockies Express Pipeline (REX), one of the largest
pipelines ever constructed in the US; and the railway
bridge in La Tuque, Quebec.
EVRAZ’s steel also features in the infrastructure
associated with the APEC-2012 summit to be staged on
Russky Island, in the Far East of Russia.
Similarly, EVRAZ supplied steel for the construction of a
runway extension in Adler, in Southern Russia, and a freight
sea port on the river Mzimta in preparation for the Sochi
2014 Olympic Games. It is estimated that construction
projects related to ‘Sochi 2014’ account for approximately
3% of EVRAZ’s construction product sales in Russia.
EVRAZ’s products were used in the construction of South
Africa’s World Cup soccer stadiums and the Medupi and
Kusile Power Stations.
In the Czech Republic, plate produced by EVRAZ Vitkovice
Steel is used in the construction of towers for wind power
generators, a niche market that extends to Germany,
Poland and various other countries. The Czech plant also
provided plate for the building of Oasis of the Seas and
Allure of the Seas: the largest and innovative cruise ships
ever constructed. During 2010 the Czech plant entered
the Russian market and delivered plate for the Dzhubga –
Lazarevskoye – Sochi gas pipeline.
VeNeriN BAShmAChoK
The Gornaya Shoriya region is sometimes referred to as
the second Alps. The national park is home to more than
60 rare and endangered species of plant, brought in
Red List of Threatened Species, one of which is Venerin
Bashmachok, also known as the ‘Venus's slipper
orchid’.
Mythology has it that a peasant found a shoe that
belonged to Venus, Goddess of love and beauty, who
had lost it in the mud while sheltering from a storm in
the northern woods. No sooner did the peasant touch
the shoe than it turned into the rare and beautiful
flower that we see today, retaining the shape of Venus’s
discarded slipper.
Some fACtS ABout eVrAZ
nKmK (siberia)
Over a period of 79 years (as of March 2011) NKMK
produced 55.3 million sections of R-65 type rail,
the weight of which is nine times greater than the
Great Pyramid of Cheops. A total of 420,000 railway
platforms would need to be laid end to end to
facilitate the transfer of this number of rails.
NKMK’s annual output of 700,000 tonnes of rail
is equivalent to the weight of the Taipei complex in
Taiwan, China: one of the highest skyscrapers in
the world.
52 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
In Canada, EVRAZ enjoys a long standing relationship
with The United Way – a non-profit volunteer-based
organisation that addresses community issues and
problems and works towards creating a more favourable
environment. EVRAZ also funds various educational
programmes together with projects that promote healthy
lifestyles among young people. Among its support for
community programs in Canada, EVRAZ is an active
supporter of Canadian Cancer Society Relay For Life and
several chapters of the Association for Community Living
– volunteer based groups dedicated to improving the lives
of less-fortunate members of their communities.
SAGA wAterfAll
The Saga Waterfall in the Gornaya Shoriya is
a spectacular hydrological natural phenomenon
located in a small canyon on the westbank of the river
Mrassu. The Sholbychak stream falls a full 15 metres,
breaking stones with the force of its descent into the
ice-cold lake resplendent with a cavern that leads to
the narrow entrance to a tiny cave. Numerous rare
and medicinal plants can be found in the canyon
including: Venerin Bashmachok Orchid, Siberian
Fawn Lily, Martagon, Altay Anemonoides and
Primroses.
Community Support
EVRAZ is passionate about making direct and relevant
contributions to the social fabric of the communities in
which the Company operates and where our employees
live and work. We are proud of our reputation as a
distinctive corporate citizen.
EVRAZ’s community related programmes are regulated
by the Company’s Social Investment Guidelines. The
Company’s investment priorities are as follows:
Youth: initiatives and projects which assist in the
development of young people;
Education: enabling individuals of all ages to acquire
knowledge, abilities and skills; and
Citizenship: fostering favourable neighbourhood values
and safe environments in local communities.
In accordance with customary international business
practice, assistance is provided through charitable
foundations established by the Company and managed by
local Supervisory Boards. EVRAZ Charity Funds operate in
Russia (Siberia and the Urals) and the Czech Republic.
EVRAZ’s community contributions in Russia amounted
to approximately US$16.7 million (RUB481.3 million) in
2010, the primary consideration being the improvement
of living conditions in the towns where EVRAZ’s
subsidiaries are located. Investments encompassed
several national and civil projects, various youth
programmes, support for infant schools and local
educational institutions, the construction of sports
grounds and the widespread encouragement of sport,
educational and cultural activities.
The EVRAZ Charity Fund in the Czech Republic was
established in 2006 and supports the long-term
development of the Moravian-Silesian region. Donations
totalled US$514,000 (CZK9 million) during 2010 with
funds directed towards medical, educational and
psychological support for children suffering from ill
health with a special focus on children suffering from
cerebral palsy.
In 2010 EVRAZ formed the EVRAZ eMalahleni Community
Forum for the specific purpose of investing in South
Africa’s economic transformation. This project, which is
designed to benefit the most vulnerable members of the
communities within which EVRAZ Highveld operates, will
primarily focus on social development, education and
health. During 2010 EVRAZ’s social investments in South
Africa amounted to $230,000 (ZAR1.63 million).
Total sponsorships and charitable contributions on
behalf of EVRAZ in North America totalled US$992,837
in 2010.
53 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
In the united States EVRAZ supports regional Red
Cross programmes, local scouting activities and also
community efforts that lend support to under-privileged
children and families. In 2010, EVRAZ also partnered with
local law enforcement agencies, civic and elected leaders,
local businesses and neighbourhood organisations in
various campaigns designed to raise awareness about
crime and drug prevention and causes to encourage
community involvement.
transformation
in South Africa
The South African Administration’s ‘Transformation’
agenda complements many of EVRAZ’s core values, not
least in relation to the development of local communities
and issues of equality. Under the project, the corporate
structure of EVRAZ Highveld will be required to reflect the
country’s demographics, while management must ensure
that the principles associated with the initiative are realised
in the communities that come within the region of the
Corporation’s operations. In recognition of the importance
of the ‘Transformation’ project, EVRAZ Highveld sought to
verify its status during 2010 and was externally assessed
as a Level 8 Contributor. Management is confident that this
ranking will show a significant improvement in 2011.
The scale of the project reflects the Administration’s focus
on the economic empowerment of communities, in social
and business terms, through various State schemes
encompassing education, health, housing and supply
chain initiatives.
Against this background a fully-fledged ‘Transformation’
division, focused on the development of Broad-Based
Black Economic Empowerment (B-BBEE) and the
implications of the Administration’s new Mining Charter,
will come into operation at EVRAZ Highveld in 2011. The
new division will facilitate refinements to the Corporation’s
‘Transformation’ strategy and enhanced monitoring of
performance against targets in relation to such strategy.
GorNAyA ShoriyA reGioN
The area known as Hilly Shoriya or ‘Gornaya Shoriya’,
is the sourthern part of Kemerovo Oblast, east of the
Altay Mountains, in southern Siberia. Often referred to
as Siberian Switzerland, in view of its natural beauty,
Gornaya Shoriya encompasses a national park which is
home to an incredible array of primeval flora and fauna.
Tourists visiting Shoriya are drawn by the beautiful
natural landscapes where river laced coniferous forests,
known as taiga, give way to the frozen undulating
reaches of the tundra.
Gornaya Shoriya, a fusion of stony bottomed rivers,
crystal clear lakes and majestic snow capped
mountains, is renowned for its skiing facilities but is also
a popular destination in the summer when visitors avail
themselves of a host of activities including horseback
riding, fishing, canoeing, hiking, the exploration
of sinkhole caves, helicopter tours and chair-lift
excursions. An abundance of leisure opportunities amid
such scenic beauty effectively underwrites the region’s
ongoing development as an international tourist
destination.
This photograph is one of the winners of EVRAZ’s
Photo & Picture competition which attracted entries
from employees on a global basis and was organised
by the Company’s Talent Committee. The authors of the photo
are Ludmila Chirkina and Anna Chirkina of EVRAZ NTMK.
54 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
hSe iNformAtioN
ANd deVeloPmeNtS
EVRAZ operates in an industry associated with potential
health, safety and environmental (HSE) risks and, as
a result, the Group’s activities are highly regulated
through HSE laws.
The Group is focused on increasing the level of industrial
safety, labour protection and care of the environment
across its operations. In 2010 management formed a
Health, Safety and Environmental Committee of the Board
of Directors to oversee HSE strategy, policy, initiatives and
activities and appointed a Vice President of Health, Safety
and Environment to coordinate all HSE activities.
Some fACtS ABout eVrAZ
zsmK (siberia)
ZSMK has twice won a gold medal and a diploma
in an all-Russian contest entitled Golden Medal
(European Quality) under the nomination ‘100 best
companies in Russia. Ecology and Ecological
Management’
health and Safety
The health and safety of EVRAZ’s employees is of
paramount importance and the Company is constantly
seeking ways in which to protect its people from the risk
of harm, with particular regard to the Group’s various
production operations and processes.
To this end EVRAZ continuously refines and improves the
Company’s health and safety management system and
acts in compliance with the health and safety laws and
regulations applicable in the countries in which it operates.
The importance EVRAZ attaches to such issues is
reflected in the Company’s formation of a Health, Safety
and Environmental Committee, comprised of three
independent directors, during 2010 accompanied by the
appointment of Alexander Kruchinin as Vice President of
Health, Safety and Environment. Mr Kruchinin, a long-
standing specialist in industrial safety and ecology, reports
directly to Alexander Frolov, Chief Executive of EVRAZ.
EVRAZ’s critical indicator relates to the annual incidence
of fatal accidents which, in 2010, showed a 21%
reduction compared with 2009.
In order to monitor internal industrial safety indicators
and carry out comparative analysis, the Group applies
the Lost Time Incident Frequency Rate (LTIFR). This ratio
reflects the number of lost time accidents per 1,000,000
man-hours worked. A lower incidence of accidents was
duly reflected in a reduction in EVRAZ’s LTIFR from 2.69
in 2009 to 2.40 in 2010.
lOST TIME INCIDENT FREquENCY
RATE/ FATAlITIES FREquENCY RATE
OF THE GROuP
per 1 mln hours worked
lOST TIME INCIDENT FREquENCY
RATE/FATAlITIES RATE
AT STEEl ASSETS
per 1 mln hours worked
12
10
8
6
4
2
0
0.6
12
0.5
10
0.4
0.3
0.2
0.1
0
8
6
4
2
0
0.13
2.23
0.18
2.69
0.14
2.40
0.6
0.5
0.4
0.3
0.2
0.1
0
0.1
1.47
0.04
1.34
0.11
1.48
2008
2009
2010
2008
2009
2010
LTIFR
FIFR
LTIFR
FIFR
55 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
implementation of Special Safety Projects at Coal
operations
Investment in industrial safety and other related
matters at Yuzhkuzbassugol totalled RUB 407.1 million
(US$14.4 million) in 2010. Expenditure included expert
assessments in relation to aspects of industrial safety
and the technical condition of certain equipment, the
installation of aspiration and conditioning systems,
purchases of personal safety equipment, the certification
of workplaces, employee training courses and medical
inspections.
In the fourth quarter of 2010, additional funds of
(RUB543.2 million (US$19.2 million) were allocated to
industrial safety expenditure to fulfill the requirements
of Rostekhnadzor, the supervisory arm of the
Ministry of Natural Resources and Ecology. A total of
RUB340.8 million (US$12.1 million) of this allocation
was utilised in 2010, with the remaining expenditure
scheduled for 2011.
A special programme at Yuzhkuzbassugol involving the
installation of alarm and control systems throughout the
mines is well under way and is already in operation at
Yerunakovskaya-8, Yubileynaya 2 (formerly Ulyanovskaya)
and Yesaulskaya. The total costs associated with this
project, including systems that prevent employees from
entering danger zones, are estimated at RUB151.6
(US$5.4 million).
Projects designed to improve communal facilities
are also progressing. Following the development of
the Yubileynaya 2 mine, work commenced on the
construction of an additional Administration unit,
a development that will significantly enhance the
scale of amenities (medical services and equipment,
showers, canteen facilities, etc.) available to the plant’s
1,300 employees. This project is scheduled to come on
stream in 2012 at an estimated cost of RUB295 million
(US$10.4 million).
EVRAZ has long acknowledged the importance of
constantly advancing its technology with regard to the
monitoring and control of underground air and gas levels.
To this end, a Davis Derby information system, designed
to provide data from all of Yuzhkuzbassugol’s mines, is
currently on test with the online monitoring of methane
levels facilitated by state-of-the-art sensory equipment.
Safety and security are closely related and the Company
has installed a radio wave scanner at Yubileynaya 2
in order to guard against the possibility of prohibited
items being brought into the working area. This pilot
scheme commenced in September 2010 at a cost of
RUB6.9 million (US$0.2 million).
lOST TIME INCIDENT FREquENCY
RATE/FATAlITIES RATE
AT COAl ASSETS
per 1 mln hours worked
lOST TIME INCIDENT FREquENCY
RATE/FATAlITIES RATE
AT IRON ORE ASSETS
per 1 mln hours worked
12
10
8
6
4
2
0
10.28
0.3
7.44
0.2
8.48
0.15
0.6
12
0.5
10
0.4
0.3
0.2
0.1
0
8
6
4
2
0
0.2
2.17
0.52
2.96
0.6
0.5
0.4
0.3
0.2
0.1
0
0.2
2.21
2008
2009
2010
2008
2009
2010
LTIFR
FIFR
LTIFR
FIFR
56 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
KiZA CAVerNS
Key targets for 2011
The Kiza Caverns are a geological feature of the Shorsky
National Park and are situated on the east bank
of the Mrassu River, close to where it is joined by the
Kiza River, in rock formations located some 80 metres
from the river bank. An observation deck has been
constructed 30 metres above the cave structure.
A glacier formation can be seen close to the cavern
entrance which leads to a hall with a clay floor
interspersed with boulders. Stalactites, stalagmites
and various ice formations are present throughout
the cavern. The walls and ceilings are adorned with
tubular stalactites, corallites and hangings, providing
a magnificent backdrop to flowing cascades, calcite
incrustations and pits. The roofs of the cavern are
covered with natural patterns and furrows, many of
which resemble inscriptions or drawings.
There are numerous offshoots to the caverns which
extend to 600 metres over two tiers connected via wells
that are some 15-metres deep. Humidity levels, at close
on 100%, are high and the temperature is approximately
four degrees Celsius.
Accident reporting: implementation of an instant
accident reporting system (Flash Report) throughout
the Group’s operations.
Accident investigation: development and
implementation of internal accident investigation
procedures – determination of the cause/causes of
the accident (first-hand accounts/in-system data),
decisions regarding corrective measures. Focus on
implementation of corrective measures and measures
designed to reduce detected risks.
Lessons learned from accidents: preventative action
through the compilation of a list of precautionary
measures based on historic experience for distribution
to employees.
Safety reporting and statistics analysis: development
and implementation of an integrated Health and Safety
reporting system taking into account Russian and
international standards in respect of organisations
such as the Global Reporting Initiative (GRI) and
Workers Safety Advisers (WSA). Classification and
analysis of current aspects of labour protection and
industrial safety to identify areas for improvement.
Realisation of targeted projects: introduction of safety
projects designed to reduce accidents based on
analysis of in-system data.
environment
The Group is aware of the possible environmental
consequences of its production processes and
pays increasing attention to various aspects of the
environment with a view to the prevention or minimisation
of any adverse influences. The environmental strategy
of the Group is targeted at finding optimal solutions for
industrial waste management, reduction of pollutant
emissions and rational use of natural resources.
environmental Performance
EVRAZ continues to invest in modern, environmentally-
friendly and energy-efficient technologies and gradually
withdraws obsolete equipment which may not be
compatible with environmental standards. Total air
emissions from the Group’s asset base showed a 4%
reduction in 2010 compared with 2009. The Group
actively develops plans to reduce waste generation
volumes and ensure proper waste storage. In 2010,
96.6% of waste1 and by-products generated as a result
of the Group’s operations were reclaimed or reused
(Russian steel mills reclaimed or reused 107.6% of waste
taking into account waste generated before 2010). Non-
recyclable waste was stored in facilities that have been
specifically designed for storage to prevent any harmful
substances from escaping into the environment.
1 Excluding dumped rocks and grounds
57 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
One major accident, involving the release of tailings,
occurred at Evrazruda (Russia) towards the end of
2010. Significant amounts of tailings have already been
recovered and further clean-up and rehabilitation activities
will be completed in 2011 post the winter period.
During 2010, the Group was able to take advantage of its
quotas for carbon dioxide emissions within the framework
of the Kyoto Protocol. An arrangement, known as the ‘joint
implementation project’, was initiated by the Russian
government in its endeavours to encourage factories to
deploy energy-efficient technologies. Companies that
decrease greenhouse gas emissions through the use of
their own funds receive a certain amount of quotas, which
can be sold on the international market, as a bonus. In
2010 EVRAZ NTMK‘s project was submitted to the quota
administrator – Sberbank (state savings bank of the
Russian Federation). EVRAZ NTMK was included in the
register of sellers, in line with the list of approved projects
carried out in accordance with Article 6 of the Kyoto
Protocol to the UN Framework Convention on Climate
Change. Approval of the project will allow EVRAZ NTMK
to exercise its right to sell Emission Reduction Units
(ERUs). The Group expects that total revenues from
the sale of ERUs under the EVRAZ NTMK project could be
in the region of US$28 million.
EVRAZ Vitkovice is also involved in a similar process:
each year the Government provides EVRAZ Vitkovice
with carbon quotas and EVRAZ Vitkovice benefits from
emission reduction attainments by selling additional
quotas on the market.
environmental compliance and commitments
The Group believes its operations are in compliance in
all material respects with the applicable Environmental
legislation of the countries and regions where the
Group’s plants are situated. The overall Environmental
commitments (the capital and operational expenditure
the Group would have to make over a five-year period to
address existing environmental issues) may constitute
approximately US$326 million (see Note 31 of the 2010
Financial Statements of EVRAZ Group S.A.).
Mining operations require large areas of land for mining
and waste storage. The mining, extraction and processing
activities of the Group normally give rise to obligations
for site closure or rehabilitation. The Group’s accounting
policy requires the recognition of provisions for the
restoration and rehabilitation of each site when a legal or
constructive obligation exists to dismantle the assets and
restore the site. The provision represents management’s
best estimate of the value to retire the assets as they exist
at the time of estimation. This provision is periodically
reviewed and updated. Information regarding EVRAZ’s
closure provisions can be found in Note 25 of the 2010
Financial Statements of EVRAZ Group S.A.
In view of the fact that regulatory standards and
expectations are constantly evolving, the Group may be
exposed to new litigation, increased compliance costs
and/or other unforeseen environmental expenses.
The level of air emissions typically associated with steel
production (nitrogen oxides, sulphur oxides, carbon
monoxide and volatile organic compounds VOC) showed a
reduction of more than 30% in 2010 compared with 2007.
EMISSION DYNAMICS
(including: nitrogen oxides NOx, sulphur oxides SOx, carbon monoxide CO, volatile organic compounds VOC)
percent
Russian and ukrainian Assets1
100
100
96.4
91.2
North American Assets2
100
100
87.1
80
60
40
20
0
74.6
66.8
80
60
40
20
0
75.6
65.3
2006
2007
2008
2009
2010
2007
2008
2009
2010
1 2006-2007 data does not include Ukrainian assets
2 2007 data includes assets acquired by EVRAZ in 2008
58 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
our PeoPle
General Strategy
EVRAZ’s reputation is synonymous with the calibre of
its employees. We have always taken the view that the
Company’s principal asset lies in its people. We respect
our employees and place a strong emphasis on the safety
of their working environments, encourage educational
development and contribute towards the well-being of
their local communities.
employees’ Social
Programmes
In 2010 EVRAZ implemented a range of social
programmes for employees that in many instances, also
extended to their families.
The investment in social programmes in respect
of employees in Russia exceeded US$53 million
(RUB1.5 billion). These included:
employee insurance plans encompassing life,
accident and occupational illness insurance and
the co-financing of a voluntary medical insurance
programme;
recreational activities for employees and their families;
support of health programmes (sporting events,
healthy eating plans, etc.);
support of youth, veteran and women’s organisations;
co-financing of employee pension plans; and
mortgage schemes.
In North America, employer of choice initiatives were
introduced at all our North American facilities. These
included the development of local educational projects
for the benefit of prospective professional employees, the
implementation of apprenticeship programmes and the
expansion of service awards and employee recognition
programmes. Human Resource specialists at all the
North American EVRAZ facilities regularly participate in
career fairs to attract new talent and promote the steel
industry to students.
The focus on employee safety is very prominent at
EVRAZ’s North American facilities where each site has
safety committees to oversee a variety of education,
prevention and awareness programmes.
At EVRAZ Highveld Steel a Wellness Committee
addresses health and social issues among employees
including HIV/Aids and tuberculoses. Employees and their
families receive free HIV/Aids counselling, testing and
anti-retroviral medication from EVRAZ Highveld.
A primary health care policy also serves to assist
employees with common health issues such as
tuberculosis, diabetes and high blood pressure.
In addition, the Corporation’s Employee Wellness
Programme provides free counselling on various matters
including mental health, alcohol and substance abuse
and financial planning.
Investments in employee programmes in the Czech
Republic totalled US$1.5 million (CZK24.8 million). This
expenditure encompassed pension and life insurance
programmes, sport and recreational activities and various
events organised by the trade union.
employees development
and talent management
EVRAZ sees the development of its employees as one
of the core constituents of the Company’s success and
progress. All the educational programmes launched
within the Company have a common purpose, born of a
conceptual EVRAZ Academy of Development. The primary
goal is to create an evolutive environment that provides
our employees with opportunities to appreciate and share
best practices, while also offering real possibilities for
personal and professional advancement.
EVRAZ brings two distinct approaches to bear in the
development of its employees:
The development of middle managers – particularly
plant managers – in terms of general business
knowledge and management skills; and
Talent management and the evolvement of high
potential employees (HiPos).
Talent management issues are supervised by a special
Talent Committee comprising key EVRAZ executives, all of
which are actively involved in, and personally responsible
for, tutoring and overseeing any given pool of HiPos.
The concept behind the development of high potential
employees is based on bespoke programmes specifically
designed to address the Company’s strategy and
immediate business goals. One of the flagships in
this respect is EVRAZ New Leaders Programme, the
purpose of which is to develop a new generation of senior
managers to ensure continuity of leadership within the
Company.
59 AnnuAl RepoRt And Accounts 2010
Corporate responsiBility
The ultimate objective, having identified eligible
candidates, is to develop them into qualified managers
who share the Company’s values, understand its strategy
and possess the knowledge and skill sets required to
contribute to EVRAZ’s ongoing growth.
Work on actual projects being undertaken by EVRAZ and
familiarisation with the challenges faced by the Company
lie at the heart of the programme which actively utilises
the expertise of EVRAZ’s senior executives.
The EVRAZ New Leaders programme commenced in
2009 and, in the space of two years, approximately 60%
of the 92 graduates who worked on 16 different projects
have received further promotion. In 2011 the EVRAZ
New Leaders programme is focused on Engineers and
Production Managers against a background of growing
demand for such expertise in Russia and overseas.
Cooperation with labour
unions
EVRAZ’s cooperation with labour unions is based
on respect for the opinion of our employees and the
principals of social partnership, equality and openness.
EVRAZ is an active member of working groups involved in
the formulation of sectoral and regional tariff agreements
and was the first steel company to establish the ‘Social
Councils’ in Russia and Ukraine in which representatives
of the respective trade unions participate. This
mechanism serves to broaden the framework of social
partnership and encourages the discussion of topical
issues raised by our employees.
Trade unions contribute to monitoring the Company’s
social welfare schemes and discussing the ways to refine
and extend such benefits. We value such contributions
and intend to maintain trade union involvement in the
implementation of certain social projects of EVRAZ.
ShereGeSh SKi reSort
Sheregesh, surrounded by miles of forest in the heart of
the Gornaya Shoriya region of the Altai mountain range, in
southern Kemerovo Oblast, is Siberia's most developed
winter sports destination.
The growing popularity of skiing and snowboarding in
Russia has gradually transformed the town since the
ski facilities were built on the Zelenaya Mountain some
20 years ago. Sheregesh welcomes more tourists each
season and more tourists equate to more hotels, more
cafes and more ski lifts.
Sheregesh is the only ski friendly area of Russia where
snow can be found as early as November. As such, it
attracts thousands of skiers and snowboarders, mainly
from Siberia, each winter. The foot of the Zelenaya
Mountain is sprinkled with hotels and lodges and many
local residents let their apartments to visitors during the
season which typically runs from November to March.
The resort, which stretches across 6 kilometres of
land, boasts six ski runs, catering for beginners and
intermediate skiers, and five pistes. Heli-skiing facilities
and snowmobiles are available for off-piste activity. This is
the region where the Russian National snowboard team
trains.
page 70
page 72
page 79
page 41
About eMalahleni
Russia
Known as the gateway to Mpumalanga, the town
of eMalahleni, formerly Witbank, is located about
100 kilometres east of Johannesburg and Pretoria.
The name Witbank is Afrikaans for ‘White Ridge’ which
takes its name from a white sandstone outcrop where
wagon drivers traditionally rested. In the mid 1800's
farmers settled in the Highveld and started to mine
coal, for cooking and heating purposes, from outcrops
in riverbeds. The town was established in 1890 and
officially proclaimed a town in 1903. In March 2006,
the town was renamed eMalahleni, the Nguni word
for ‘the place of coal’, matching the name of the
eMalahleni municipality.
The town has historic ties with the young Winston
Churchill who, during the Second Boer War in 1899,
escaped from prison in Pretoria and was hidden
in a nearby mine shaft before making his way to
Mozambique.
Agricultural and farming activities have become
established around eMalahleni which, as home to
Africa's premier coalfields, power stations and steel
manufacturing operations, has emerged as the
energy hub of South Africa. EVRAZ Highveld Steel and
Vanadium Corporation is based nearby.
eMAlAhleni
South AfricA
General information
25°52’36”S 29°12’04”E
GMT +02:00
1890
150,000 people
55.6 km2
61 AnnuAl RepoRt And Accounts 2010
Corporate GovernanCe
IntroduCtIon
EVRAZ Group S.A., incorporated as a socieˆteˆ anonyme
under the laws of the Grand Duchy of Luxembourg,
operates in accordance with Luxembourg law and
adheres to all applicable laws and regulations incumbent
upon the Company, attendant to the listing of its Global
Depositary Receipts on the Official List of the UK Listing
Authority, with particular regard to the UK Corporate
Governance Code.
EVRAZ Group endeavours to constantly enhance its
corporate governance procedures in order to maximise
shareholder value, provide for business prosperity over
the long-term and maintain the trust and goodwill of the
Company’s internal and external stakeholders. These
key objectives represent central aspects of our corporate
culture.
An ongoing dialogue with stakeholders is an
essential aspect of corporate activity. We use various
communication channels including, in terms of financial
calendar reporting and disclosure, announcements
made via the London Stock Exchange (the LSE), the
Annual Report and Accounts, the Annual General Meeting
(the AGM) and the Company’s website www.evraz.com.
The Chairman of the Board, the Chief Executive,
senior management and the investor relations team
regularly engage with institutional investors to discuss
the Company’s operations and a wide range of issues
including governance. Approximately 300 individual/
group meetings, conferences and other public events
involving the investment community took place
during 2010.
In addition to the EVRAZ Group S.A. Articles of Association
and internal rules and regulations, our governance
principles are detailed in the Company’s Corporate
Governance Code adopted by the Board in April 2007.
Certain issues such as corporate responsibility,
sustainable development, and relations with business
partners and stakeholders are also covered in our Code
of Business Conduct and Code of Ethics.
vI
e
C
n
a
n
r
e
v
o
G
e
t
a
r
o
p
r
o
C
62 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
the BoArd of direCtorS
ANd SeNior mANAGemeNt
The following table lists the Company’s directors and senior management as of 30 April 2010:
Name
Alexander Abramov
Alexander Frolov
Otari Arshba
Karl Gruber
Olga Pokrovskaya
Terry Robinson
Director
Chairman of the Board
Member of the Remuneration Committee
Director
Chief Executive Officer
Non-executive director
Independent non-executive director
Chairman of the Remuneration Committee
Member of the Health, Safety
and Environmental Committee
Non-executive director
Member of the Audit Committee
Independent non-executive director
Chairman of the Audit Committee
Member of the Health, Safety and
Environmental Committee
Eugene Shvidler
Non-executive director
Eugene Tenenbaum
Gordon Toll
Leonid Kachur
Pavel Tatyanin
Giacomo Baizini
Daniel Harris
Natalia Ionova
Alexey Ivanov
Alexander Kruchinin
Oleg Kuzmin
Non-executive director
Member of the Remuneration Committee
Independent non-executive director
Chairman of the Health, Safety and
Environmental Committee
Senior Vice President
Senior Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Alexander Kuznetsov
Vice President
Konstantin Lagutin
Yury Pavlov
Ilya Shirokobrod
Timur Yanbukhtin
Elena Zhavoronkova
Vice President
Vice President
Vice President
Vice President
Vice President
Dmitry Melnikov has been Secretary to the Board since 2007.
Initially elected or appointed
Director since April 2005
Chairman since December 2008
Director since April 2005
Chief Executive Officer since January 2007
May 2005
May 2010
May 2010
June 2010
August 2006
April 2005
June 2010
August 2006
August 2006
May 2010
June 2010
June 2002
November 2004
July 2006
February 2008
June 2006
May 2009
August 2010
February 2011
July 2009
January 2010
February 2011
February 2011
February 2007
June 2010
63 annual RepoRt and accounts 2010
thE bOARd
(as of 30 April 2011)
1
2
3
4
5
6
7
8
9
64 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
1
Alexander Abramov
Director, Chairman of the Board, Member of the Remuneration
Committee
Born in 1959.
In 1992, Mr Abramov founded EvrazMetal company, a
predecessor of EVRAZ Group. CEO of EVRAZ Group until 1
January 2006, Chairman of the Board until 1 May 2006. Served
as non-executive director until his re-appointment as Chairman
of the Board on 1 December 2008. A director of OOO Invest AG,
a member of the Bureau 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 from the Moscow Institute of Physics
and Technology in 1982 and holds a Ph.D. in Physics and
Mathematics.
2
Alexander Frolov
Director, Chief Executive Officer
Born in 1964.
Mr Frolov joined EvrazMetal, a predecessor of EVRAZ Group,
in 1994 and subsequently held various positions within the
Company. Chairman of the Board from 1 May 2006 until
1 December 2008. A director of OAO Raspadskaya and ZAO
Raspadskaya Coal Company, OAO OUK Yuzhkuzbassugol and
ZAO Yuzhkuzbassugol Coal Company, ZAO Kazankovskaya Coal
Company, EVRAZ Vitkovice Steel, EVRAZ Inc. NA and EVRAZ
Highveld Steel and Vanadium. Graduated with honours from
the Moscow Institute of Physics and Technology in 1987 and
received a Ph.D. in Physics and Mathematics in 1991 from the
Moscow Institute of Physics and Technology.
3
otari Arshba
Non-executive director
Born in 1955.
Mr Arshba joined EVRAZ in 1998 and served as EVRAZ’s Senior
Vice President for Corporate Communications until December
2003 when he was elected a Deputy of the State Duma of the
Russian Federation. He currently serves as a Deputy of the State
Duma of the RF Federal Assembly and Chair of the State Duma
Committee on Rules of Procedure and Administration. Graduated
with distinction from the Felix Dzerzhinsky KGB Higher School
and holds a Ph.D. in Political Science from the Russian Academy
of Government Service.
4
Karl Gruber
Independent non-executive director
Born in 1952.
Mr Gruber joined EVRAZ’s Board in May 2010 following the AGM.
His extensive experience in the international metallurgical plant
business includes eight years as a member of the Managing
Board of VOESTALPINE Industrieanlagenbau (VAI), first as
Executive Vice President of VAI and subsequently as Vice
Chairman of the Managing Board of Siemens VAI. He also served
as Chairman on the Boards of Metals Technologies (MT) Germany
and MT Italy. In 2010 Mr Gruber was appointed Chairman and
CEO of the Management Board of the LISEC Group. Graduated
from Technical High School in 1973 with a Diploma in Mechanical
Engineering.
5
olga pokrovskaya
Non-executive director, Member of the Audit Committee
Born in 1969.
Ms Pokrovskaya held several key finance positions in Sibneft
post 1997, including serving as Head of Corporate Finance from
2004 until 2006. From 1991 until 1997, she worked as a senior
audit manager at Arthur Andersen. She is Head of Corporate
Finance at Millhouse LLC and a director of Highland Gold Mining
Ltd. Graduated with honours from the State Financial Academy
in 1991.
6
terry Robinson
Independent non-executive director, Chairman of the Audit Committee,
Member of the Strategy Committee, Chairman of the Group Risk
Committee
Born in 1944.
Mr Robinson served for 20 years at Lonrho PLC, where he was a main
Board director for the last 10 years. Since 1992 he has been variously
occupied with international business recovery engagements and
investment projects including natural resources in the UK, Russia,
the CIS and Brazil. He is an independent non-executive director and
Deputy Chairman of Katanga Mining Ltd., and an Independent and
the Senior non-executive director of Highland Gold Mining Ltd. He is a
Fellow of the Institute of Chartered Accountants of England and Wales
7
eugene shvidler
Non-executive director
Born in 1964.
Mr Shvidler was appointed a Senior Vice President of Sibneft in 1995
and served as President of Sibneft from 1998 through 2005. He is
Head of Millhouse LLC and a director of Highland Gold Mining Ltd.
Graduated from the I.M. Gubkin Moscow Institute of Oil and Gas
with a Master’s degree in Applied Mathematics. He holds an MBA
in Financial Accounting and an M.Sc. in International Taxation from
Fordham University.
8
eugene tenenbaum
Non-executive director
Member of the Remuneration
Committee
Born in 1964.
Mr Tenenbaum served as the Head of Corporate Finance for Sibneft
in Moscow from 1998 through 2001. During 1994-1998 he was
a corporate finance director at Salomon Brothers. Prior to that, he
was engaged in corporate finance with KPMG in Toronto, Moscow
and London, including three years 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.
He is Managing Director of MHC (Services) Ltd., a director of Highland
Gold Mining Ltd., and a director of Chelsea FC Plc. A Canadian
Chartered Accountant with a Bachelor’s degree in Commerce and
Finance from the University of Toronto.
9
Gordon toll
Independent non-executive director, Chairman of the Health, Safety
and Environmental Committee
Born in 1947.
Mr Toll joined EVRAZ’s Board in May 2010 following the AGM. Mr Toll
is Executive Chairman of Satimola Limited, a potash development
company operating in Kazakhstan. His career has included the
roles of Deputy Chairman, Ivanhoe Mines, Group Mining Executive,
Rio Tinto and key positions with BHP Iron Ore, followed by executive
appointments with Texasgulf Inc and Atlantic Richfield Coal. Mr Toll
was formerly Chairman of Fortescue Metals Group Limited and
Ferrous Limited. He is a member of the Australian Institute of Mining
and Metallurgy and a member of the Institute of Directors, UK. He
graduated from the University of Queensland, Australia, in 1968 with
a degree in Mining Engineering and received a Master’s degree in
Business Science in 1981 from Columbia University, New York.
departures:
Gennady Bogolyubov
James W. Campbell
Philippe Delaunois
On 17 May 2011 following the AGM Duncan Baxter was elected
as a new director of the Board of Directors of EVRAZ Group S.A.
Mr. Gordon Toll was not re-elected. The company thanks Mr. Toll for his
contribution to the Company’s business in 2010.
65 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
role of the BoArd
Through its broad powers and frequent meetings
the Board is deeply involved in managerial decision-
making procedures. Such involvement covers different
areas of EVRAZ Group’s management activities and
reporting. Save for matters specifically reserved for the
Annual General Meeting (e.g. election of the new Board
members, amendments to the Articles of Association,
appointment of auditors, etc.) the Articles of EVRAZ
Group S.A. limits the unilateral decision-making of the
Company’s officers and vests the Board of Directors with
ultimate decision-making powers.
The Board is vested with broad powers to effectively
oversee the business of EVRAZ, map out its strategic
goals and review management performance. The
Board may grant special powers and delegate daily
management to the CEO and senior managers of EVRAZ
Group S.A. and/or its subsidiaries and affiliates; in so
doing, the Board is responsible for overseeing their
performance to ensure that shareholders’ interests are
met and that EVRAZ complies with applicable laws and
regulations. Transactions valued at more than EUR30
million and related party transactions are within the Board
of Director’s competence.
The agenda of the Board meeting is determined by the
Chairman. Any director may suggest reasonable items
to be included in the agenda. The final agenda is sent to
Board members not later than five days prior to the Board
meeting. The Secretary to the Board assists in convening
Board meetings and general shareholders’ meetings and
prepares and distributes related papers and the minutes
of meetings.
The Board establishes the agenda of the general
shareholders’ meeting. Any shareholder holding at least
five per cent of the Company’s share capital may suggest
to the Board items for inclusion on the agenda of the
Annual General Meeting. Such suggestions and proposals
should reach the Board at least two months prior to the
meeting.
The Board exercises its powers based on the highest
corporate governance standards and on what the
directors believe to be in the best interests of EVRAZ and
its shareholders to whom it is accountable: discharge of
the directors’ liability is subject to shareholders’ approval
each year at the Annual General Meeting. The members
of the Board have access to all information necessary for
the exercise of their duties.
Members of the Board are elected for a one-year term
for an unlimited number of times by a simple majority
of shareholders’ votes at the Annual General Meeting
which is held on 15 May of each calendar year or on the
following Monday should 15 May of a particular year fall
on a weekend.
The practice of EVRAZ Group S.A. is to have at least
three independent directors matching the independence
criteria set out by the corporate governance principles
applicable to listed companies. The criteria in respect of
the independence of the Group’s directors can be found
on the Company’s website under ‘Policy Governing the
Board of Directors’.
Any shareholder holding at least five per cent of the
Company’s share capital may propose a candidate or
candidates for election to the Board. Such suggestions
and proposals should reach the Board at least two
months prior to the meeting. The selection of directors
is based on the contributions they can make to EVRAZ’s
business. Directors should display integrity, represent
diverse professional backgrounds and combine a broad
spectrum of experience and expertise. EVRAZ provides
new directors with a programme designed to familiarise
them with EVRAZ’s business, strategy, co-directors,
managers and other relevant aspects of the Company.
The Chairman is responsible for creating a climate of trust
within the Board and ensuring that continuing education
is available in order for directors to improve and update
their knowledge and skills in any area that the Board
thinks necessary.
Some fACtS ABout eVrAZ
zsmK (siberia)
Rolled products of ZSMK (currently EVRAZ ZSMK)
were used in the construction of the following notable
buildings/projects: the Cathedral of Christ the Savior
(Moscow); the State Kremlin Palace (Moscow);
the Commemorative complex at the Poklonnaya
Gora area (Moscow); the Olympic Village (Moscow);
the cycle track in the Krylatsky area (Moscow);
the Moscow Metro; 60% of Moscow’s residential
buildings; the Krasnoyarsky and Sayano-Shushensky
Hydro Power Plants (Russia); the Baikal-Amur
Highway (Russia); the casino complex which opened
in Macau, China, in 2004 and the new Hong Kong
International Airport.
66 ANNuAL RePoRT AND AccouNTs 2010
Senior ManageMent
(as of 30 April 2011)
EVRAZ’s senior management, as custodians of one of the
largest vertically integrated steel and mining multinational
enterprises in the world, is committed to maximising
the potential of the Company’s global asset base for the
benefit of all stakeholders.
In pursuit of these objectives management has always
fostered an ‘open door’ culture in its dealings with the
media, the investment community and employees and
our credentials in relation to transparency and the quality
of corporate governance were acknowledged when
EVRAZ received awards for the Best Financial Disclosure
and Best Progress in Financial Disclosure in Europe in the
2011 IR Global Rankings survey.
1
2
3
4
Alexander Frolov
Chief Executive Officer
Leonid Kachur
Senior Vice President, Business Support and Interregional
Relations
Pavel Tatyanin
Senior Vice President, Head of International Business
Giacomo Baizini
Vice President, Corporate Affairs and Chief Financial Officer
5
6
7
Daniel Harris
Vice President, Vanadium Assets
Natalia Ionova
Vice President, Human Resources
Alexey Ivanov
Vice President, Head of the Steel Division
1
2
3
4
5
6
7
67 ANNuAL RePoRT AND AccouNTs 2010
8
9
Alexander Kruchinin
Vice President, Health, Safety and Environment
12
Yury Pavlov
Vice President, Procurement
oleg Kuzmin
Vice President, Corporate Communications
13
Ilya shirokobrod
Vice President, Sales
10
Alexander Kuznetsov
Vice President, Strategic and Operational Planning
14
Timur Yanbukhtin
Vice President, Business Development, International Business
11
Konstantin Lagutin
Vice President, Head of Iron Ore Division
15
elena Zhavoronkova
Vice President, Legal Affairs
Senior Management Changes
1 January 2010 – 30 April 2011
Appointments
oleg Kuzmin
Vice President, Corporate Communications
Alexander Kruchinin
Vice President, Health, Safety and Environment
Konstantin Lagutin
Vice President, Head of Iron Ore Division
Yury pavlov
Vice President, Procurement
ilya shirokobrod
Vice President, Sales
elena Zhavoronkova
Vice President, Legal Affairs
DepArtures
Aleksey Agoureev
Vice President, Corporate Communications
igor Gaponov
Vice President, Information Technologies
igor markov
Vice President, Commercial Affairs
Dmitry sotnikov
Vice President, Head of the Urals Division
8
9
10
11
12
13
14
15
68 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
1
Alexander Frolov
Chief Executive Officer
5
daniel Harris
Vice President, Vanadium Assets
Born in 1954.
Mr Harris has held the post of Vice President, Vanadium Assets, since
2008 when he joined EVRAZ following the acquisition of Strategic
Minerals Corporation. He was appointed President of Strategic
Minerals Corporation in September 2009.
Mr Harris has 33 years’ experience in the vanadium sector and was
formerly Vice President in charge of operations at Strategic Minerals
Corporation, in the US, a position he held since 2002.
Prior to this he served as Vice President and Chief Financial Officer
of Strategic Minerals Corporation (2000-2002) and was Managing
Director of Vametco Minerals Corporation, the South African
subsidiary of Strategic Minerals (1997-2000). Mr Harris also held
various management positions during his 16 years at Stratcor’s
Hot Springs, Arkansas plant, commencing in 1977. These included
General Manager for Vanadium Operations, Plant Manager for Hot
Springs Operations and Project and Process Engineer for Vanadium
Operations.
Mr Harris graduated from the University of Nevada, Mackey School of
Mines, with a degree in Chemical Engineering in 1977.
6
natalia Ionova
Vice President, Human Resources
Born in 1966.
Ms Ionova joined EVRAZ in 2006 as Vice President for Human
Resources and is responsible for all issues related to human
resources within the Group.
Prior to joining EVRAZ, Ms Ionova served as Head of Human
Resources at NDK Merkury where her responsibilities included
analysis of the holding company’s personnel structure and the
implementation of more effective work systems (2003-2006). Ms
Ionova previously held the positions of Deputy Head of Human
Resources (1999-2003) and Manager for Human Resources (1997-
1999) at NDK Merkury. Between 1995 and 1997 Ms Ionova served
as Manager for Human Resources at Russian Gold.
Ms Ionova was voted Russia’s Best Human Resources Director at the
Aristos Awards 2009.
Ms Ionova graduated from the Management Faculty of the Russian
State University of Physical Training, Sports and Tourism in 1987 and
holds a Ph.D. in Psychology.
7
Alexey Ivanov
Vice President, Head of the Steel Division
Born in 1975.
Mr Ivanov joined EVRAZ in 2002. Prior to his appointment as Head
of the Steel Division in May 2011 and Head of the Siberia Division
in May 2009, he served as Senior Deputy CFO responsible for
supervising Controlling and Treasury functions (2008-2009) and was
Director of Controlling through 2002-2009.
Between 1998 and 2002 Mr Ivanov held various positions in Liggett-
Ducat where his responsibilities included production, controlling
and logistics. He was formerly Head of the Credit Department at
Inkombank (1997-1998).
Mr Ivanov graduated from INSEAD in 2002. He holds a degree in
Finance from the Financial Academy of the Government of the Russian
Federation and has been a member of the Chartered Institute of
Management Accountants since 2004. In 2008 Mr Ivanov received
a diploma in Human Resources from the Australian Professional
Association.
Born in 1964.
Mr Frolov joined EvrazMetal, a predecessor of EVRAZ Group,
in 1994, and subsequently held various positions within the
Company. Elected Chairman of the Board effective 1 May 2006
and continued to serve as Chairman of the Board until
1 December 2008.
Graduated with honours from the Moscow Institute of Physics
and Technology 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, ZAO Yuzhkuzbassugol Coal Company and OAO OUK
Yuzhkuzbassugol, ZAO Kazankovskaya Coal Company, EVRAZ
Vitkovice Steel, EVRAZ Inc. NA and Highveld Steel and Vanadium
Corporation.
2
leonid Kachur
Senior Vice President, Business Support and Interregional
Relations
Born in 1961.
Mr Kachur joined EVRAZ in 1993 and, as Senior Vice President
for Business Support and Interregional Relations, is responsible
for safety and security issues within the Group. Prior to his
appointment as Head of Business Support and Interregional
Relations in 2000, Mr Kachur held various positions within the
Group. From 1995 to 2000 he was Chief Executive of security
enterprise, Interlock, and was responsible for security matters
within EVRAZ. Between 1993 and 1995 he was Deputy Chief
Executive, with responsibility for general issues, at EvrazMetal, a
predecessor of EVRAZ.
Prior to joining EVRAZ, Mr Kachur was involved in production and
process management at ZIL, the Russian automobile enterprise.
Mr Kachur graduated from Moscow State Industrial University in
1984 with a degree in Engineering.
3
pavel tatyanin
Senior Vice President, Head of International Business
Born in 1974.
Mr Tatyanin was appointed Senior Vice President and Head of
International Business in July 2009. His responsibilities include
the financial performance of EVRAZ’s steel and mining operations
in North America, Europe and Africa together with the global
vanadium business. He is also responsible, in an international
context, for trading in steel and other commodities, strategic
development and M&A transactions.
Mr Tatyanin joined EVRAZ in April 2001 and has held the following
positions within the Group: Deputy Chief Financial Officer and
Director for Corporate Finance (2002 – 2004) and Senior Vice
President and Chief Financial Officer (2004-2009).
Before joining EVRAZ, Mr Tatyanin held various positions in the
financial sector. He was Vice President of Adamant Financial
Corporation (M&A transactions and asset restructuring) between
1999 and 2001 and before that was Vice President of United
Financial Group, Deutsche Bank’s Investment Banking division
(1997-1999).
Mr Tatyanin graduated with honours from Moscow State University
in 1995 with a degree in Accounting and Economics and studied
Economics in Ruhr-Universität Bochum, Germany. He received
a Master’s degree with honours in International Business from
Moscow State University in 1997.
4
Giacomo Baizini
Vice President, Corporate Affairs and Chief Financial Officer
Born in 1970.
Mr Baizini is responsible for finance, treasury, controlling, reporting,
IR, taxation, insurance, legal matters and IT. Before taking over as
CFO in July 2009 he was responsible for business development
in Asia-Pacific, sales and operations planning and coordinating
aspects of international integration.
Between 1998 and 2005, Mr Baizini was a consultant with
McKinsey’s Milan and Tokyo offices where his principal focus was
on electric utilities. He also co-led the successful development of
McKinsey’s IT consulting arm in Japan.
From 1994 to 1998 Mr Baizini was a consultant with JMAC, the
Japanese consulting firm, where he specialised in cost reduction
and operational efficiency programmes in relation to both
manufacturing and service industries.
Mr Baizini holds a degree in Physics from Oxford University.
69 AnnuAl RepoRt And Accounts 2010
Corporate GovernanCe
8
Alexander Kruchinin
Vice President, Health, Safety and Environment
Born in 1977.
Mr Kruchinin joined EVRAZ in August 2010 as Vice President of
Health, Safety and Environment in charge of Russian and overseas
operations.
Before joining EVRAZ, Mr Kruchinin held various management
positions with responsibility for industrial safety, labour and
environmental protection. He served as Director for Health, Safety
and Environment at Integra between 2007 and 2010 and was
Head of Health, Safety and Environment at UC Rusal’s Alumina
Division from 2004 to 2007. Prior to this he was Safety Consultant
at DuPont de Nemours International (2001-2004).
Mr Kruchinin graduated from the Gubkin Russian State University
of Oil & Gas and took an internship at The Fuqua School of
Business, Duke University, (NC, USA). He received an Executive
MBA degree from the Higher School of Management at Saint
Petersburg State University in December 2010.
9
oleg Kuzmin
Vice President, Corporate Communications
Born in 1978.
Mr Kuzmin, who is responsible for Corporate Communications and
the implementation of Public Relations strategy, joined EVRAZ as
Vice President for Corporate Communications in February 2011.
Mr Kuzmin has many years experience in Public Relations. Before
joining EVRAZ he was a Member of the Management Board and
Director for Corporate Affairs of Interpipe (2008-2010) and was
previously Head of the Communications and External Affairs
Department at EUROCEMENT group (2006-2008). Prior to this he
held executive positions at communications agency Ogilvy Public
Relations (2002-2006).
Mr Kuzmin graduated from Petrozavodsk State University,
Department of Law, with a degree in Political Science and gained
an Executive MBA at Moscow International Higher Business School
‘Mirbis’. He holds a degree in Political Science and Public Relations
from Central European University, a degree in Public Relations
from Umea State University (Sweden) and a degree in Sustainable
Development from Baltic University (Finland).Mr Kuzmin is a
Member of the European Association of Corporate Directors.
10
Alexander Kuznetsov
Vice President, Strategic and Operational Planning
Born in 1978.
Mr Kuznetsov joined EVRAZ in 2002 and was appointed Vice
President for Strategic and Operational Planning in July 2009 with
responsibilities for strategic development, sales and operational
planning, project management and valuation.
Prior to this Mr Kuznetsov held various positions within the
Company and served as Director for Strategic Planning and
Investment Analysis between 2008-2009. He was formerly
Head of the Financial Analysis and Valuation Department with
responsibilities for financial analysis, the valuation of investment
projects and M&A transactions (2006-2008). During the years
2002-2006 Mr Kuznetsov was Manager of the Capital Markets and
International Investments Department and was involved in all of
the Company’s M&A transactions.
Mr Kuznetsov graduated with honours from the Moscow Institute
of Physics and Technology in 2001 with a degree in Applied
Mathematics and Physics. He also received a Master’s degree in
Economics from the New Economic School in 2002.
11
Konstantin lagutin
Vice President, Head of Iron Ore Division
Born in 1966.
Mr Lagutin joined EVRAZ in January 2010, having served in the
preceding five years as an Executive Director of Belon OJSC which,
in 2006, was the first coal producer in Russia to go public. During
that period Mr Lagutin was responsible for the company’s day-to-
day operations and implementation of key investment projects.
While at Belon Mr Lagutin was twice awarded the Order of the
Honor by the Governor of Kuzbass for his achievements in the
region.
Prior to this Mr Lagutin held executive positions in the Russian oil
and energy sector, where his experience encompassed operational
management, production, marketing and sales of non-fuel
petroleum products.
He was General Director of the Ryazan Refinery between 1998
and 2000. During the periods 2000-2001 and 1995-1998 he
held various positions at Alfa-Eco dealing with production and trade
operations in the oil and coal sectors. Before that, Mr Lagutin served
as Head of the Moscow office of Global Natural Resources, Inc.
Mr Lagutin graduated with honors from the Military Institute of
the Ministry of Defence, Moscow, in 1990. In 2003 he received an
Executive MBA degree from The Fuqua School of Business, Duke
University, (NC, USA).
12
Yury pavlov
Vice President, Procurement
Born in 1962.
Mr Pavlov joined EVRAZ in 1996. Prior to his appointment as Vice
President for Procurement in January 2011, he was Director for
Procurement, a position held since 2008. Before this Mr Pavlov held
various positions within EVRAZ’s treasury prior to becoming Head
of the Treasury in 2005. He was Head of the Accounts Department
between 2002-2003 and formerly Head of the Financial Department
of OOO EvrazHolding (2000-2002).
Before joining EVRAZ, Mr Pavlov held various positions at the National
Research Institute for Physicotechnical and Radio Engineering
Measurements, starting his career as an engineer and subsequently
becoming Senior Staff Scientist.
Mr Pavlov graduated from Moscow Institute of Physics and
Technology in 1985. He holds a degree in Economics, Finances and
Credit (Financial Management) from the Financial Academy of the
Government of the Russian Federation and an MBA degree from
The Russian Presidential Academy of National Economy and Public
Administration.
13
Ilya shirokobrod
Vice President, Sales
Born in 1972.
Mr Shirokobrod was appointed Vice President, Sales, of the Group in
January 2011. He became Managing Director of OOO Trading Company
EvrazHolding, a position he retains, in February 2010.
Prior to joining EVRAZ Mr Shirokobrod held various management
positions at Centravis Limited (the largest producer of seamless stainless
pipes in the CIS and the fifth largest in the world) with responsibility for
sales to world markets, strategy and business development. He served
as Commercial Director and Chief Executive (Russia and Central Asia) of
Alcoa CSI between 1999 and 2005 and has also held various commercial
positions at Melitta Russland and Tetra Pak.
Mr Shirokobrod graduated with honours from Saint Petersburg State
Technical University in 1995 with a degree in Physics and also holds
a Master of Sciences (Engineering) degree. He received an Executive
MBA from Stockholm School of Economics in 2005.
14
timur Yanbukhtin
Vice President, Business Development, International Business
Born in 1964.
Mr Yanbukhtin, who was appointed Vice President, Business
Development, International Business in October 2009, joined EVRAZ
in 2002 and served as Head of Capital Markets at EvrazHolding. In
2005 he became Vice President and Head of Corporate Finance and,
in 2007, was appointed Vice President for Strategy and Business
Development. During these years Mr Yanbukhtin was actively involved
in various corporate finance transactions including the Company’s
IPO, Eurobond issues and global M&A activity.
Before joining EVRAZ Mr Yanbukhtin was Director for Business
Development at Yandex (2000-2002) and, prior to this, held various
positions in Corporate Finance at Pioneer Investments, Salomon
Brothers and Alfa Bank.
Mr Yanbukhtin graduated from the Moscow State University in 1986
with a degree in Economics. In 1994 he received a Master’s degree in
International and Development Economics from Yale University.
15
elena Zhavoronkova
Vice President, Legal Affairs
Born in 1970.
Ms Zhavoronkova joined EVRAZ in June 2010 as Vice President for
Legal Affairs.
Prior to this Ms Zhavoronkova was Head of the Legal Department of
United Industrial Corporation (OPK), a diversified holding company
(2008-2010). She commenced her career as a legal advisor in 2000
when she joined TMK, a Russian pipe manufacturer, where she served
as Head of the legal and contractual branch (2001-2003) before
becoming Head of the Legal Department (2003-2008).
Ms Zhavoronkova graduated from Moscow State Law Academy with a
degree in Legal Affairs in 2002.
70 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
Board meetings in 2010
witBANK NAture reSerVe
Month
January
February
March
April
May
June
July
August
September
October
November
December
Scheduled Board
Meetings
Circular Board
Meetings
21 January
16 February
3 March
29 March
21 April
27 April
20 May
28 June
27 July
31 August
17 September
12 October
1 November
18 November
14 December
-
-
-
-
28 May
18 June
-
-
-
15 October
-
-
Board meetings’ Attendance 20101
Alexander Abramov
Otari Arshba
Gennady Bogolyubov
James Campbell
Philippe Delaunois
Alexander Frolov
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Gordon Toll
Meetings
Attended
15
10
0
6
6
15
15
15
13
15
9
9
1 Attendance records are not applicable to Circular Board Meetings
in view of the fact that, under Luxembourg law, a director
is required to sign the protocol even if he/she did not participate
in such a meeting
directors’ interests
Mr Alexander Abramov, Chairman of EVRAZ Group, has a
24.29% indirect beneficial interest in issued share capital
of the Company and Mr Alexander Frolov, Chief Executive
of EVRAZ Group, has a 12.14% indirect beneficial interest
in issued share capital of the Company. Mr Shvidler,
a non-executive director, has a beneficial interest in
approximately 3.45% of the Company’s outstanding
shares through Lanebrook.
Witbank Nature Reserve is a conservationist
centre dedicated to the threatened Rocky Highveld
Grassland – once one of the world’s best examples
of grassland, now a treasure trove of bird and plant life.
The nature reserve, situated on the banks of the Groot
Olifants River, is rich in hiking trails that traverse
a wonderland of birds, game and exotic flora. The bird
population, numbering 173 species, represents
a bringing together of varieties indigenous to both
the Middleveld and the Highveld. A breeding pair
of African Fish Eagles have been detected and other
interesting species include Black Eagles, Ospreys
and Caspian Tern. Varieties of game include springbok,
blesbok, eland, zebra, grey rhebuck and black
wildebeest or gnu. Recently, kudu and impala have
been introduced. Small game species include duiker
and steenbok. It is estimated that almost 50 different
tree species and some 150 flower varieties grace
the reserve including rare ground orchids and various
types of Gladioli. The Witbank Nature Reserve
and the recreation resort are both situated close
to the Witbank Dam.
71 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
BoArd ANd SeNior
mANAGemeNt remuNerAtioN
Mr Arshba, as a member of the Russian Parliament, is not
entitled to any remuneration.
In 2010, the Board of Directors’ remuneration in relation
to performing the Board of Directors responsibilities
approximated US$2 million.
remuneration of Senior
management
The remuneration of EVRAZ Group’s senior management
consists of:
a fixed base salary according to the unified scale, with
grades defined for all job categories;
a variable performance-based bonus.
Annual management bonuses are based on Key
Performance Indicators and targets which are defined
at the beginning of each year. Some of these targets
and indicators may be linked to a measure of team
or corporate performance, as well as individual
performance, depending upon the employee’s position.
Targets are reviewed by a senior management committee
to ensure equity and alignment with corporate objectives.
Exceptional performance against goals can result in
the actual bonus exceeding 100% of the target bonus.
Unsatisfactory performance in relation to any particular
goal can result in no bonus being paid in respect of that
goal. Bonuses are calculated and paid each calendar
year following the issue of the previous year’s financial
statements depending on the Company’s annual results.
Total remuneration paid to the Senior Management
consisted of the following:
US$ million
Salary
Perfomance bonuses
2010
2009
9.6
4.8
14.4
7.3
2.9
10.2
2008
10.2
8.8
19.0
The CEO of EVRAZ Group is not granted any specific
nonmaterial remuneration.
For the purpose of this report ‘Directors’ are defined as
members of the Board of Directors of EVRAZ Group S.A.
listed on page 68 of this report. ‘Senior Management’ is
defined as the Chief Executive Officer and certain Vice
Presidents of the Group listed on pages 72-73 of this
report. As the CEO of EVRAZ Group S.A. Alexander Frolov
falls into both categories, his compensation as Director is
included in Remuneration of the Board of Directors and
his compensation as the CEO is included in Remuneration
of Senior Management table.
remuneration of the Board
of directors
The Company’s remuneration policy in respect of the
Board of Directors is based on the following principles: the
Chairman of the Remuneration Committee proposes the
level of fees at a meeting of the Committee and, subject
to approval, the proposal is put forward for the Board to
consider. Subject to Board approval the proposed fees
are put to shareholders at the AGM for final approval.
Apart from an increase in the fee for the chairmanship of
the Audit Committee, there has been no revision of fees
since 2005.
Independent directors serve on the Board pursuant to
agreements. These agreements have a one-year term
and provide for identical levels of remuneration and the
reimbursement of certain expenses.
A director’s remuneration consists of an annual salary of
US$150,000 and a payment for committee membership
(US$24,000) or chairmanship (US$100,000 in respect of
the Audit Committee chairmanship and US$50,000 for
the chairmanship of other committees). The fees payable
for the chairmanship of a committee exclude the right
to claim the membership fee, and any director elected
chairman of more than one committee is only entitled to
receive fees in respect of one chairmanship.
Mr Alexander Frolov, as the Chief Executive Officer and
Member of the Board of Directors, is entitled to the
following remuneration:
1. the director’s fee as stated above plus any applicable
fees for participation in the work of the Board
committees;
2. a performance-related bonus subject to the discretion
of the Remuneration Committee of the Company and
approval by the Board of Directors of the Company.
The bonus is subject to the achievement of a performance
condition based on the target value figures set out by the
Board of Directors.
72 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
witBANK dAm
incentive Plan 2010
On December 14, 2010, the Group adopted Incentive
Plan under which certain senior executives (‘participants’)
could be gifted 91,354 shares of the Company.
Shares under the Incentive Plan 2010 are gifted to the
participants upon vesting. According to the Incentive
Plan, the vesting date for each tranche shall occur within
90 days after announcement of the annual results.
Share ownership
by the Board of directors
and Senior management
As of April 30, 2011, the following directors and senior
managers had beneficial interests in EVRAZ shares:
Directors
Alexander Frolov
Alexander Abramov
Eugeny Shvidler
Senior Managers
Leonid Kachur
Pavel Tatyanin
Timur Yanbukhtin
Total holding,
Ordinary shares, %
12.14%
24.29%
3.45%
0.21%
0.02%
0.01%
Witbank Dam lies a couple of kilometres east of
eMalahleni (Witbank). The dam, which was established
in 1971, is the largest municipal dam in the southern
hemisphere and has a catchment area of more than
3,540 square kilometres. With a holding capacity of
104.6 million cubic metres it is the principal source
of water for the municipality of Emalahleni. The water
abstraction is by means of a pump station which is
currently under upgrade.
The dam also hosts various water sports including
fishing, skiing, boating and windsurfing. Those in search
of more adventurous activities can avail themselves of
parasailing and skydiving facilities and 4x4 trails.
73 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
BoArd Committee rePortS
Audit Committee
(As of 31 January 2011)
The Audit Committee’s report to the shareholders of Evraz
Group S.A. encompasses the committee’s activities from
the date of the last report as of 1 January 2010 to 31
December 2010.
role of the Committee
The Board has delegated to the committee the
responsibility for oversight of EVRAZ Group’s financial and
operational internal controls and the Group’s financial
statements. In relation to these responsibilities the
committee has:
Reviewed its Board mandate and the Internal Audit
Charter. (The Company’s Internal Audit Charter can be
found on the Company’s website);
Reviewed the form, content and integrity of the
Company’s and Group’s published Annual and Interim
financial statements;
Reviewed the development and effectiveness of
the Company’s internal controls and business risk
management;
Monitored and reviewed arrangements to ensure the
objectivity, independence, scope and effectiveness of
both the external and internal audit functions;
Reviewed the terms of reference of the Group’s Risk
Committee, an executive committee composed of the
Group’s senior functional and operational executives,
including the Group Chief Executive, and co-opted the
Chairman of the Audit Committee as Chairman of the
Group’s Risk Committee. John Heywood, a member of
the Audit Committee, has also been co-opted to the
Group’s Risk Committee.
Composition of the Committee
The composition of the Audit Committee during the period
was:
Terry Robinson (Chairman), a financially qualified
independent non-executive director;
Olga Pokrovskaya, a financially qualified non-executive
director;
John Heywood, a financially qualified, Board-
nominated (not being a director of EVRAZ) member of
the Committee.
The composition of the membership of the Audit
Committee is not compliant with the UK Corporate
Governance Code in that Olga Pokrovskaya is not an
independent non-executive director and John Heywood
is not a director of the Company. The reason for this non-
compliance is that the Company’s statutes limit the size of
the Board and the number of independent non-executive
directors.
The Company has one executive director, the Chief
Executive, who is connected to the major shareholder,
five non-executive directors who are also connected to
the major shareholder and three independent non-
executive directors. If the Company was to expand the
Board to ensure that independent non-executive directors
accounted for at least half of the membership, excluding
the Chairman, the structure of the Board would be
unwieldy (Corporate Governance Code B1).
To ensure that the majority of the Audit Committee’s
membership is independent and has demonstrable and
substantive recent and relevant financial experience,
the Board invited and appointed John Heywood as an
independent member of the Audit Committee.
John Heywood is a past audit partner of PWC and during
the latter part of his career was Chief Executive of PWC
Eastern Europe until his retirement from the firm in 2006.
With regard to Mr Heywood’s standing as a highly valued
member of the Audit Committee, it is noteworthy that
following upon his retirement from PWC, he chairs the
UK Home Office Audit Committee and attends the Home
Office Risk Committee meetings.
In addition to the Audit Committee papers, Mr Heywood
receives copies of all Board minutes and has access to all
Board papers to ensure that he is properly and completely
informed with regard to performance, strategy, corporate
developments and other issues within the Group.
Finally, the Board continues to ensure the Audit
Committee’s independence through a rigorous regard of
the committee’s mandate and authority.
Alexey Melnikov, Head of EVRAZ’s Group internal audit, is
the Audit Committee’s Secretary.
report of the Committee’s Activities in 2010
Meetings and attendance: the Audit Committee held
seven meetings during 2010. Olga Pokrovskaya was
unable to attend the meeting held on 26 August 2010.
The Group’s external auditors, Ernst and Young, the
Group’s internal auditors and the Vice President,
Corporate Chief Financial Officer attended all meetings. At
various meetings the committee received presentations
from the Head of Accounting and Controlling
directorate, senior members of the Group’s finance
team, the Director of Investor Relations, the Senior
Vice President, International Business, Vice President,
Human Resources, Vice President, the Urals division,
Vice President, Mining, Vice President, Information
Technologies and the Chief Financial Officer, International
Assets.
74 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
The principal activities and issues considered during the
period 1 January 2010 to 31 December 2010 were:
Review of the 2009 Financial Statements, the
Management Report, the preliminary results press and
stock exchange release and the analysts’ presentation.
Review of the external auditors’ management letter
following their full year 2009 audit, together with the
Company’s management response and intended action.
Review of the interim financial results and the interim
results statement and analysts’ business and financial
presentation together with the associated presentations
as with the aforementioned annual financial statements.
Review of the accounting policy adopted in 2009, i.e.
adoption of a revaluation model under IAS 16 ‘Property
Plant and Equipment’ as of 1 January 2009. As a
result of this review, comparison with the industry
peer group and detailed discussion with the Group’s
external auditors, the Audit Committee recommended
that the Board should revert back to the cost model for
the measurement of property, plant and equipment in
respect of the annual accounts to 31 December 2010.
In connection with the review of the 2009 full year and
2010 interim accounts, the committee carefully enquired
as to all related party transactions. With the exception
of raw material purchases from associate enterprises
Raspadskaya (coking coal purchases) and Yuzhny GOK,
a Ukraine iron ore producer in which Lanebrook holds a
46% beneficial interest but does not have management
control, and the return to the Company of a fee related
to the acquisition of the Ukraine Steel and Iron ore
interests, a transaction approved by the independent
non-executive directors. Other related party transactions
were minimal.
Reviewed the status of Mining Reserves and Resources
statements and consequential depletion, amortisation
and site restoration provisions and estimates, initiating a
new ‘JORC’ valuation exercise.
Reviewed internal audit reports, discussed deficiencies
and agreed management action and corrective action
timelines. In particular, the Audit Committee reviewed in
detail the effectiveness of internal control procedures
in relation to the Group’s various supply chain activities;
the integrity of internal controls within the Group’s trading
entities, environmental exposures and provisions and
the consistency of Health and Safety statistics.
Reviewed the continuing process of developing a Group
IT resource and systems strategy, with particular focus
on the Group’s legacy systems and disaster recovery
programmes.
Reviewed the Group’s risk register and made
recommendations to directors as to the formalisation of
a Group risk appetite metric.
Review of the Group’s incidence of fraud and the
In addition, the Audit Committee reviewed and discussed
all the programmed internal audit reports concerned
with the business and financial internal controls and
processes together with agreed management remedial
action and follow-up reviews.
The internal audit function initiated an external review of
its operations, procedures and resources in which the
Audit Committee and the CEO participated.
The Audit Committee reviewed the Group’s external
auditor selection policy and recommended to the
Board an extension of the requirement to tender for the
selection and appointment of the external auditor from
two years to five years.
The committee has met with the external auditors,
EVRAZ’s management and with the internal audit team
separately for individual discussions.
NON-AuDIT SERVICES
As reported in previous years, the Group engages
accountancy firms for due diligence work in connection
with acquisitions, listing documentation and tax
advice. Where such services are provided by the
external auditors, the committee has agreed fee limits
with management in respect of non-audit services.
In instances where these limits would be exceeded,
prior approval to such engagements, together with fee
estimates, is required and such engagement mandates
have been duly requested by management. On proper
diligent enquiry the Audit Committee has generally
approved such requests.
In the year to 31 December 2010, the interim review and
year-end audit fees totalled US$7.8 million. Accounting
fees relating to Capital Market transactions totalled
US$1.1 million fees for other audit related services amounted
to US$33.5 thousand, while fees for other non-audit services
were US$701.5 thousand. The increase in non-audit
fees largely reflected advisory services in relation to the
improvement of production processes and labour efficiencies
at one of the Group’s mining operations. This mandate was
subject to an open tender process.
AuDIT COMMITTEE SElF-ASSESSMENT
The Audit Committee undertook a self-assessment of
its own activities and conducted assessments with the
external auditors, the internal audit function and EVRAZ’s
management.
management activity in hand to control and reduce such
future incidence.
Further information regarding the Audit Committee’s
activities can be found on the Company’s website.
Reviewed the follow-up actions in response to matters
raised via the Group’s ‘whistleblowing’ provisions.
Reviewed the manpower resource and organisation of
the Group’s internal audit function.
75 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
remuneration Committee
(As of 31 December 2010)
Further information regarding the remuneration
policy and the Remuneration Committee’s duties and
responsibilities can be found on the Company’s website:
LTIP was approved by the Board in December 2010.
With regard to the remuneration of the independent
directors, the Chairman of the Board is responsible and
makes recommendations as to the amount of such
remuneration to shareholders at the Annual General
Meeting.
Articles of Association as of 31 July 2009: article 10
Corporate Governance Code: article 6.5
The Remuneration Committee, which usually meets
before a Board meeting, always presents its conclusion to
the Board for final approval.
Policy Governing the Board of Directors: articles 6 and 7
Management Remuneration Policy
The composition of the Remuneration Committee
changed in 2010 and, as of 31 December 2010,
consisted of the following members:
Karl Gruber, Chairman of the Committee, Independent
non-executive director;
Eugene Tenenbaum, Non-executive director;
Alexander Abramov, Chairman of the Board;
Alexander Frolov, CEO, attends the meetings.
Dmitry Melnikov, Secretary to the Board, acts as
Secretary to the Committee.
The principal objectives are to attract, retain and motivate
high quality senior management with a competitive
package of incentives and awards linked to performance
and the interests of shareholders. The committee seeks
to ensure that management is rewarded fairly, taking into
account all elements of the remuneration package and in
the light of the Group’s performance.
The Remuneration Committee met three times in 2010.
In 2010 the committee decided on the bonuses at the
CEO-1 level for the year 2009 and also proposed a new
long-term incentive programme (LTIP) to the Board
within the following parameters. LTIP contemplates that,
depending on the year-end results, participants will have
the right to receive Company shares/GDRs at a fixed price
subject to the following terms and conditions: (i) the total
amount of LTIP 2010 shall be up to US$30 million (taking
into account the average GDR price in respect of July 2010);
(ii) the programme will have a three-year duration period
with ‘disbursement’ payable by way of an amount equivalent
to a 40% tranche in 2011 and 30% tranches in respect of
2012 and 2013 respectively (effective in each instance,
upon the announcement of the annual results provided that
such participant is still employed by the Company); (iii) LTIP
shall not provide participants with downside protection and
‘disbursement’ will only be made in the form of GDRs; and
(iv) specific terms and conditions may be subject to further
adjustments taking into account the general principle that
the Board of Directors of the Company may modify LTIP
upon request by the CEO including (for the avoidance of
doubt) a decrease in any tranche.
health, Safety
and environmental
Committee
The Health, Safety and Environmental (HSE) Committee
was established on 28 July 2010 and comprises the
following members:
Gordon Toll, Chairman of the Committee;
Terry Robinson, Independent director;
Karl Gruber, Independent director.
The HSE Committee monitors and reviews the Group’s
health, safety and environmental policies and practices
together with current and prospective regulatory issues in
such areas and advises and makes recommendations to
the Board of Directors accordingly.
The HSE Committee meetings were essentially integrated
with the meetings of the Board of Directors (held at least
twice annually and more frequently as required).
Some fACtS ABout eVrAZ
yuzhkuzbassugol (siberia)
The Osinnikovskaya coal mine, an offshoot of
Yuzhkuzbassugol (EVRAZ's coal mining subsidiary) is
790 metres deep. This equates to the average depth
of Lake Baikal, the world’s deepest lake situated in
East Siberia.
Over a period of 41 years (1969-2010)
Yuzhkuzbassugol’s mines have produced
917.8 million tonnes of coal. Transportation of this
amount of coal would require 15 million freight cars.
76 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
riSK mANAGemeNt
The Group’s business and operations are exposed to
various business risks. While a number of these risks
are operational or procedural in nature, several of these
risks are inherent in the character and jurisdiction of the
Group’s international business activities, while others
relate to changes in the global economy and are largely
outside management’s control.
With regard to risk management disciplines, the Group’s
executives seek to ensure management awareness and
appropriate risk mitigation planning and actions, defined
and monitored within an enterprise risk management
process (ERM). As a structured and coordinated Group-
wide governance approach, the Group’s executives have
created an ERM process designed to identify, quantify,
respond to and monitor the consequences of an executive
agreed risk schedule that encompasses both internal
and external critical risks. This process is consistent with
the listing rules published by the UK Financial Reporting
Council, and the Revised Guidance for Directors on the
Combined Code-Internal Control and is based on the
Turnbull Guidance on Internal Control.
The ERM process is fully supported by EVRAZ Group’s
Board, the Audit Committee and executive management.
Senior management, tasked with the development of the
ERM process, identified key risk elements and, in order
to further risk management accountability, assigned
ownership of the relevant risk areas to senior managers
according to their designated functions.
As a result of the ERM process, a Risk Committee, under
the chairmanship of the Audit Committee Chairman and
including within its membership the Group CEO and Vice
Presidents, is established and mandated to have oversight
of the Group’s risk profile and supervise the entire risk
management process including response procedures.
During 2010, the Risk Committee reviewed and updated
the Group’s risk matrix together with related risk mitigating
actions and delivered its proposals to the Board of Directors
for consideration and adoption. The Committee also
recommended the development of a risk appetite profile
based on the Group’s Impact and Probability risk matrix.
Both the risk appetite and the Probability risk matrix with
mitigating actions were adopted.
The Group’s executive management is charged with
embedding the agreed Risk Management related internal
controls and mitigating actions throughout the entirety
of the Group’s business and operations and through all
levels of management and supervisory personnel. Such
practices serve to encourage a risk conscious business
culture. During 2010 the Risk Committee reviewed plans
to extend the risk management process to the entity-level
during 2011-2012.
While the Risk Committee has the primary responsibility
for determination of the Group’s risk, the formulation of
the consequential appropriate internal controls and the
embedment of risk management throughout the Group,
the Audit Committee has the oversight of the effectiveness
and scope of the Group-wide set of risk management and
internal control policies and procedures. The following core
principles are applied to the identification, monitoring and
management of risk throughout the organisation:
Risks are identified, documented, assessed,
monitored, tested and the risk profile communicated to
the relevant 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 is responsible for assessing the optimum
balance of risk through the alignment of business
strategy and risk tolerance on an enterprise-wide basis.
iNterNAl CoNtrol
Consistent with its governance policies, the Group
continues to improve the process through which the
effectiveness of its internal control system can be
regularly reviewed as required by provision C.2.1 of the UK
Corporate Governance Code (former Combined Code).
The Audit Committee has the primary oversight role of
the Group’s internal control regime and has direction
as to the internal audit function resources and annual
audit programme thereby ensuring that the attesting
of the adequateness and effectiveness of the Group’s
internal controls is an ongoing process throughout the
year. EVRAZ’s Head of Internal Audit has attended all
the meetings of the Audit Committee and addressed any
reported deficiencies in internal control as required by
the Audit Committee. The Audit Committee continued
to engage with executive management to monitor
the effectiveness of internal control and accordingly
considered certain deficiencies that had been identified
in internal control together with management’s response
to such deficiencies. The Audit Committee also agreed
timelines for effecting the proposed corrective actions in
respect of the aforementioned deficiencies.
The annual internal audit programme is predominately
risk-based and in 2010 incorporated particular
assignments and priorities agreed by the Audit
Committee.
Further, the scope of the 2010 annual internal audit
included a review of the internal control systems of newly
acquired subsidiaries as considered appropriate for
effective risk management.
The Company’s internal audit is structured on a regional
basis, reflecting the developing geographic diversity of
the Group’s operations. In the light of this the head office
internal audit function has furthered implementation of
common internal audit practices throughout the Group.
During 2010 the internal audit function worked in close
cooperation with Ernst & Young, EVRAZ’s external auditor,
on a joint review of internal controls and an appraisement of
the general competence, independence and professional
objectivity of the Group’s internal audit resource.
In 2010 the internal audit function in the Russian
Federation and Ukraine passed through the external
quality review. Management of the internal audit function
is planning actions to respond to observations and
recommendations made by the reviewer.
Further information regarding the Company’s internal
control processes can be found on the Company’s website.
77 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
Risks
i) Operational
a. Safety & Health
Description
Mitigation
Hazardous production
• Focus on standardisation of the processes across the
b. Plant and equipment downtime
Breakdown or stoppage due to improper
maintenance/operation or due to economic
reasons
Group
• Development of a critical incident response process
• Establishment of HSE Board Committee
• Appointment of VP of HSE
• Standardisation, streamlining and automation of the
production processes
• Development of a critical incident response process
• Improvement of operational motivation system
• Training of personnel
• Enhancement of equipment maintenance procedures:
– Improvement of operational disciplines
– Acceleration of repair schedules
– Replacement of non-optimal production equipment
• Introduction of specific disaster recovery and business
continuity plans
c. Environmental
(1) Damage caused by pollution with
• Compliance with regulatory requirements and
d. Security and fraud
ii) liquidity
iii) Market Volatility
a. Competitor actions
b. Industry cyclicality
obligation to third parties
(2) Cost of removing pollutants with
obligation to governments or third
parties
Management and/or employee fraud,
illegal/unauthorised acts leading to
reputation degradation or a loss of assets
and/or financial losses
operating permissions
• Corrective and preventive internal control measures
• Whistleblowing procedures
• Cooperation with law enforcement authorities
Failure to generate adequate liquidity to
meet financial obligations/business needs
• Financial planning process
Gaining of competitive advantage over the
Group
Adverse impact of a sustained economic
reversal on the Group’s business
• Enhanced strategic planning
• Strategic investment initiatives
• A delivery focused incentive programme
c. Customer relations
Failure in customer service
iv) Cost Competitiveness
Loss of cost competitive advantage due to
increased production costs
• Investments in own raw material base to enhance
vertical integration
• Monitoring of the effectiveness of the purchasing
process
• Review of the maintenance and performance metrics
of key production plant and equipment
• Recycling of waste materials
• Negotiation of transport tariffs
• Development and implementation of the energy
saving programme
v) Human Resources
a. Ineffective leadership
Failure to make effective decisions due to
lack of adequate communication
• Improvement of communication through Defined
training programmes
b. Excessive headcount
Excessive headcount leading to low
productivity
c. Industrial relations disputes
Tension within labour groups
• Enhancement of the corporate culture in line with the
Group’s codes of conduct and ethics
• Promotion of a motivated environment
• Initiatives designed to reduce the cost of labour per
unit of production
• Personnel motivation
• Lean management
• Technological improvement
• Reduction in lost working hours
• Introduction of social programmes
• Participation in industry associations
• Conclusion of collective bargaining agreements with
various trade unions
vi) Political
vii) External compliance
a. Fiscal
b. Reporting timelines
viii) Reputation
Adverse consequences from specific or
general political actions
• Understanding of the various national political
environments
Exposure to tax compliance and tax
management process in multiple tax
jurisdictions
• Comprehensive tax registers detailing tax liabilities,
timelines and tax risks
• A process active management and technical review
Failure to meet the deadline in providing
Statutory Financial Statements and Tax
reporting
• Careful planning
• Daily management monitoring of the actual closing
process and resources availability
Loss of business and trading reputation
• Pro-active management of potential reputation
damaging situations
78 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
ShAreholder iNformAtioN
Share Capital
major Shareholders
EVRAZ has an authorised capital of €514,408,652
represented by 257,204,326 shares of €2 each.
The Company’s subscribed share capital is fixed at
€291,914,242 represented by 145,957,121 ordinary
shares with a nominal value of €2 each.
All shares have the same rights and are equal. The
Company, as of 31 December 2010, does not have any
other class of shares, either authorised or outstanding,
nor are any of the Company’s shares party to any cross
shareholding arrangements. The Company held no
Treasury shares as of 31 December 2010.
Global Depositary Receipts (GDRs), valued on the
basis of one GDR equating to one third of one ordinary
share, are listed on the London Stock Exchange. GDRs,
as of 31 December 2010, represented 28.76% of the
Company’s issued share capital.
Lanebrook Limited has informed the Company that
Lanebrook is controlled by Greenleas International
Holdings Limited and Crosland Global Limited. Mr
Alexander Abramov, EVRAZ’s Chairman of the Board of
Directors, has a beneficial interest in 66.7% of Crosland
Global Limited (which represents a 24.29% indirect
beneficial interest in the Company) and Mr Alexander
Frolov, EVRAZ’s Chief Executive Officer and member of
the Board of Directors, has a beneficial interest in 33.3%
of Crosland Global Limited (which represents a 12.14%
indirect beneficial interest in the Company). Crosland
Global Limited has a beneficial interest in 50% of
Lanebrook (which represents a 36.43% indirect beneficial
interest in the Company). Mr Shvidler, a non-executive
director, has a beneficial interest in approximately 3.45%
of the outstanding shares of EVRAZ through Lanebrook.
None of the Company’s current shareholders has voting
rights which differ from those of any other holders of the
Company’s shares.
Shareholder Structure
INSTITuTIONAl GDR HOlDERS – GEOGRAPHIC
DISTRIBuTION (AS AT AuGuST 2010)
Shareholder
Lanebrook Limited
BNY (Nominees) Limited2
Including:
% of shares
(as of 30 April 2011)
71.24%1
28.76%3
shares owned by Lanebrook Limited in the
form of GDRs
1.63%
shares underlying the stock borrow facility
5.02%4
TOTAl (145,957,121 SHARES)
100%
1 Includes one share held by TMF Corporate Services S.A.,
a Luxembourg independent secretary company of the Issuer
2 The Bank of New York Mellon serves as Depositary for the
Company’s GDR programme
3 One share is represented by three GDRs
4 For information see Note 20 to the Financial Statements.
36% Continental Europe
32% United States
28% United Kingdom
4% Rest of the World
79 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
witBANK SKydiViNG CluB
If you are a skydiver, you will know all about adrenaline
addiction and the pull of gravity – so don't miss out on
the chance of a jump during your holiday in South Africa.
Skydiving is extremely popular in South Africa and there
is no shortage of local clubs.
The Witbank Skydiving Club, established in 1980, is
situated in the Mpumalanga province of South Africa
and is less than an hour's drive from Johannesburg and
Pretoria.
Participants are offered static line first jump courses
every second Saturday and tandem jumps/accelerated
free fall options every Saturday and Sunday. The club
house is situated next to the Witbank Aerodrome and
features a canteen, a large braai (barbecue) area and
mattresses for those who wish to stay overnight.
Gdr Performance in 2010
EVRAZ’s GDR price, benefiting from the global upturn
in both equity and commodity market sentiment,
rose steadily during the early part of the year to reach
a 2010 high of US$42.72 in April. A subsequent
reaction, in line with peers and the wider market, saw
the GDR price touch a low of US$21.80 in early July
before rallying to US$35.87 at the year end: a near
27% increase compared with 2009’s closing price of
US$28.25.
The strength of the GDRs, which outperformed
the wider sector through 2H10, primarily reflected
improved macro prospects.
eVrAZ Gdr listing1
Bloomberg Ticker
Reuters Ticker
LSE Ticker
GDR Price
At Year End ($)
Minimum ($)
Maximum ($)
EVR LI
EVR-LN
EVR
2010
35.87
21.80
42.72
Daily Average Volume (000s GDRs) 1,358
2009
28.25
6.40
32.15
1,061
Total Shares Outstanding1
145,957,121
Market Cap. at Year End ($ MM)
15,706.4
12,364.2
1 1 Share=3 GDRs
eVrAZ Credit rating
Rating Agency
Type
Rating as of
30-Apr-10
Moody’s
LT Corp Family Rating
B1/Positive
Senior Unsecured Debt
B2/Positive
Probability of Default
B1
Standard &
Poor's
LT Foreign Issuer Credit
B+/Stable
LT Local Issuer Credit
B+/Stable
Fitch
LT Issuer Default Rating
BB-/Stable
Senior Unsecured Debt
BB-
ST Issuer Default Rating
B
80 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
GDR PRICE ON lSE IN 2010
US$
50
40
30
20
10
MM
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
04(cid:31)Jan
03(cid:31)Mar
05(cid:31)May
03(cid:31)Jul
02(cid:31)Sep
30(cid:31)Oct
31(cid:31)Dec
Volume
GDR Price
RElATIVE PRICE PERFORMANCE VS. PEERS AND INDEXES
rebased to 100
US$
200
150
100
50
04(cid:31)Jan
03(cid:31)Mar
05(cid:31)May
03(cid:31)Jul
02(cid:31)Sep
30(cid:31)Oct
31(cid:31)Dec
EVRAZ
BE500 Steel1
MICEX
RTS
Mechel
Severstal
NLMK
1 Bloomberg Europe Steel Index (BE500 Steel) includes all steel companies of the Bloomberg Europe 500 Index
81 AnnuAl RepoRt And Accounts 2010
Corporate governanCe
Annual General meeting
The Annual General Meetings are held in Luxembourg
on the date set by the Articles of Association of EVRAZ
Group S.A. The current date is 15 May. If the day is a legal
holiday, the Annual General Meeting will be held on the
following business day. All other general shareholders’
meetings are deemed to be extraordinary shareholders’
meetings. The extraordinary shareholders’ meetings can
be convened by the Board on dates other than the Annual
General Meeting as often as the Board deems necessary,
and/or determined by business needs. In addition, one
or more shareholders jointly holding at least five per
cent of the share capital may request that a general
shareholders’ meeting be convened.
All resolutions were passed. The shareholders approved
the Directors’ Report and the consolidated and
stand-alone financial statements for the year ending
31 December 2010, the new composition of the Board of
Directors, determined the level of the directors’ and the
CEO’s remuneration and re-appointed Ernst & Young as
EVRAZ’s external auditor.
Copies of the AGM documents are available to download
from the corporate website.
dividend Policy
The Company’s Dividend Policy can be found on the
Company’s website.
The Policy governing the Annual General Meeting can be
found on the Company’s website.
dividend information
EVRAZ Group’s AGM in respect of the financial year
to 31 December 2010 was held on 16 May 2011.
The Company did not recommend any dividends in
respect of the year to 31 December 2010. Decision on
future dividends for the 1H 2011 will depend on the
Company’s financial results for the 1st half of 2011.
2011 investor Calendar
january 18
Publication of 4Q2010 and Full Year 2010 Operational Results
january 20-21
Deutsche Bank 9th Annual Russia One-on-One Conference, London
February 3-4
Troika Dialog: The Russia Forum 2011, Moscow
March 31
April 15
Publication of 2010 Financial Results; Investor/Analyst Conference Call
Publication of 1Q2011 Operational Results
May 16-17
Citi Russia Metals and Mining Conference, Moscow
May 17
Publication of 1st Interim Management Statement
May 31-june 2
VTB Capital Investment Forum Russia Calling: London Session, London
june 6
june 8-9
Morgan Stanley: Russia Corporate Day, Paris
BCP Securities' 7th Annual Investor Conference, Moscow
june 27-28
Renaissance Capital 15th Annual Investor Conference, Moscow
july 15
Publication of 2Q2011 Operational Results
September 7-9
Deutsche Bank Global Emerging Markets Conference, New York
September 12-15
HSBC's Annual CEEMEA Investor Forum, London
September 13-14
Unicredit Conference, London
October 17
Publication of 3Q2011 Operational Results
82 AnnuAl RepoRt And Accounts 2010
ManageMent report
Vii
t
n
e
M
e
g
a
n
a
M
t
R
o
p
e
R
Responsibility
stateMent
of the DiRectoRs
in Respect
of the annual
RepoRt anD
the financial
stateMents
We confirm that to the best of our knowledge:
• the consolidated financial statements of Evraz Group S.A.,
prepared in accordance with International Financial Reporting
Standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of Evraz Group S.A. and the
undertakings included in the consolidation taken as a whole (the
‘Group’);
• the management report includes a fair review of the development
and perfomance of the business and the position of the Group,
together with a description of the principal risks and uncertainties
that they face.
By order of the Board
Alexander Frolov
Chief Executive Officer
Evraz Group S.A.
30 March 2011
83 AnnuAl RepoRt And Accounts 2010
management report
Ernst & Young
Socieˆteˆ anonyme
7, rue Gabriel Lippmann
Parc d'Activite Sydrall 2
L-5365 Munsbach
B.P. 780
L-2017 Luxembourg
Tel: +352 42 124 1
Fax: +352 42 124 5555
www.ey.com/luxembourg
R.C.S. Luxembourg B 47 771
TVA LU 16063074
Independent auditor's report on legal and regulatory requirements related to
consolidated annual management report
To the Shareholders and Board of Directors of
Evraz Group S.A.
1, Alleˆe Scheffer
L-2520 LUXEMBOURG
Following our appointment by the General Meeting of the Shareholders dated 17 May 2010 as independent auditor of Evraz Group
S.A., we have audited the consolidated financial statements of Evraz Group S.A., which comprise the consolidated statement of
financial position as at 31 December 2010, 2009 and 2008, the consolidated statements of operations, the consolidated statements
of comprehensive income, the consolidated statements of changes in equity, the consolidated statements of cash flows for each year
then ended, and a summary of significant accounting policies and other explanatory information, and we have verified the consistency
of the accompanying consolidated annual management report for the financial year 2010 with the audited consolidated financial
statements. We have issued on 30 March 2010 an unqualified audit opinion on the consolidated financial statements as at 31
December 2010.
Board of Directors’ responsibility for the consolidated annual management report
The Board of Directors is responsible for the preparation and fair presentation of the consolidated annual management report for the
financial year 2010 in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of
the consolidated annual management report.
Responsibility of the ‘reˆviseur d’entreprises agreˆeˆ’
Our responsibility is to verify that the consolidated annual management report for the financial year 2010 is consistent with the
consolidated financial statements as at 31 December 2010.
Report on other legal and regulatory requirements
The accompanying consolidated annual management report for the financial year 2010, which is the responsibility of the Board of
Directors, is consistent with the audited consolidated financial statements as at 31 December 2010.
Ernst & Young
Socieˆteˆ anonyme
Cabinet de reˆvision agreˆeˆ
Luxembourg, 30 March 2011
Thierry Bertrand
A member firm of Ernst & Young Global limited
84 AnnuAl RepoRt And Accounts 2010
management report
SeleCted CoNSolidAted
fiNANCiAl iNformAtioN
The selected consolidated financial information set forth below presents historical consolidated financial information and other operating
information of the Issuer as of 31 December 2010, 2009 and 2008 and for the years then ended. The selected consolidated financial information
has been extracted without material adjustment from, and should be read in conjunction with, the Consolidated Financial Statements.
As disclosed in the Consolidated Financial Statements, certain amounts as of 31 December 2009 and for the year then ended do not correspond
to the 2009 published financial statements and reflect adjustments made in connection changes in accounting policies and the completion
of initial accounting for acquisition. The selected consolidated financial 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 were affected by the Issuer’s acquisitions and disposals of assets. The operating results of businesses acquired are
included in Evraz’s Consolidated Financial Statements for the periods post the respective dates of acquisition.
(U.S.$ million)
CONSOlIDATED INCOME STATEMENT DATA
Revenues
Cost of revenues
Gross profit
Selling and distribution expenses
General and administration expenses
Other operating expenses
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 non-controlling interests
Net income per share
Weighted average number of shares outstanding
Steel segment income statement data
Revenues(1)
Cost of revenues(1)
Gross profit
Selling and distribution expenses
General and administration expenses
Other operating expenses
Profit from operations
Mining segment income statement data
Revenues(1)
Cost of revenues(1)
Gross margin
Selling and distribution expenses
General and administration expenses
Other operating expenses
Profit from operations
Vanadium segment income statement data
Revenues(1)
Cost of revenues(1)
Gross margin
Selling and distribution expenses
General and administration expenses
Other operating expenses
Profit from operations
Year ended 31 December
2010
2009
2008
13,394
(10,319)
3,075
(807)
(732)
(206)
1,330
(635)
695
(163)
532
548
(16)
3.95
9,772
(8,124)
1,648
(626)
(628)
(199)
195
(533)
(338)
46
(292)
(295)
3
(2.19)
20,380
(13,463)
6,917
(856)
(895)
(1,534)
3,632
(581)
3,051
(1,192)
1,859
1,797
62
14.55
138,638,781
134,457,386
123,931,230
12,123
(10,029)
2,094
(761)
(403)
(98)
832
2,507
(1,569)
938
(110)
(117)
(98)
613
566
(501)
65
(23)
(36)
(16)
(10)
8,978
(7,601)
1,377
(614)
(351)
(264)
148
1,456
(1,281)
175
(58)
(93)
(33)
(9)
363
(368)
(5)
(20)
(26)
(1)
(50)
17,925
(12,662)
5,263
(777)
(472)
(1,268)
2,746
3,634
(2,387)
1,247
(40)
(138)
(98)
971
1,206
(922)
284
(82)
(33)
1
170
85 AnnuAl RepoRt And Accounts 2010
management report
(U.S.$ million)
Other operations income statement data
Revenues(1)
Cost of revenues(1)
Gross margin
Selling and distribution expenses
General and administration expenses
Other operating expenses
Profit from operations
CONSOlIDATED FINANCIAl POSITION DATA (at period end)
Total assets
Equity attributable to equity holders of the parent entity
Non controlling interests
Long-term debt, net of current portion
CONSOlIDATED CASH FlOWS DATA
Net cash flows (used in)/from operating activities
Net cash flows (used in)/from investing activities
Net cash flows (used in)/from financing activities
OTHER MEASuRES
Consolidated Adjusted EBITDA(2)
Steel segment Adjusted EBITDA(2)
Vanadium segment Adjusted EBITDA(2)
Mining segment Adjusted EBITDA(2)
Other operations Adjusted EBITDA(2)
Net Debt(3)
Year ended 31 December
2010
2009
2008
815
(547)
268
(91)
(27)
(27)
123
765
(528)
237
(80)
(26)
(1)
130
1,022
(749)
273
(119)
(44)
(27)
83
17,601
16,952
19,451
5,751
247
7,097
1,662
(757)
(886)
2,350
1,439
53
935
190
7,127
5,167
275
5,931
1,698
179
(2,149)
1,237
927
(12)
279
167
7,230
4,672
245
6,064
4,563
(3,736)
(127)
6,215
4,671
200
1,395
150
9,031
Notes:
(1) Segment revenues and cost of revenues include inter segment sales.
(2) Adjusted EBITDA represents profit from operations plus depreciation, depletion and amortization, impairment of assets, loss (gain) on disposal of property, plant and
equipment and foreign exchange loss (gain). 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 amortization on Evraz’s operating performance. The assets of Evraz’s businesses
which are being depreciated and/or amortized will have to be replaced in the future and such depreciation and amortization expense may approximate the
cost to replace these assets in the future. Adjusted EBITDA, due to the exclusion of this expense, 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.
Reconciliation of Adjusted EBITDA to profit (loss) from operations is as follows:
(U.S.$ million)
Consolidated Adjusted EBITDA reconciliation
Profit from operations
depreciation, amortization and depletion
impairment of assets
(gain)/loss from disposal of property, plant and equipment
forex gain/losses
Consolidated adjusted EBITDA
Steel segment Adjusted EBITDA reconciliation
Profit from operations
depreciation, amortization and depletion
impairment of assets
(gain)/loss from disposal of PPE
forex gain/losses
Steel segment adjusted EBITDA
Mining segment Adjusted EBITDA reconciliation
Profit from operations
depreciation, amortization and depletion
impairment of assets
(gain)/loss from disposal of PPE
forex gain/losses
Year ended 31 December
2010
2009
2008
1,330
925
147
52
(104)
2,350
832
558
81
33
(65)
1,439
613
282
20
18
2
195
979
180
39
(156)
1,237
148
624
184
25
(54)
927
(9)
281
(4)
12
(1)
3,632
1,195
880
37
471
6,215
2,746
751
821
11
342
4,671
971
363
56
15
(10)
86 AnnuAl RepoRt And Accounts 2010
management report
(U.S.$ million)
Mining segment adjusted EBITDA
Vanadium segment Adjusted EBITDA reconciliation
Profit from operations
depreciation, amortization and depletion
impairment of assets
(gain)/loss from disposal of PPE
forex gain/losses
Vanadium segment adjusted EBITDA
Other operations Adjusted EBITDA reconciliation
Profit from operations
depreciation, amortization and depletion
impairment of assets
(gain)/loss from disposal of PPE
forex gain/losses
Other operations adjusted EBITDA
Year ended 31 December
2010
935
2009
279
2008
1,395
(10)
47
16
0
0
53
123
37
30
1
(1)
190
(50)
38
0
0
0
(12)
130
35
0
2
0
170
31
0
0
(1)
200
83
49
3
11
4
167
150
(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 equivalents and short-
term bank deposits (excluding restricted deposits). Net Debt is not a balance sheet measure under IFRS and it should not be considered 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 an accurate indicator 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 reduced 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 leverage 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:
(U.S.$ million)
Net debt calculation
Add:
Long-term loans, net of current portion
Short-term loans and current portion of long-term loans
Less:
Short-term bank deposits
Cash and cash equivalents
Net Debt
Year ended 31 December
2010
2009
2008
7,097
714
(1)
(683)
7,127
5,931
1,992
(22)
(671)
7,230
6,064
3,922
(25)
(930)
9,031
87 AnnuAl RepoRt And Accounts 2010
management report
mANAGemeNt’S diSCuSSioN
ANd ANAlySiS of fiNANCiAl
CoNditioN ANd reSultS
of oPerAtioNS
The following discussion and analysis of Evraz’s financial condition and results of operations is based on the Consolidated Financial Statements
prepared in accordance with IFRS as adopted by the European Union. This discussion should be read in conjunction with the information in
‘Selected Consolidated Financial Information’, ‘Presentation of Financial and Other Information,’ the Consolidated Financial Statements and the
notes thereto appearing elsewhere in this Prospectus.
This discussion and analysis contains forward looking statements that involve risks and uncertainties. Evraz’s actual results could differ
materially from those expressed or implied in these forward looking statements as a result of various factors, including those discussed below
and elsewhere in this Prospectus, particularly under the headings ‘Risk Factors’ and ‘Forward Looking Statements’.
overview
Evraz is a vertically integrated steel, mining and vanadium business with operations in Russia, Ukraine, the United States, Canada, South Africa,
the Czech Republic and Italy. Evraz produced approximately 15.3 million tons and 16.3 million tons of crude steel in 2009 and 2010, respectively.
Management believes that in 2010 Evraz was the largest steelmaker by crude steel volume in Russia, and, according to Metal Expert, Evraz was
the largest manufacturer of ‘long products’ (include beams, rebars and rails) for the construction and railway industries in Russian and the CIS
in 2010, by volume. According to Steel Business Briefing, Evraz was the 20th largest steel producer in the world by crude steel volume in 2010.
Evraz also produces significant quantities of iron ore and coking coal. Most of Evraz’s iron ore and coking coal products are used in its steel
making operations. Evraz produced 13.5 thousand tons of ferrovanadium and other finished vanadium products in 2010 as compared to 8.0
thousand tons in 2009.
Evraz’s principal assets as of the date of this Prospectus are:
• Nine integrated steel production facilities: NTMK, located in Russia’s Nizhny Tagil, in the Sverdlovsk region, is one of the largest integrated
steel production mills in Russia as of 31 December 2010 and a producer of vanadium slag; ZapSib, located near Novokuznetsk, in the
Kemerovo region, is the largest steel mill in Siberia and the eastern-most integrated steel mill in Russia as of 31 December 2010; NKMK,
located in Novokuznetsk in the Kemerovo region, is one of the five largest rail producers in the world as of 31 December 2010; Evraz Vitkovice
Steel, located in the Czech Republic, is a leading manufacturer of rolled steel products; Evraz Palini is a steel rolling mill located in Italy;
EINA located in the United States, is one of the most diversified steel manufacturing companies in North America; EICA, located in Canada,
produces steel pipes and plates; Evraz DMZP, located in Dnepropetrovsk, Ukraine, is an integrated steel mill specializing in the manufacture
and sale of billets and construction rolled products; and Evraz Highveld, located in the South Africa, is a producer of steel and vanadium slag.
• Four iron ore mining and processing facilities: KGOK, located in the Sverdlovsk region near NTMK; VGOK, located in the Sverdlovsk region near
NTMK; Evrazruda, which operates mines in Kemerovo region near ZapSib and NKMK, the Republic of Khakassia and south Krasnoyarsk Krai;
and Sukha Balka in Ukraine.
• One coal mining company: Yuzhkuzbassugol, located in the Kemerevo region, near ZapSib and NKMK.
• Three vanadium production facilities: Stratcor is headquartered in the United States and has operations in the United States and the South
Africa; Nikom, a ferrovanadium producer located in the Czech Republic; and Vanady-Tula located in Russia.
• Various trading and logistical assets, including Nakhodka Trade Sea Port, one of the largest ports in the Russian Far East as of 31 December
2010 and through which Evraz ships most of its exports and Evraztrans, which owns and operates rail cars in Russia for Evraz. In Russia,
Inprom Group (with 35 steel service centers) and EvrazMetall (with 27 metal service centers) finishes and distributes steel products produced
mostly by Evraz.
Evraz also effectively owns a 40% equity interest in a coking coal producer Raspadskaya through Evraz’s joint venture Corber Enterprises Limited.
For additional information on Raspadskaya, please see ‘Business—Mining Business—Raspadskaya’).
Evraz listed global depositary receipts (‘GDRs’), on the Official List of the London Stock Exchange on 2 June 2005. Each GDR represents an
interest of one-third of one share. Since then the total number of GDRs listed on the LSE increased to 29% of the Issuer’s issued share capital as
of 31 March 2011.
Business Structure
Segments
Evraz’s business is divided into four principal segments for IFRS purposes:
• the steel production segment, comprising the production and sale of semi-finished and finished steel products, coke and coking products, and
refractory products;
• the mining segment, comprising the production, enrichment and sale of iron ore and coal; and
• the vanadium segment, comprising the production and sale of vanadium products;
• other operations include logistics (including Nakhodka Trade Sea Port) and supporting activities.
88 AnnuAl RepoRt And Accounts 2010
management report
inter-segment Sales
Evraz is a vertically integrated steel and mining group. In 2010, Evraz’s mining segment supplied approximately 71% and 51% of Evraz’s steel
segment’s total iron ore and coking coal requirements, respectively. The coking coal supply figures include purchases from Raspadskaya. In turn,
Evraz’s steel segment supplies grinding balls, mining uprights and coke to Evraz’s mining segment for use in its operations. The objective of
Evraz’s vertical integration is not, however, to only use raw materials produced by its subsidiaries. On the contrary, Evraz takes a commercial
approach to sourcing its raw materials, and will buy and sell iron ore and coal to third parties depending on a number of factors, including pricing,
grade and quality of coal and geographic proximity of raw materials to Evraz’s facilities.
Evraz’s inter segment product sales are at arm’s length, and are based on prices equivalent to those that could be commanded from unrelated
third parties. Inter-segment transactions are included in the presentation of respective segments.
Acquisitions and disposals
Evraz has sought to develop an integrated steel and mining business through the purchase of assets that it believes offer significant value
creation potential, particularly in the light of Evraz’s implementation of improved working practices and operational methods. Evraz has also, from
time to time, disposed of certain assets. See ‘Business—Acquisitions’ and ‘Business—Greenfield Projects’ and ‘Business—Disposals’. The only
material acquisitions during the years under review were the acquisition of the entities now referred to as Evraz Claymont Steel, IPSCO Canada,
Inprom, Vanady-Tula and Evraz Metall.
Significant factors Affecting results of operations
General economic Condition
Beginning in 2008 and continuing into 2009, the global economy experienced a significant downturn, the effects of which continued to some
degree into 2010. According to the IMF, global GDP decreased by 0.8% in 2009 compared to 2008. According to Rosstat, Russian GDP fell by
7.9% from 2008 to 2009, total investments decreased by 16.2% and industrial production fell by 9.3%. This pronounced contraction in industrial
activity had a significant impact on both pricing and demand for steel products and iron ore and coal. This in turn had a significant negative
impact on Evraz’s financial results for the fourth quarter of 2008 and the year ended 31 December 2009. Evraz was particularly affected by the
contraction in the Russian construction sector and the slowdown in infrastructure spending in the markets where Evraz’s production facilities are
located such as North America, Europe and South Africa.
The second half of 2009 and 2010 was characterized by a number of positive developments in the global economy, as key emerging and
developing economies demonstrated a strong demand for raw materials, supported by government stimulus initiatives. This was coupled with
general restocking in the steel market and growth of consumption in the U.S. market.
Volume and pricing
Evraz’s revenue is dependent to a significant extent on pricing and volume of its products. Factors that can impact volume and pricing include (i)
levels of global demand for steel products in the construction and other industries, (ii) competition, including from other regional and global steel
producers and mining companies, (iii) Evraz’s capacity to handle increased demand for products given facility production capabilities, and (iv)
volume of excess product in the market. Evraz’s Russian steelmaking operations have been running at full capacity since 1 July 2009 in response
to improved demand for steel products from South East Asia, the Middle East and North Africa. This, together with higher prices, has helped
to raise Evraz’s EBITDA margin from 10% in the first half of 2009 to 15% in the second half of 2009.
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 financial 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 reduced activity in the winter months and export markets generally tend to slow down during the first and second quarters
of the year.
foreign exchange
The volatility of local currencies against the U.S. dollar contributed to a general increase in costs in 2010 as compared to 2009, and a general
decrease in cost in 2009 as compared to 2008. The table below shows the movements in the average exchange rates of currencies relevant to
Evraz’s subsidiaries against the U.S. dollar between 2010 and 2009, and between 2009 and 2008:
Currency
Rouble
Czech Koruna
Euro
South African Rand
Ukrainian Hryvnia
Canadian Dollar
% Change
2010 vs. 2009
2009 vs. 2008
Operations
4%
0%
(5)%
15%
(2)%
11%
(22)%
(10)%
(5)%
(2)%
(32)%
(2)%
Russian operations
Evraz Vitkovice Steel
Evraz Palini e Bertoli
Evraz Highveld Steel and Vanadium
Ukrainian operations
Evraz Inc. N.A. Canada
89 AnnuAl RepoRt And Accounts 2010
management report
Cost factors
Evraz’s business requires large amounts of raw materials, fuel and energy. Evraz purchases these inputs from third party providers and
subsidiaries. As a result, Evraz’s operations and results of operations can be impacted by volatility in the costs of, and availability of, these raw
material, fuel and energy inputs.
In addition, as of 31 December 2010, Evraz employed a total of 110,231 employees. As a result of the large number of employees, staff costs
have a significant impact on Evraz’s results of operations.
Acquisitions and disposals
Evraz’s operating results were affected by the Issuer’s acquisitions and disposals of assets. The operating results of businesses acquired
are included in the Consolidated Financial Statements for the periods post the respective dates of acquisition. See, notes 4 and 12 of the
Consolidated Financial Statements.
Critical Accounting Policies
The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect
the application of policies and reported amounts of equity, assets and liabilities, revenue and expenses. The estimates and underlying assumptions
are based on historical experience, available information, future expectations and other factors and assumptions that Evraz considers to be
reasonable under the circumstances. Actual results may differ from these estimates. See note 2 to the Consolidated Financial Statements.
results of operations
for the years ended 31 december 2010, 2009 and 2008
The following table sets out Evraz’s consolidated income statement data for the years ended 31 December 2010, 2009 and 2008.
(U.S.$ million)
Income statement data
Revenue(1)
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Other operating income and expenses, net
Profit from operations
Non-operating income and expenses, net
Profit/(loss) before tax
Income tax expense
NET PROFIT/(lOSS)
Net profit attributable to equity holders
of the parent entity
Net profit attributable to minority interests
Year ended 31 December
2010
2009
2008
Amount
Percentage
of revenue
Amount
Percentage
of revenue
Amount
Percentage
of revenue
13,394
(10,319)
3,075
(807)
(732)
(206)
1,330
(635)
695
(163)
532
548
(16)
100.0%
(77.0)%
23.0%
(6.0)%
(5.5)%
(1.5)%
9.9%
(4.7)%
5.2%
(1.2)%
4.0%
4.1%
(0.1)%
9,772
(8,124)
1,648
(626)
(628)
(199)
195
(533)
(338)
46
(292)
(295)
3
100.0%
(83.1)%
16.9%
6.4%
(6.4)%
(2.0)%
2.0%
(5.5)%
(3.5)%
0.5%
(3.0)%
(3.0)%
0.0%
20,380
(13,463)
6,917
(856)
(895)
(1,534)
3,632
(581)
3,051
(1,192)
1,859
1,797
62
100.0%
(66.1)%
33.9%
(4.2)%
(4.4)%
(7.5)%
17.8%
(2.9)%
15.0%
(5.8)%
9.1%
8.8%
0.3%
Note:
(1)
Includes service revenue of U.S.$250 million, U.S.$267 million and U.S.$390 million for the years ended 31 December, 2010, 2009 and 2008 respectively. Sales
of services consist primarily of heat and electricity supply, port charges, transportation and steel coating.
In the years ended 31 December 2010, 2009 and 2008, transactions with related parties accounted for approximately 0.3%, 0.3% and 0.4%,
respectively, of Evraz’s revenue. In addition, Evraz made purchases from associates (coal from Raspadskaya and iron ore from Yuzhny GOK). See
‘Related Party Transactions’ and note 16 to the Consolidated Financial Statements.
revenue
Evraz’s consolidated revenue in 2010 totaled U.S.$13,394 million, a 37.1% increase compared to revenue of U.S.$9,772 million in 2009.
Increases in both volumes and prices contributed to this revenue growth. Volume increases accounted for U.S.$2,266 or approximately 63% of
this revenue growth, while price increases accounted for U.S.$1,356 or approximately 37% of this revenue growth.
The steel segment accounted for the majority of the increase in revenue due to higher average prices and sales volumes of steel products. Evraz’s
sales volumes of steel products to external customers increased by 8.4%, from 14.3 million tons in 2009 to 15.5 million tons in 2010.
The increase in volumes in 2010 compared to 2009 primarily reflected the growth in demand for construction products in Russia, with Evraz’s
sales on the Russian market up by 1.4 million tons. Sales volumes in Ukraine remained flat, while the increase on the Russian market was
partially offset by a decrease in export sales volumes from Evraz’s Russian and Ukrainian operations, which decreased by 1.1 million tons
90 AnnuAl RepoRt And Accounts 2010
management report
as compared to 2009. This decrease in export sales partially reflects Evraz’s strategy to direct sales away from export markets where prices for its
steel products were generally lower during the period under review, and to direct sales to domestic CIS markets, where prices for steel products
where higher than in export markets. Sales volumes of Evraz’s European and North American operations increased by 0.3 million tons and 0.6
million tons respectively, while steel sales volumes of Evraz’s South African operations remained flat during the period under review.
Evraz’s consolidated revenue in 2009 totaled U.S.$9,772 million, a 52.1% decrease compared to revenue of U.S.$20,380 million in 2008. The
decrease in steel segment revenue was largely due to a decrease in steel segment sales, which was itself due to the lower average prices and
sales volumes of steel products. Evraz’s sales volumes of steel products to third parties decreased by 15.9%, from 17.0 million tons in 2008 to
14.3 million tons in 2009.
The decrease in steel sales volumes in 2009 primarily reflected a decrease in demand for construction products in Russia. Evraz’s sales on
the Russian market decreased by 2.4 million tons from 2008 to 2009. 1.4 million tons of this decrease in consolidated steel volumes was
attributable to construction products. Sales volumes in Ukraine decreased by 0.1 million tons compared to 2008. These decreases in domestic
markets were partially offset by the growth of export sales volumes from Evraz’s Russian and Ukrainian operations, which showed a total
increase of 0.8 million tons from 2008 to 2009. Sales volumes of Evraz’s European and South African operations decreased by 0.3 million tons
and 0.1 million tons, respectively, compared to 2008. Evraz’s Canadian operations, which were acquired in June 2008, achieved approximately
the same steel sales volumes in 2009 as in 2008 post acquisition, while sales at Evraz’s U.S. operations decreased by 0.6 million tons, compared
to 2008. These decreases were a direct result of the general slowdown experienced by steel markets in 2009 and related cuts in production
volumes.
The following table shows the average price trends of Evraz’s principal products in 2010, 2009 and 2008 (encompassing semi-annual
breakdowns of both the Russian and non-CIS export markets):
(U.S.$ per ton, except percentages)
2nd half
1st half
2nd half
1st half
2nd half
1st half
Average Russian and CIS prices for Evraz’s Russian and Ukrainian products(1)
Year ended 31 December
2010
2009
2008
Income statement data
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
Construction products
H-beams
Rebars
Wire rods
Semi-finished products
Billets
Slabs
Pig Iron
Flat-rolled products
Plates
Construction products
618
890
671
636
573
664
556
829
626
594
524
608
442
750
545
503
432
533
371
700
502
450
362
440
637
1,241
599
1,175
554
1,164
519
1,099
869
1,328
1,021
1,000
963
971
802
1,570
630
493
399
579
778
648
611
572
558
546
579
391
725
601
446
392
569
676
574
511
394
271
451
598
438
445
1,050
301
245
409
559
384
972
739
1,109
1,210
951
Average prices for Evraz’s non—CIS operations products(2)
531
519
521
487
488
–
633
490
481
475
414
399
334
683
423
432
393
344
382
275
680
516
851
367
486
893
341
769
Average prices for Evraz’s non—CIS operations products(3)
810
1,155
903
831
804
885
775
1,635
888
721
522
733
854
789
735
606
686
701
660
492
725
South African operations – H-beams
788
797
Flat-rolled products
European operations – plates
North American operations – commodity plates
North American operations – speciality plates
South African operations – commodity plates
Tubular products
800
829
1,185
893
684
801
1,074
788
723
576
657
915
799
673
1,113
961
680
638
1,059
797
1,315
1,426
1,848
1,154
1,121
1,010
1,782
863
North American operations – large diameter pipes
1,361
1,264
1,248
1,589
1,799
1,450
91 AnnuAl RepoRt And Accounts 2010
management report
Notes:
(1) Prices for sales denominated in Roubles and Ukrainian Hryvnia are converted into U.S. dollars at the average monthly exchange rate to the U.S. dollar as stated by
the CBR and National Bank of Ukraine. Average U.S. dollar prices are calculated as a weighted average of sales prices in the relevant half-year period.
(2) Average price data relates to sales by East Metals S.A.
(3) Prices for sales denominated in Euros, Czech Korunas, South African Rands and Canadian dollars are converted into U.S. dollars at the average exchange rate to the
U.S. dollar for the period under consideration as stated by the relevant Central bank.
The following table presents Evraz’s consolidated revenue by segment for 2010, 2009 and 2008:
(U.S.$ million, except percentages)
REVENuE BY SEGMENT
Steel segment
To third parties
To mining segment
To vanadium segment
To other operations
TOTAl STEEl SEGMENT
Mining segment
To third parties
To steel segment
To other operations
TOTAl MINING SEGMENT
Vanadium segment
To third parties
To steel segment
TOTAl VANADIuM SEGMENT
Other operations
To third parties
To steel segment
To mining segment
TOTAl OTHER OPERATIONS
Eliminations
CONSOlIDATED REVENuE
% from steel segment
% from mining segment
% from vanadium segment
% from other operations
Year ended 31 December
2010
2009
2008
11,976
8,855
17,623
123
1
23
83
–
40
178
28
96
12,123
8,978
17,925
736
1,747
24
2,507
536
30
566
146
499
170
815
(2,617)
13,394
89.4%
5.5%
4.0%
1.1%
435
1,017
4
1,456
354
9
363
128
508
129
765
(1,790)
9,772
90.6%
4.5%
3.6%
1.3%
1,290
2,340
4
3,634
1,201
5
1,206
266
588
168
1,022
(3,407)
20,380
86.5%
6.3%
5.9%
1.3%
The following table presents the geographic breakdown of Evraz’s consolidated revenue in 2010, 2009 and 2008 (based on location of customer)
in absolute terms and as a percentage of total revenue.
(U.S.$ million, except percentages)
Russia
Americas
Asia
Europe
CIS
Africa
Rest of the World
TOTAl
2010
4,692
3,163
2,671
1,419
962
484
3
13,394
% of total
35.0%
23.6%
20.0%
10.6%
7.2%
3.6%
0.02%
100%
Year ended 31 December
2009
2,950
2,428
2,423
1,028
543
381
19
% of total
30.2%
24.8%
24.8%
10.5%
5.6%
3.9%
0.2%
2008
7,575
4,538
3,217
2,862
1,429
720
39
9,772
100%
20,380
% of total
37.2%
22.3%
15.8%
14.0%
7.0%
3.5%
0.2%
100%
Revenue from sales in Russia increased both in absolute terms and as a proportion of total revenue in 2010 as compared to 2009. The principal
driver of the higher proportion of revenue from within Russia was the revival of demand for construction products on the Russian market following
the reversal in 2009.
Revenue from sales in Russia decreased both in absolute terms and as a proportion of total revenue in 2009 as compared to 2008. The principal
driver of the higher proportion of revenue outside Russia was the re-orientation of sales of the Russian operations to export markets in view of
weak demand on the domestic market.
Revenue from sales in the Americas both in absolute terms and decreased slightly as a proportion of total revenue in 2010 as compared to 2009.
The principal driver of the lower proportion of revenue from the Americas was the fact that average steel prices in North America increased by only
2%, while Evraz’s average steel prices across all regions increased by 27%.
Revenue from sales in the Americas decreased in absolute terms, but increased as a proportion of total revenue in 2009 as compared to 2008.
Sales in the Americas accounted for a larger portion of total revenue during the period under review because, even though prices in the Americas
decreased by 30% in 2009, they did not decrease as much as prices in other regions, in particular as compared to the Russian market for tubular
products.
92 AnnuAl RepoRt And Accounts 2010
management report
Revenue from sales in Asia increased in absolute terms, but decreased as a proportion of total revenue in 2010 as compared to 2009. Revenue
increased in absolute terms because steel prices increased in 2010 as compared to 2009. The principal driver of the lower proportion of revenue
from Asia was decreased exports of semi-finished products from Russia.
Revenue from sales in Asia decreased in absolute terms, but increased as a proportion of total revenue in 2009 as compared to 2008. Revenue
decreased in absolute terms because steel prices increased in 2009 as compared to 2008. The principal driver of the higher proportion of
revenue inside Asia was increased exports of semi-finished products from Russia.
Revenue from sales in Europe remained largely constant as a proportion of total revenue in 2010 as compared to 2009.
Revenue from sales in Europe decreased both in absolute terms and as a proportion of total revenue in 2009 as compared to 2008. The principal
drivers of the lower proportion of revenue inside Europe were decreases in steel volumes of 64% and steel prices of 42%. In 2009, there were
decreases in both prices and volumes in the flat products market as well.
Revenue from sales in the CIS increased both in absolute terms as a proportion of total revenue in 2010 as compared to 2009. The principal
drivers of the higher proportion of revenue from the CIS in 2010 were a 36% increase in steel volumes as well as a 29% increase in average steel
prices. Furthermore, the higher proportion of revenue from inside the CIS was principally driven by sales of construction products.
Revenue from sales in the CIS decreased both in absolute terms as a proportion of total revenue in 2009 as compared to 2008. The principal
drivers of the lower proportion of revenue from the CIS in 2009 were a 46% decrease in steel prices of and decreases in the sales of mining
products.
STEEl SEGMENT
Steel segment revenue increased by 35.0% to U.S.$12,123 million in 2010 as compared to U.S.$8,978 million in 2009. Steel segment revenue
was affected by increasing prices for steel products and higher sales volumes during 2010, as described above.
Steel segment revenue decreased by 49.9% to U.S.$8,978 million in 2009 compared to U.S.$17,925 million in 2008. Steel segment revenue was
affected by decreasing prices for steel products and lower sales volumes during 2009, as described above.
The following table presents Evraz’s steel segment sales by major product groups (including intersegment sales) in 2010, 2009 and 2008.
(U.S.$ million, except percentages)
Construction products(1)
Railway products(3)
Flat-rolled products(2)
Tubular products(4)
Semi-finished products(5)
Other steel products(6)
Other products(7)
TOTAl
Year ended 31 December
2010
2009
2008
Steel
segment
sales
Percentage
of total
Steel
segment
sales
Percentage
of total
Steel
segment
sales
Percentage
of total
3,337
1,472
2,007
1,309
2,340
411
1,247
12,123
27.5%
12.1%
16.6%
10.8%
19.3%
3.4%
10.3%
100%
2,189
1,117
1,450
1,008
2,018
255
941
8,978
24.4%
12.4%
16.2%
11.2%
22.5%
2.8%
10.5%
100%
4,588
2,220
3,219
1,861
3,511
560
1,966
17,925
25.6%
12.4%
18.0%
10.4%
19.6%
3.1%
11.0%
100%
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Includes rebars, wire rods, wire, H-beams, channels and angles.
Includes plates and coils.
Includes rails and wheels.
Includes large diameter, ERW and seamless pipes and casing and tubing
Includes billets, slabs, pig iron, pipe blanks and blooms.
Includes rounds, grinding balls, mine uprights and strips.
Includes coke and coking products, refractory products, ferroalloys and resale of coking coal.
The proportion of revenue attributable to sales of construction products increased in 2010 as compared to 2009 as the result of increased sales
volumes and prices of construction products in Russia. The proportion of revenue attributable to sales of construction products decreased in
2009 as compared to 2008 as the result of a decrease in sales volumes of construction products in Russia.
The proportion of revenue attributable to sales of railway products decreased slightly in 2010 as compared to 2009 despite an increase in
volumes. Management believes that this result is due to increasing price stability in railway products, in particular prices of rails in Russia, which
appear to be less affected by fluctuations in the price of steel than in previous periods. The proportion of revenue attributable to sales of railway
products was unchanged in 2009 as compared to 2008 despite a decrease in the proportion of volumes attributable to railway products. This
was due to the fact that prices of railway products decreased less than prices of other steel products. In 2010, Evraz signed an agreement with
Russian Railways that linked the prices for Evraz’s rails supplied to Russian Railways to the market prices of scrap metal. This agreement had the
effect of protecting Evraz’s margin.
The proportion of revenue attributable to sales of flat-rolled products (primarily plates) increased in 2010 as compared to 2009 due to the growth
in sales volumes of Evraz’s North American and European operations. The proportion of revenue attributable to sales of flat-rolled products
(primarily plates) decreased in 2009 as compared to 2008 due to an above average decrease in sales volumes compared to other steel products,
particularly in Europe.
The proportion of revenue attributable to sales of tubular products decreased in 2010 as compared to 2009 despite an increase in volumes.
This decrease was largely due to lower average prices for large diameter pipes, ERW pipes and casing and tubing. The proportion of revenue
93 AnnuAl RepoRt And Accounts 2010
ManageMent report
attributable to sales of tubular products increased in 2009 as compared to 2008 due to the fact that prices for tubular products in North America
were relatively stable at the end of 2008 and the beginning of 2009, therefore limiting the average price decrease in 2009 as compared to the
price decrease of other steel products during the same period.
The proportion of revenue attributable to sales of semi-finished products decreased in 2010 as compared to 2009 due to a decrease in sales
volumes of semi-finished products sold by Evraz’s Russian and Ukrainian operations to export markets as well as to higher volumes of slab
re-rolled at Evraz’s European and North American operations (an increase of approximately 0.7 million tons in 2010 as compared to 2009). The
proportion of revenue attributable to sales of semi-finished products increased in 2009 as compared to 2008 due to higher sales volumes of
semi-finished products sold by Evraz’s Russian and Ukrainian operations to export markets.
Revenue from sales of other steel products (mainly rounds, grinding balls and mine uprights sold in Russia) increased in 2010 as compared
to 2009 as a proportion of steel segment revenue due to an increase in sales volumes and prices. Revenue from sales of other steel products
decreased slightly in 2009 as compared to 2008 as a proportion of steel segment revenue due to a decrease in sales volumes.
Revenue attributable to non-steel sales decreased slightly as a proportion of total sales in 2010 as compared to 2009 due to the relative stability
of volumes compared to steel products. Revenue attributable to non-steel sales increased in 2009 as compared to 2008 as a proportion of steel
segment sales due to the relative stability of prices and volumes in comparison with steel products.
Steel segment sales to the mining segment totaled U.S.$123 million in 2010 compared to U.S.$83 million in 2009. The increase is attributable to
higher sales prices. The fall in steel segment sales to Evraz’s mining segment from U.S.$178 million in 2008 to U.S.$83 million in 2009 reflected
lower sales prices and reduced volumes.
Revenue from sales in Russia amounted to 35% of Evraz’s steel segment revenue in 2010, compared to approximately 30% in 2009. The increased
share of revenue from sales in Russia is primarily attributable to the reallocation of steel volumes from Asian export markets to the Russian market in
2010. Revenue from sales in Russia amounted to approximately 30% of steel segment revenue in 2009, compared to 39% in 2008. The decreased
share of revenue from sales in Russia is primarily due to the reallocation of steel volumes from the Russian market to Asian export markets in 2009.
Mining SegMent
Evraz’s mining segment revenue increased by 72.2% to U.S.$2,507 million in 2010 as compared with U.S.$1,456 million in 2009. This reflected
significant growth in the prices of iron ore and coking coal in 2010 as compared to 2009.
Total sales volumes of Evraz’s mining segment in 2010 as compared to 2009 remained unchanged in respect of iron ore products and decreased
by 18.7% in respect of coal products. In particular, ‘nominal’ sales volumes of coking coal decreased by 9.2% due to the processing of a higher
proportion of raw coking coal into coking coal concentrate by Evraz’s mining segment, which was subsequently sold at higher prices. During the
period under review, Evraz had a raw coal to concentrate yield of approximately 0.6 tn/tn. The decrease, in respect of total coal product sold,
during the period under review reflects the fact that YuKU sold more concentrate in 2010 and less raw coal, which impacted the total tons sold,
even though, in terms of concentrate, tons sold for the period remained constant. Sales volumes of steam coal decreased by 37.9% due to lower
volumes of raw steam coal mined as some steal coal producers were not operating in 2010.
Mining segment revenue fell by 59.9% to U.S.$1,456 million in 2009 as compared to U.S.$3,634 million in 2008. This primarily reflected the
lower average prices of iron ore and coal in 2009 as compared to 2008 as well as a decrease in production of iron ore.
Sales volumes of iron ore products decreased by 22.1% in 2009 as compared to 2008. Excluding the effect of the resale of iron ore products from
Yuzhny GOK (a related party) in 2008, the decline in sales volumes of iron ore in 2009 was only 8.8% as compared to the previous year as some
steam coal producers were not operating during the period. Sales volumes of steam coal products decreased by 8.2% in 2009 as compared to
2008, while sales volumes of coking coal increased by 3.7%.
The following table presents Evraz’s mining segment sales in 2010, 2009 and 2008:
(U.S.$ million, except percentages)
iron ore products
Iron ore concentrate
Sinter
Pellets
Other
Coal products
Raw coking coal
Coking coal concentrate
Raw steam coal
Steam coal concentrate
Other revenue
tOtAL
Year ended 31 December
2010
2009
2008
Mining
segment
sales
1,525
516
369
521
119
901
161
622
107
11
80
2,506
Percentage
of total
Mining
segment
sales
Percentage
of total
60.8%
20.6%
14.7%
20.8%
4.8%
35.9%
6.4%
24.8%
4.3%
0.4%
3.2%
100%
824
311
202
238
73
562
137
268
124
33
70
1,456
56.6%
21.3%
13.9%
16.4%
5.0%
38.6%
9.4%
18.4%
8.5%
2.3%
4.8%
100%
Mining
segment
sales
2,213
625
885
566
137
1,251
259
719
265
8
170
3,634
Percentage
of total
60.9%
17.2%
24.3%
15.6%
3.8%
34.4%
7.1%
19.8%
7.3%
0.2%
4.7%
100%
94 AnnuAl RepoRt And Accounts 2010
management report
The following table shows the average price trends of the mining segment’s iron ore products in 2010, 2009 and 2008 with half-yearly
breakdowns:
(U.S.$ million, except percentages)
2nd half
1st half
2nd half
1st half
2nd half
1st half
Average prices for Evraz’s mining segment products(1)
Year ended 31 December
2010
2009
2008
Iron ore products
Concentrate
Sinter
Pellets
Coal products
Raw coking coal
Coking coal concentrate
Raw steam coal
Steam coal concentrate
89
109
114
78
142
47
59
88
78
77
60
126
48
81
61
50
46
41
81
36
75
47
48
41
29
59
37
68
86
108
103
87
168
32
89
95
116
111
79
157
38
79
Note:
(1) Prices for sales denominated in Roubles and Hryvnia are converted into U.S. dollars at the average semi-annual exchange rate of the Rouble and Hryvnia to the U.S.
dollar as stated by the CBR and the National Bank of Ukraine respectively.
Evraz also holds an effective 40% equity interest in the Raspadskaya coking coal producer. Revenue attributable to Raspadskaya is therefore not
consolidated in the Consolidated Financial Statements and Evraz’s share of its net profits is accounted for as ‘Share of profits (losses) of joint
ventures and associates’ See ‘ – Non-operating income and expense’.
Mining segment sales to the steel segment amounted to U.S.$1,747 million (69.7% of mining segment sales) in 2010 compared to U.S.$1,017
million (69.8% of mining segment sales) in 2009 and U.S.$2,340 million (64.4% of mining segment sales) in 2008.
Approximately 71% of Evraz’s iron ore requirements were met by Evraz’s mining segment in 2010 as compared to 77% in 2009 and 73% in 2008.
Around 51% of Evraz’s coking coal requirements were satisfied by supplies from Raspadskaya and YuKU in 2010, as compared to 58% in 2009
and 55% in 2008.
Approximately 50% of Evraz’s external sales by Evraz’s mining segment in 2010 were to customers in Russia, as compared to 53% in 2009. The
increase in the share of third party sales outside Russia is largely attributable to the growth in export sales of mining products from YuKU and
KGOK to Asia.
Approximately 53% of external sales by Evraz’s mining segment in 2009 were to customers in Russia compared to 28% in 2008. The higher share
of third party sales outside Russia in 2008 was primarily attributable to the resale of iron ore from YuKU to export markets. There were no such
resales in 2009.
Vanadium Segment
Vanadium segment revenue increased by 55.9% to U.S.$566 million in 2010 as compared to U.S.$363 million in 2009. This reflected
significantly higher sales volumes and prices in respect of vanadium products in 2010 compared to 2009. Sales volumes increased from 18.4
thousand tons of pure vanadium content in 2009 to 20.6 thousand tons of pure vanadium content in 2010. Following the acquisition of Vanady-
Tula in November 2009, revenue from sales of vanadium slag in 2010 were reduced to less than 7% of vanadium segment revenue. Part of the
reported slag sold to external customers was purchased back in the form of oxides for further processing within the Group and subsequent sale
as finished products. This sale and repurchase is because Evraz’s own processing facilities have been fully utilized. Therefore, Evraz processes
part of the slag in China selling slag to Chinese counterparties and purchasing back oxides at market prices. The repurchase had the effect of
increasing vanadium sales volumes.
Vanadium segment revenue fell by 69.9% from U.S.$1,206 million in 2008 to U.S.$363 million in 2009. This reflected lower prices and sales
volumes in respect of vanadium products in 2009 as compared to 2008. Sales volumes of Evraz’s vanadium segment decreased from 26.4
thousand tons of pure vanadium in 2008 to 18.4 thousand tons of pure vanadium in 2009.
The following table presents Evraz’s vanadium segment sales in 2010, 2009 and 2008:
(U.S.$ million, except percentages)
Vanadium in slag
Vanadium in alloys and chemicals
Other revenue
TOTAl
Year ended 31 December
2010
2009
2008
Vanadium
segment
sales
Percentage
of total
Vanadium
segment
sales
Percentage
of total
Vanadium
segment
sales
Percentage
of total
39
516
11
566
6.9%
91.2%
1.9%
100%
60
298
5
363
16.5%
82.1%
1.4%
100%
290
913
3
1,206
24.0%
75.7%
0.3%
100%
95 AnnuAl RepoRt And Accounts 2010
management report
The following table presents the average price trends of Evraz’s vanadium products from 2009 through 2010 (encompassing half-yearly
breakdowns):
(U.S.$ per ton of pure vanadium in the products,
except percentages)
2010
2009
2008
2nd half
1st half
2nd half
1st half
2nd half
1st half
Year ended 31 December
NTMK—Vanadium in slag
Evraz Highveld—Vanadium in alloys
Stratcor—Vanadium in alloys
EMSA—Vanadium in alloys
Average prices for Evraz’s vanadium products(1),(2)
15,331
30,583
46,268
29,064
16,620
27,804
29,827
26,788
10,919
26,282
28,072
23,292
6,836
22,501
28,979
19,711
25,152
57,167
53,359
56,734
31,771
55,026
54,550
63,216
Notes:
(1) Prices for sales denominated in Roubles are converted into U.S. dollars at the average monthly exchange rate to the U.S. dollar as stated by the CBR. Average U.S.
dollar prices are calculated as a weighted average of sales prices in the relevant half-year period.
(2) Prices for sales denominated in South African Rands are converted into U.S. dollars at the average exchange rate to the U.S. dollar for the period under consideration
as stated by the South African Reserve Bank.
OTHER OPERATIONS
Evraz’s revenue in respect of its other operations segment increased by 6.5% to U.S.$815 million in 2010 as compared to U.S.$765 million
in 2009. This increase was in large part driven by increases in freight prices and Evraztrans’ activities. Evraz’s revenue in respect of its other
operations segment decreased by 25.1% to U.S.$765 million in 2009 as compared to U.S.$1,022 million in 2008. Other operations are mostly
oriented to service Evraz’s business. Therefore, the decrease was largely attributable to low activity levels, with prices for those services being
more stable than steel prices. One exception is sea freight services by Sinano as freight prices also declined significantly.
Revenue in respect of Evraz’s other operations segment was largely derived from the following operations (sales figures shown below include
sales within the same segment):
• Sales at Nakhodka Trade Sea Port, which provides various seaport services to Evraz, totaled U.S.$75 million in 2010 as compared to U.S.$82
million in 2009, and U.S.$81 million in 2008. Inter segment sales accounted for 71%, 58% and 26% of such revenue in 2010, 2009 and 2008,
respectively.
• Evraztrans acts as a railway forwarder for Evraz’s steel segment. Sales at Evraztrans amounted to U.S.$96 million in 2010 as compared to
U.S.$83 million in 2009 and U.S.$98 million in 2008. Evraztrans derives the majority of its revenue from inter segment sales, which accounted
for 85%, 92% and 77% of revenue in 2010, 2009 and 2008, respectively.
• Metallenergofinance (‘MEF’) supplies electricity to Evraz’s steel and mining segments and to third parties. MEF’s sales amounted to U.S.$371
million in 2010 as compared to U.S.$299 million in 2009 and U.S.$457 million in 2008. Inter segment sales accounted for 81%, 80% and 83%
of MEF’s revenue in 2010, 2009 and 2008, respectively.
• Sinano Ship Management (‘Sinano’) provides sea freight services to Evraz’s steel segment. Sinano’s sales totaled U.S.$116 million in 2010 as
compared to U.S.$92 million in 2009 and U.S.$144 million in 2008. Sinano derives close to 100% of its revenue from inter segment sales.
• Evro-Aziatskaya Energy Company (‘EvrazEK’) is an energy generating company which supplies natural gas, steam and electricity to Evraz’s
steel and mining segments. In 2010, EvrazEK generated revenue of U.S.$56 million as compared with U.S.$133 million in 2009 and U.S.$169
million in 2008. Inter segment sales accounted for 87%, 94% and 81% of the company’s revenue in 2010, 2009 and 2008, respectively.
• West Siberian Heat and Power Plant (‘ZapSib Power Plant’) is an energy generating branch of ZapSib which supplies electricity and heat to
ZapSib and external customers. The revenue of ZapSib Power Plant amounted to U.S.$84 million in 2010 as compared to U.S.$70 million in
2009 and U.S.$90 million in 2008. Intra group sales accounted for 78%, 82% and 35% of revenue in 2010, 2009 and 2008, respectively.
External sales in respect of Evraz’s other operations segment, primarily comprising sales of energy by MEF, EvrazEK and ZapSib Power Plant,
the provision of port services by Nakhodka Trade Sea Port and the provision of transportation services by Evraztrans, decreased from U.S.$266
million in 2008 to U.S.$128 million in 2009 and increased to U.S.$146 million in 2010. Nakhodka Trade Sea Port, Evraztrans and Zapsib Power
Plant sharply reduced services to third parties in 2009 as compared to 2008.
Cost of revenue and gross profit
Evraz’s consolidated cost of revenue amounted to U.S.$10,319 million, representing 77.0% of Evraz’s consolidated revenue, in 2010 as
compared to U.S.$8,124 million, representing 83.1% of Evraz’s consolidated revenue, in 2009 and U.S.$13,463 million, representing 66.1% of
Evraz’s consolidated revenue, in 2008. The increase in gross profit margin in 2010 as compared to 2009 was primarily due to the recovery in
steel and vanadium prices following weak demand from Evraz’s principal steel markets in 2009. The steep reduction in gross profit margin in
2009 as compared to 2008 was largely due to the fall in steel and vanadium prices and production cuts in response to the weakness of demand.
96 AnnuAl RepoRt And Accounts 2010
management report
The table below presents cost of revenue and gross profit by segment for 2010, 2009 and 2008, including percentage of segment revenue.
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Amount
Year ended 31 December
2010
2009
2008
(84.6)%
(12,662)
(70.6)%
Steel segment
Cost of revenue
Raw materials
Iron ore
Coking coal
Scrap
Other raw materials
Semi-finished products
Transportation
Staff costs
Depreciation
Energy
Other(1)
Gross profit
Mining segment
Cost of revenue
Raw materials
Transportation
Staff costs
Depreciation
Energy(2)
Other(3)
Gross profit
Vanadium segment
Cost of revenue
Raw materials
Semi-finished products
Transportation
Staff costs
Depreciation
Energy
Other(3)
Gross profit
Other operations
Cost of revenue
Gross profit
unallocated
Cost of revenue
Gross profit
Eliminations – cost of revenue
Eliminations – gross profit
Consolidated cost of revenue
Consolidated gross profit
(10,029)
(82.7)%
(5,793)
(1,867)
(1,443)
(1,522)
(961)
(421)
(529)
(794)
(415)
(823)
(1,254)
2,094
(47.8)%
(15.4)%
(11.9)%
(12.6)%
(7.9)%
(3.5)%
(4.4)%
(6.5)%
(3.4)%
(6.8)%
(10.3)%
17.3%
(7,597)
(3,577)
(1,041)
(656)
(996)
(884)
(690)
(498)
(699)
(434)
(677)
(1,022)
1,381
(39.8)%
(11.6)%
(7.3)%
(11.1)%
(9.8)%
(7.7)%
(5.5%
(7.8)%
(4.8)%
(7.5)%
(11.4)%
15.4%
(7,219)
(2,022)
(2,154)
(1,795)
(1,248)
(1,280)
(567)
(1,012)
(589)
(904)
(1,091)
5,263
(1,569)
(62.6)%
(1,277)
(87.7)%
(2,387)
(5.7)%
(5.6)%
(15.8)%
(10.7)%
(9.8)%
(15.0)%
37.4%
(88.5)%
(35.2)%
(0.5)%
(0.4)%
(11.0)%
(7.8)%
(12.4)%
(21.4)%
11.5%
(67.1)%
32.9%
(144)
(141)
(395)
(268)
(246)
(375)
938
(501)
(199)
(3)
(2)
(62)
(44)
(70)
(121)
65
(547)
268
5
5
2,322
(295)
(6.7)%
(8.0)%
(24.5)%
(18.3)%
(13.3)%
(16.8)%
12.3%
(101.4)%
(46.3)%
(0.3)%
(0.3)%
(10.7)%
(9.6)%
(10.2)%
(24.0)%
(1.4)%
(69.0)%
31.0%
(98)
(116)
(357)
(267)
(194)
(245)
179
(368)
(168)
(1)
(1)
(39)
(35)
(37)
(87)
(5)
(528)
237
4
4
1,642
(148)
(705)
(239)
(501)
(354)
(245)
(343)
1,247
(922)
(486)
–
(1)
(65)
(37)
(58)
(275)
284
(749)
273
(7)
(7)
3,264
(143)
(40.3)%
(11.3)%
(12.0)%
(10.0)%
(7.0)%
(7.1)%
(3.2)%
(5.6)%
(3.3)%
(5.0)%
(6.1)%
29.4%
(65.7)%
(19.4)%
(6.6)%
(13.8)%
(9.7)%
(6.7)%
(9.4)%
34.3%
(76.5)%
(40.3)%
0.0%
(0.1)%
(5.4)%
(3.1)%
(4.8)%
(22.8)%
23.5%
(73.3)%
26.7%
(10,319)
(77.0)%
(8,124)
(83.1)%
(13,463)
(66.1)%
3,075
23.0%
1,648
16.9%
6,917
33.9%
Notes:
(1)
(2)
(3)
Includes repairs and maintenance, auxiliary materials such as refractory products and effect of changes in work-in-progress and finished goods inventories.
Includes electricity, heat, natural gas and fuel used in production processes, such as fuel oil.
Includes auxiliary materials, repairs and maintenance and effect of changes in work-in-progress and finished goods inventories.
STEEl SEGMENT
Evraz’s steel segment cost of revenue decreased to 82.7% of steel segment revenue, or U.S.$10,029 million in 2010, from 84.6% of steel
segment revenue, or U.S.$7,597 million in 2009, as compared to 70.6% of steel segment revenue, or U.S.$12,662 million in 2008.
The principal factors affecting the change in Evraz’s steel segment cost of revenue in absolute terms in 2010 as compared to 2009 were as follows:
• Raw material costs increased by 62.0%, primarily due to an increase in prices of all key main raw materials (in particular coking coal and iron
ore) and also due to an approximately 6-7% increase in production volumes of pig iron and crude steel.
• Costs of semi-finished products decreased by 39.0% due an increase in volumes of inter segment slab re-rolling by approximately 0.7 million
tons, and due to reduced purchases of semi-finished products.
97 AnnuAl RepoRt And Accounts 2010
ManageMent report
• Transportation costs rose by 6.2%. Railway charges in relation to the transportation of Evraz’s steel products to the relevant ports, which
represent a major component of these costs, increased as a result of increased shipments of slabs from Russia for re-rolling within the steel
segment, an increase in the average railway tariff in Rouble terms and the appreciation of the Rouble against the U.S. dollar. These increases
were, in turn, partially offset by lower export sales volumes of steel products from Russia to Asia.
• Staff costs increased by 13.6%. Wages and salaries of production staff rose in accordance with the trade union agreements for all operations.
Other factors influencing this increase included increased salaries due to higher production volumes in 2010 as compared to 2009 and the
appreciation of the average rates of Rouble, South African Rand and Canadian dollar against the U.S. dollar.
• Depreciation and depletion costs decreased by 4.4%.
• Energy costs increased by 21.6% due to an increase in production volumes, higher prices in respect of energy sources and the appreciation of
the Rouble, South African Rand and Canadian Dollar against the U.S. dollar.
• Other costs increased by 22.7%. These costs consisted primarily of contractor services and materials for maintenance and repairs. The
increase was also driven by changes in work-in-progress and finished goods inventories and the appreciation of the Rouble, South African
Rand and Canadian dollar against the U.S. dollar.
The principal factors affecting the change in Evraz’s steel segment cost of revenue in monetary terms in 2009 compared to 2008 were as follows:
• Raw material costs decreased by 50.5% due to a decrease in sales volumes and the lower prices of iron ore, coking coal, scrap, ferroalloys, pig
iron and steel semi-finished products purchased by the steel operations.
• Transportation costs decreased by 12.2%. Railway tariffs in relation to the transportation of Evraz’s steel products to the relevant ports, which
represent a major component of these costs, increased as a result of the higher export sales volumes of steel products from Russia and
growth in the average railway tariff in Rouble terms. These increases were more than offset by the decrease in transport costs related to the
deliveries of raw materials to Russian mills and the depreciation of local currencies against the U.S. dollar.
• Staff costs decreased by 30.9%. Staff costs were decreased in part due to staff optimization measures as well as the depreciation of local
currencies against the U.S. dollar.
• Depreciation and depletion costs decreased by 26.3%. This decrease was largely attributable to increases in the useful life of machinery and
equipment and the depreciation of local currencies against the U.S. dollar.
• Energy costs decreased by 25.1% due to the reduction in production volumes and the depreciation of local currencies against the U.S. dollar.
• Other costs decreased by 6.3%. These costs consisted primarily of contractor services and materials for maintenance and repairs and also
included the effects of changes in work-in-progress and finished goods inventories on the cost of revenue. The decrease reflected the effect of
Evraz’s cost cutting measures and the depreciation of local currencies against the U.S. dollar.
Steel segment gross profit increased to U.S.$2,094 million in 2010 from U.S.$1,381 million in 2009, itself a decrease from U.S.$5,263 million
in 2008. Gross profit margin amounted to 17.3% of steel segment revenue in 2010 compared to 15.4% in 2009 and 29.4% in 2008. The
improvement in gross profit margin in 2010 as compared to 2009 primarily reflected increased prices and volumes of steel products, described
above. The decrease in gross profit margin in 2009 as compared to 2008 primarily reflected the decrease in prices and volumes of steel
products, described above.
Mining segMent
Evraz’s mining segment cost of revenue decreased to 62.6% of mining segment revenue, or U.S.$1,569 million, in 2010 from 87.7% of mining
segment revenue, or U.S.$1,277 million, in 2009, and 65.7% of mining segment revenue, or U.S.$2,387 million, in 2008.
The principal factors affecting the change in mining segment cost of revenue in absolute terms in 2010 compared to 2009 were:
• Raw material costs increased by 46.9%. This increase resulted from the higher prices and volumes of external iron ore purchased by the
mining segment for processing and the appreciation of the average rates of Russian Rouble against the U.S. dollar.
• Transportation costs increased by 21.6% primarily due to higher external transport services at Evrazruda itself due to outsourcing in 2010 and
the appreciation of the average rate of the Rouble against the U.S. dollar.
• Staff costs increased by 10.6%. The increase was largely attributable to increases of the wages and salaries of production staff, which rose in
accordance with trade union agreements for Russia and Ukraine and to appreciation of the average rate of the Rouble against the U.S. dollar.
• Depreciation costs remained flat.
• Energy costs increased by 26.8% due to the growth in production volumes at KGOK, increases in prices of electricity and natural gas and the
appreciation of the average rate of Rouble against the U.S. dollar.
• Other costs increased by 53.1%. These costs consisted primarily of contractor services and materials for maintenance and repairs and certain
taxes. The increase is largely attributable to increased repairs, maintenance and industrial services at Yuzhkuzbassugol and Evrazruda as well
as to the appreciation of the average rate of the Rouble against the U.S. dollar.
The principal factors that affected the change in mining segment cost of revenue between the 2009 and 2008 periods were:
• Raw material costs decreased by 86.1%. Excluding the effect of the resale of iron ore products from Yuzhny GOK in 2008, raw material costs
decreased by 36%. This decrease resulted from the lower prices and volumes of external iron ore purchased by the mining segment for
processing and the weakening of the average rates of the Rouble and Ukrainian Hryvnia against the U.S. dollar.
• Transportation costs decreased by 51.5% primarily due to lower export sales volumes of mining products and the weakening of the average
rates of the Rouble and Ukrainian Hryvnia against the U.S. dollar.
• Staff costs decreased by 28.7%. Factors that affected the decrease were staff optimization and the weakening of the average rates of the
Rouble and Ukrainian Hryvnia against the U.S. dollar.
• Depreciation costs decreased by 24.6%. This decrease was largely attributable to the depreciation of local currencies against the U.S. dollar.
• Energy costs decreased by 20.8%. The decrease is primarily attributable to the weakening of the average rates of the Rouble and Ukrainian
Hryvnia against the U.S. dollar.
• Other costs decreased by 28.6%. These costs consisted primarily of contractor services and materials for maintenance and repairs and
certain taxes. The decrease is attributable to cost reduction measures and the weakening of the average rates of the Rouble and Ukrainian
Hryvnia against the U.S. dollar.
Mining segment gross profit decreased from U.S.$1,247 million in 2008 to U.S.$179 million in 2009 and increased to U.S.$938 million in 2010,
representing a gross profit margin of 37.4% of mining segment revenue in 2010 compared to 12.3% in 2009 and 34.3% in 2008. The increase in
the gross profit margin in 2010 as compared to 2009 largely reflected substantial growth in the prices of iron ore and coking coal, as described
above. The decrease in gross profit margin in 2009 as compared to 2008 was largely attributable to decreases in the average prices of iron ore
and coal in 2009 compared to 2008, as described above.
98 AnnuAl RepoRt And Accounts 2010
ManageMent report
Vanadium segment
Vanadium segment cost of revenue decreased to 88.5% of vanadium segment revenue, or U.S.$501 million, in 2010 from 101.4% of vanadium
segment revenue, or U.S.$368 million, in 2009 and 76.5% of vanadium segment revenue, or U.S.$922 million, in 2008. The increase in Evraz’s
vanadium segment’s cost of revenue in 2010 as compared to 2009, in monetary terms ,was primarily attributable to higher sales volumes, higher
prices of raw materials and acquisition of Vanady-Tula at the end of 2009. The decrease in 2009 as compared to 2008 was primarily attributable
to lower sales volumes and the lower prices of raw materials.
Gross profit/(loss) of Evraz’s vanadium segment increased to a gross profit of U.S.$65 million in 2010 from a gross loss of U.S.5 million in 2009,
itself a decrease from a gross profit of U.S.$284 million in 2008. The aggregate result was a gross profit margin of 11.5% of vanadium segment
revenue in 2010 as compared to a loss of 1.4% in 2009 and a profit of 23.5% in 2008, due to the factors described above.
Other OperatiOns
The other operations segment’s cost of revenue decreased to 67.1% of other operations segment’s revenue, or U.S.547 million, in 2010 from
69.0% of other operations’ revenue, or U.S.$528 million, in 2009, as compared to 73.3% of other operations’ revenue, or U.S.749 million, in 2008.
The major components of cost of revenue at Nakhodka Trade Sea Port are staff and inventory costs. The major component of Evraztrans’ cost
of revenue is rental and maintenance of railway cars. The major component of MEF’s cost of revenue is the purchase of electricity from power
generating companies. The major components of EvrazEK’s cost of revenue are natural gas for resale to the steel segment and natural gas
and steam coal for power generation. The major components of ZapSib Power Plant’s cost of revenue are steam coal for power generation,
depreciation and staff costs; while the major component of Sinano’s cost of revenue is ship hire fees.
The gross profit of Evraz’s other operations segment decreased from U.S.$273 million in 2008 to U.S.237 million in 2009 and increased to
U.S.$268 million in 2010 in line with growth in revenue. Gross profit margin amounted to 32.9% of Evraz’s other operations’ revenue in 2010 as
compared to 31.0% in 2009 and 26.7% in 2008.
The decrease in gross profit in 2009 as compared to 2008 was largely attributable to a decrease in Sinano’s revenue associated with freight
services provided to third party ship owners. The corresponding decrease in the costs of these services was reflected in selling and distribution
costs discussed below, thereby largely affecting the gross profit margin and having minimal impact on Sinano’s operating profit.
Selling and distribution costs
Selling and distribution costs increased by 28.9% to U.S.$807 million in 2010, representing 6.0% of consolidated revenue, as compared to
U.S.$626 million in 2009, representing 6.4% of consolidated revenue, and U.S.$856 million in 2008, representing 4.2% of consolidated revenue.
Selling and distribution costs largely consist of transportation expenses related to Evraz’s selling activities.
The following table presents selling and distribution costs by segment in 2010, 2009 and 2008, including as a percentage of segment revenue.
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Percentage
of segments
revenue
Amount
Year ended 31 December
2010
2009
2008
steel segment
Transportation costs
Staff costs
Bad debt provision
Depreciation
Other costs(1)
mining segment
Transportation costs
Staff costs
Bad debt provision
Other costs(1)
Vanadium segment
Transportation costs
Staff costs
Bad debt provision
Depreciation
Other costs(1)
Other operations
eliminations
unallocated
total
(6.3)%
(3.7)%
(0.6)%
(0.1)%
(1.0)%
(0.9)%
(4.4)%
(2.8)%
(0.1)%
(0.7)%
(0.8)%
(4.1)%
(1.9)%
(0.5)%
0.0%
(0.4)%
(1.3)%
(11.2)%
(761)
(446)
(65)
(17)
(122)
(111)
(110)
(70)
(3)
(17)
(20)
(23)
(11)
(3)
–
(2)
(7)
(91)
178
–
(6.9)%
(3.9)%
(0.5)%
(0.3)%
(1.2)%
(1.0)%
(3.9)%
(2.4)%
(0.2)%
(0.5)%
(0.8)%
(5.5)%
(2.8)%
(0.6)%
0.0%
(0.6)%
(1.7)%
(10.6)%
(620)
(347)
(46)
(29)
(112)
(86)
(57)
(35)
(3)
(7)
(12)
(20)
(10)
(2)
–
(2)
(6)
(81)
152
–
(807)
(6.0)%
(626)
(6.4)%
(777)
(448)
(69)
(13)
(106)
(141)
(40)
(22)
(2)
(3)
(13)
(82)
(36)
(6)
–
(4)
(36)
(119)
162
–
(856)
(4.3)%
(2.5)%
(0.4)%
(0.1)%
(0.6)%
(0.8)%
(1.1)%
(0.6)%
(0.1)%
(0.1)%
(0.4)%
(6.8)%
(3.0)%
(0.5)%
0.0%
(0.3)%
(3.0)%
(11.6)%
(4.2)%
Note:
(1)
Includes auxiliary materials such as packaging, port services and customs duties.
99 AnnuAl RepoRt And Accounts 2010
management report
STEEl SEGMENT
Selling and distribution costs amounted to 6.3%, 6.9% and 4.3% of Evraz’s steel segment revenue in 2010, 2009 and 2008, respectively.
The primary factors affecting the changes in the steel segment’s selling and distribution costs in 2010 as compared to 2009 were:
• Transportation costs increased by 28.5% primarily due to the increase in trading activity, changes in shipping terms, the growth in the average
railway tariff in Rouble terms and the appreciation of the Rouble, South African Rand and Canadian dollar against the U.S. dollar.
• Staff costs increased by 41.3%. This increase is attributable to the acquisition of Carbofer in October 2009, an increase in the number of sales
staff in North America and Russia and to the appreciation of the Rouble against the U.S. dollar.
• Bad debt expense decreased by 41.4% from U.S.$29 million in 2009 to U.S.$17 million in 2010. The decrease in bad debt expense reflects a
high level of doubtful debt provisions made against receivables from Russian and Ukrainian customers in 2009.
• Depreciation costs increased by 8.9% largely reflecting the appreciation of the South African Rand and Canadian dollar against the U.S. dollar.
• Other selling costs increased by 29.1%, primarily due to additional marketing expenses, sales commissions and agent fees related to export
sales of Evraz from Russia and Ukraine.
The primary factors affecting the changes in the steel segment’s selling and distribution costs in 2009 as compared to 2008 were:
• Transportation costs decreased by 22.5% primarily due to the depreciation of local currencies against the U.S. dollar, although this decrease
was partially offset by increase in tariffs in Russia.
• Staff costs decreased by 33.3%. This decrease was largely attributable to staff optimization measures and depreciation of the average rates
of local currencies against the U.S. dollar.
• Bad debt expense increased by 123.1% from U.S.$13 million in 2008 to U.S.$29 million in 2009. The increase in bad debt expense reflects an
increase doubtful debt provisions made against receivables from Russian and Ukrainian customers.
• Depreciation costs increased by 5.7% largely reflecting the contribution of the new Canadian operations.
• Other selling costs decreased by 39.0%, primarily due to cost cutting measures and depreciation of the average rates of local currencies
against the U.S. dollar.
MINING SEGMENT
Selling and distribution costs amounted to 4.4%, 3.9% and 1.1% of the mining segment’s revenue in 2010, 2009 and 2008, respectively.
The principal factors affecting the changes in the mining segment’s selling and distribution costs in 2010 as compared to 2009 were:
• Transportation costs increased by 100.0% due to higher export sales volumes of iron ore and coal and the growth in railway and sea freight
prices.
• Bad debt expense increased from U.S.$7 million in 2009 to U.S.$17 million in 2010 due to a provision made against accounts receivable from
Kazankovskaya mine (an associate of YuKU).
• Other selling costs increased by 66.7%, primarily due to additional marketing expenses, sales commissions and agent fees related to Evraz’s
export sales from Russia and Ukraine.
The principal factors affecting the changes in the mining segment’s selling and distribution costs in 2009 as compared to 2008 were:
• Transportation costs increased by 59.1%, due largely to changes in cost allocation between Evraz’s steel and mining segments in the 2009
Consolidated Financial Statement as compared to 2008.
• Staff costs increased by approximately 50% in 2009 primarily due to changes in the classification of staff costs in the 2009 Consolidated
Financial Statement compared to the 2008 Consolidated Financial Statements.
• Bad debt expense increased from U.S.$3 million in 2008 to U.S.$7 million in 2009 due to additional unrecoverable accounts receivable.
• Other selling costs decreased by 7.7%, due largely to lower sales commissions and depreciation of the average rates of local currencies
against the U.S. dollar.
VANADIuM SEGMENT
Selling and distribution costs increased to U.S.$23 million in 2010 from U.S.$20 million in 2009 compared to U.S.$82 million of selling and
distribution costs in 2008. These movements represented 4.1%, 5.5% and 6.8% of Evraz’s vanadium segment revenue in 2010, 2009 and 2008,
respectively. The increase, in monetary terms, in 2010 as compared to 2009 was primarily due to higher trading activity while the decrease in
2009 as compared to 2008 largely related to reductions in freight services, customs duties and sales commissions.
OTHER OPERATIONS
Selling and distribution costs amounted to 11.2%, 10.6% and 11.6% of other operations’ revenue in 2010, 2009 and 2008, respectively. The
increase in selling and distribution costs in 2010 as compared to 2009 was largely attributable to the increased share of third party freight
services required in respect of the growth of Sinano’s shipping activities. The decrease in selling and distribution costs in 2009 as compared
to 2008 was largely attributable to lower external freight and port services at Sinano. The decrease in gross profit in 2009 as compared to
2008 largely related to a decrease in Sinano’s revenue associated with freight services provided to third party ship owners. The corresponding
decrease in the costs of these services was reflected in selling and distribution costs discussed below, thus largely affecting the gross profit
margin with minimal impact on Sinano’s operating profit.
General and administrative expenses
General and administrative expenses increased to U.S.$732 million in 2010 from U.S.$628 million in 2009, itself a decrease from
U.S.$895 million in 2008. These movements represented 5.5%, 6.4% and 4.4% of consolidated revenue in 2010, 2009 and 2008 respectively.
100 AnnuAl RepoRt And Accounts 2010
management report
The following table presents general and administrative expenses by segment for 2010, 2009 and 2008, including as a percentage of segment
revenue.
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Amount
Year ended 31 December
2010
2009
2008
Steel segment
Staff costs
Taxes, other than on income
Other(1)
Mining segment
Staff costs
Taxes, other than on income
Other(2)
Vanadium segment
Staff costs
Taxes, other than on income
Other(1)
Other operations
unallocated(3)
Eliminations
TOTAl
(3.3)%
(1.3)%
(0.7)%
(1.3)%
4.7%
(2.1)%
(1.1)%
(1.5)%
(6.4)%
(3.4)%
(0.4)%
(2.6)%
(3.3)%
(403)
(163)
(82)
(158)
(117)
(53)
(27)
(37)
(36)
(19)
(2)
(15)
(27)
(155)
6
(3.9)%
(1.4)%
(0.9)%
(1.6)%
(6.6)%
(3.0)%
(1.5)%
(2.1)%
(7.2)%
(3.6)%
(0.3)%
(3.3)%
(3.1)%
(350)
(126)
(80)
(144)
(96)
(44)
(22)
(30)
(26)
(13)
(1)
(12)
(24)
(138)
6
(2.6)%
(1.1)%
(0.5)%
(1.1)%
(3.8)%
(1.8)%
(0.5)%
(1.5)%
(2.7)%
(1.5)%
(0.2)%
(1.1)%
(4.3)%
(472)
(193)
(90)
(189)
(138)
(66)
(17)
(55)
(33)
(18)
(2)
(13)
(44)
(211)
3
(732)
(5.5)%
(628)
(6.4)%
(895)
(4.4)%
Notes:
(1) Includes depreciation, insurance and bank and other service costs.
(2) Includes rent, insurance, bank and other service costs.
(3) Relates principally to staff costs.
STEEl SEGMENT
General and administrative expenses increased to U.S.$403 million in 2010 from U.S.$350 million in 2009, itself a decrease from U.S.$472
million in 2008. These movements represented 3.3%, 3.9% and 2.6% of the steel segment’s revenue in 2010, 2009 and 2008, respectively.
The principal factors affecting the changes in the steel segment’s general and administrative expenses in 2010 as compared to 2009 were:
• Staff costs increased by 29.4% due to an increase in salaries in accordance with trade union agreements at the Russian mills, additional hiring of
staff, and increase in bonus accruals at the North American operations, lump sum payments to former executives at the South African operations and
the appreciation of the average exchange rates of the Rouble, the South African Rand and Canadian Dollar against the U.S. dollar.
• Taxes, other than on income tax, and including property, land and local taxes, increased by 2.5%. The increase was primarily due to higher tax
base for land tax at the Russian mills and the appreciation of the average exchange rates of the Rouble, South African Rand and Canadian
Dollar against the U.S. dollar.
• Other general and administrative expenses increased by 9.7%. This increase principally reflected an increase in professional services in North
America and Russia related to increased business activities in 2010 and also reflected appreciation of the average exchange rates of the
Russian Rouble against U.S. dollar.
The principal factors affecting the changes in the steel segment’s general and administrative expenses in 2009 as compared to 2008 were:
• Staff costs decreased by 34.7%. This decrease is largely attributable to staff optimization measures and appreciation of the average exchange
rates of local currencies against the U.S. dollar.
• Taxes, other than on income, including property, land and local taxes, decreased by 11.1%. The decrease primarily reflected depreciation of
the average exchange rates of local currencies against the U.S. dollar.
• Other general and administrative expenses decreased by 23.8%. The decrease is largely attributable to depreciation of the average exchange
rates of local currencies against the U.S. dollar.
MINING SEGMENT
General and administrative expenses increased to U.S.$117 million in 2010 from U.S.$96 million in 2009, itself a decrease from U.S.$138 million
in 2008. These movements represented 4.7%, 6.6% and 3.8% of mining segment revenue in 2010, 2009 and 2008, respectively.
The principal factors affecting the changes in the mining segment’s general and administrative expenses in 2010 as compared to 2009 were:
• Staff costs increased by 20.5% reflecting a full week working schedule, which was re-introduced in 2010 as the global economy improved and
demand for Evraz’s products increased, the growth of salaries in accordance with trade union agreements and the appreciation of the Rouble
against the U.S. dollar.
• Taxes, other than on income, increased by 22.7% largely due to additional expenses related to land tax at Evrazruda.
• Other expenses increased by 23.3% largely due to provisions made at Yuzhkusbassugol for a legal investigation.
The principal factors affecting the changes in the mining segment’s general and administrative expenses in 2009 as compared to 2008 were:
• Staff costs decreased by 33.3%. The decrease was primarily attributable to staff optimization measures and depreciation of the average
exchange rates of local currencies against the U.S. dollar.
• Taxes, other than on income, including property, land and local taxes, increased by 29.4%. This increase is because, prior to 2009, all land tax
expenses were reflected in a different line item. However, land tax was reflected in general and administrative expenses in 2009.
• Other expenses decreased by 45.5% largely due to cost cutting measures and depreciation of the average exchange rates of local currencies
against the U.S. dollar.
101 AnnuAl RepoRt And Accounts 2010
management report
VANADIuM SEGMENT
General and administrative expenses increased to U.S.$36 million in 2010 from U.S.$26 million in 2009, itself a decrease from U.S.$33 million in
2008. These movements represented 6.4%, 7.2% and 2.7% of vanadium segment revenue in 2010, 2009 and 2008, respectively. The increase in
Evraz’s general and administrative expenses in 2010 as compared to 2009 was primarily attributable to Evraz’s acquisition of Vanady-Tula in the
end of 2009, and the appreciation of the average exchange rates of the Rouble and the South African Rand against the U.S. dollar. The decrease
in general and administrative expenses in 2009 as compared to 2008 was largely due to staff optimization measures and the depreciation of the
average exchange rates of local currencies against the U.S. dollar.
OTHER OPERATIONS
General and administrative expenses increased to U.S.$27 million in 2010 from U.S.$24 million in 2009, itself a decrease from U.S.$44 million
in 2008. These movements represented 3.3%, 3.1% and 4.3% of other operations segment’s revenue in 2010, 2009 and 2008, respectively. The
increase in Evraz’s general and administrative expenses in 2010 as compared to 2009 was primarily attributable to the provision against tax risks
related to VAT at Nakhodka Trade Sea Port and the appreciation of the Rouble against the U.S. dollar. The decrease in general and administrative
expenses in 2009 as compared to 2008 was largely due to staff optimization measures and depreciation of the average exchange rates of local
currencies against the U.S. dollar.
uNAllOCATED
Unallocated general and administrative expenses are largely attributable to costs associated with EvrazHolding and OUS (a subsidiary which
provides accounting services to Evraz’s operations in Russia and Ukraine). Most of EvrazHolding’s general and administrative costs relate to
wages and salaries in respect of its employees, including Evraz’s senior management.
Unallocated general and administrative expenses increased to U.S.$155 million in 2010 from U.S.$138 million in 2009, itself a decrease from
U.S.$211 million in 2008. The increase in 2010, as compared to 2009, was primarily attributable to increases in salaries, the cost of SAP licenses
and the appreciation of the average exchange rate of the Rouble against the U.S. dollar. The decrease in 2009, as compared to 2008, was
attributable to cost cutting, staff optimization measures and depreciation of the average exchange rates of local currencies against the U.S. dollar.
other operating income, net of other operating expenses
Other operating income, net of other operating expenses, increased to U.S.$206 million in 2010 from U.S.$199 million in 2009, itself a decrease
from U.S.$1,534 million in 2008. These movements represented 1.5%, 2.0% and 7.5% of consolidated revenue in 2010, 2009 and 2008,
respectively. Other operating income and expenses consist primarily of social and social infrastructure expenses, gain (loss) on the disposal of
property, plant and equipment, impairment of assets and foreign exchange rates gain (loss). Social and social infrastructure expenses include such
items as maintenance of medical centers, recreational centers, employee holiday allowances, sponsorship of sports teams and charitable events.
The following table presents other operating income and expenses by segment for 2010, 2009 and 2008, including as a percentage of segment
revenue.
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Percentage
of segments
revenue
Amount
Year ended 31 December
2010
2009
2008
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
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
Vanadium segment
Impairment of assets
Foreign exchange gain (loss)
Total
Other operations
Social and social infrastructure maintenance
expenses
Loss on disposal of property, plant and equipment
(47)
(33)
(81)
65
(2)
(98)
(9)
(18)
(20)
(2)
(49)
(98)
(16)
–
(16)
(1)
(1)
(0.4)%
(0.3)%
(0.7)%
0.5%
0.0%
(0.8)%
(0.4)%
(0.7)%
(0.8)%
(0.1)%
(2.0)%
(3.9)%
(2.8)%
0.9%
(2.8)%
(0.1)%
(0.1)%
(43)
(25)
(184)
54
(65)
(263)
(6)
(12)
4
1
(22)
(35)
–
–
0
(2)
(2)
(0.5)%
(0.3)%
(2.0)%
0.6%
(0.7)%
(91)
(11)
(821)
(342)
(3)
(0.5)%
(0.1)%
(4.6)%
(1.9)%
0.0%
(2.9)%
(1,268)
(7.1)%
(0.4)%
(0.8)%
0.3)%
0.1%
(1.5)%
(2.4)%
0.0%
0.0%
0.3%
(0.3)%
(0.3)%
(18)
(15)
(56)
10
(19)
(98)
–
1
1
(2)
(11)
(0.5)%
(0.4)%
(1.5)%
0.3%
(0.5)%
(2.7)%
0.0%
0.1%
0.1%
(0.2)%
(1.1)%
102 AnnuAl RepoRt And Accounts 2010
management report
Year ended 31 December
2010
2009
2008
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Percentage
of segments
revenue
Amount
Impairment of assets
Foreign exchange gain (loss)
Other income (expense), net
Total
unallocated
Eliminations
TOTAl OTHER OPERATING INCOME
AND EXPENSES, NET
(3.7)%
0.1%
0.5%
(3.3)%
(30)
1
4
(27)
32
1
0.0)%
0.0%
0.3%
(0.3)%
–
–
2
(2)
98
1
(0.3)%
(0.4)%
(0.7)%
(2.6)%
(3)
(4)
(7)
(27)
(141)
(1)
(206)
(1.5)%
(199)
(2.0)%
(1,534)
(7.5)%
Total social and social infrastructure expenses decreased from U.S.$114 million in 2008 to U.S.$53 million in 2009 and increased to U.S.$64
million in 2010. Evraz’s social and social infrastructure expenses a largely dependant on the general economic climate and the changes in this
expense reflect changes in the economy and Russian steel and mining industry.
Total loss on the disposal of property, plant and equipment amounted to a loss of U.S.$52 million in 2010 compared to U.S.$39 million in 2009
and U.S.$37 million in 2008. The increase in 2010 was primarily attributable to disposal of assets at the Russian and the South African steel
and mining operations.
Total impairment of assets amounted to U.S.$147 million in 2010 as compared to U.S.$180 million in 2009 and U.S.$880 million in 2008.
Impairment was partly attributable to impairment of goodwill in the amount of U.S.$16 million, U.S.$160 million and U.S.$756 million in 2010
(related to Stratcor), 2009 and 2008 (related to North America and Ukraine), respectively. Evraz also recognized impairment of assets, other than
goodwill, in the amounts of U.S.$131 million, U.S.$20 million and U.S.$124 million in 2010, 2009 and 2008 respectively, including impairment of
certain items of property, plant and equipment and intangible assets. For an additional discussion on total impairments of assets, see notes 9, 10,
11 to the Consolidated Financial Statements.
The total foreign exchange gain (loss) amounted to a gain of U.S.$104 million and U.S.$156 million in 2010 and 2009, and a loss of U.S.$471
million in 2008. The outcome for 2010 includes total foreign exchange gain (loss) included Evraz’s gains in respect of inter segment loans issued
to subsidiaries in local currencies, which appreciated against the U.S. dollar between 31 December 2009 and 31 December 2010 (in particular,
due to EICA), and gains in respect of inter segment loans issued by subsidiaries in local currencies, which depreciated against U.S. dollar between
31 December 2009 and 31 December 2010 (in particular, Evraz’s Russian operations).
The foreign exchange gain in 2009 largely related to the effect of the appreciation of the Canadian dollar against the U.S. dollar, between
31 December 2008 and 31 December 2009, on the inter company loans issued by the Issuer to EICA in Canadian dollars (gain at the Issuer)
and in U.S. dollars (gain at EICA). Losses on U.S. dollar denominated borrowings at the Russian operations, due to the depreciation of the Rouble
against the U.S. dollar between 31 December 2008 and 31 December 2009, were largely offset by gains in respect of inter company loans issued
by Russian subsidiaries to Mastercroft Finance Ltd (a Cyprus based subsidiary of the Issuer) in Roubles.
The foreign exchange loss in 2008 was due to the depreciation of the local currencies of Evraz’s Russian, European, Canadian and South African
subsidiaries against the U.S. dollar between 31 December 2007 and 31 December 2008. The majority of Evraz’s credit portfolio is maintained
in U.S. dollars. Consequently, the depreciation of local currencies against the U.S. dollar resulted in foreign exchange losses being sustained by
Evraz’s subsidiaries in relation to bank loans denominated in U.S. dollars. The foreign exchange loss also included Evraz’s losses in respect of
inter company loans issued to subsidiaries, in particular to EICA, in local currencies of subsidiaries.
Profit from operations
Profit from operations was U.S.$1,330 million in 2010, representing 9.9% of consolidated revenue, compared to U.S.$195 million in 2009,
representing 2.0% of consolidated revenue, and U.S.$3,632 million in 2008, representing 17.8% of consolidated revenue. The changes in profit
from operations are attributable to the decrease in consolidated gross profit margin in 2009 and the subsequent growth in consolidated gross
profit margin in 2010, in each case, for the reasons described above.
The following table presents profit (loss) from operations by segment for 2010, 2009 and 2008, including as a percentage of segment revenue.
Year ended 31 December
2010
2009
2008
(U.S.$ million, except percentages)
Amount
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Steel segment
Mining segment
Vanadium segment
Other operations
Unallocated
Eliminations
TOTAl
6.9%
24.5%
(1.8)%
15.1%
832
613
(10)
123
(118)
(110)
1,330
9.9%
148
(9)
(50)
130
(36)
12
195
1.6%
(0.6)%
(13.8)%
17.0%
Percentage
of segments
revenue
15.3%
26.7%
14.1%
8.1%
Amount
2 746
971
170
83
(358)
20
2.0%
3,632
17.8%
103 AnnuAl RepoRt And Accounts 2010
management report
Non-operating income and expense
Non-operating income and expense include interest income, interest expense, share of profits (losses) of associates and joint ventures, gains
(losses) on financial assets and liabilities and other non-operating gains (losses). The table below presents these items for 2010, 2009 and
2008, including as a percentage of consolidated revenue.
Year ended 31 December
2010
2009
2008
(U.S.$ million, except percentages)
Interest income
Interest expense
Gain or loss on sale of shares in Group companies
Loss on disposal groups classified as held for sale
Gain or loss on sale of other investments
Gain on financial assets or liabilities
Gain/(Loss) on extinguishment of debts
Excess of interest in the net fair value of acquiree’s
identifiable assets, liabilities and contingent
liabilities over the cost of acquisition
Share of profits of associates and joint ventures
Dividends received
Other non-operating gain or loss
TOTAl
Amount
13
(728)
(1)
(4)
1
8
–
4
73
–
(1)
(635)
Percentage
of segments
revenue
Percentage
of segments
revenue
Percentage
of segments
revenue
Amount
Amount
0.1%
(5.4)%
(0.0)%
(0.0)%
0.0%
0.1%
–
0.0%
0.5%
–
(0.0)%
(4.7)%
40
(677)
1
(5)
–
(6)
103
6
2
–
3
(533)
0.4%
(6.9)%
0.0%
(0.1)%
–
(0.1)%
1.1%
0.1%
0.0%
–
0.0%
(5.5)%
57
(655)
0
(43)
1
(209)
80
–
194
11
(17)
(581)
0.3%
(3.2)%
–
(0.2)%
0.0%
(1.0)%
0.4%
–
1.0%
0.1%
(0.1)%
(2.9)%
Interest income decreased to U.S.$13 million in 2010, from U.S.$40 million in 2009 and from U.S.$57 million in 2008. Interest income is
primarily comprised of interest on bank accounts and deposits.
Interest expense increased to U.S.$728 million in 2010 compared to U.S.$677 million in 2009 and U.S.$655 million in 2008. The increase in
2009 primarily reflected higher interest on liabilities relating to employee benefits. The increase in interest expense in 2010 as compared to
2009 related to interest on borrowings, specifically relating to Evraz’s outstanding bonds. Evraz is increasingly replacing its short-term debt with
long-term debt, and as a result, the cost of U.S. dollar denominated long-term debt increased during the period under review.
Share of profits of associates and joint ventures increased from U.S.$2 million in 2009 to U.S.$73 million in 2010 and was largely related to
income attributable to Evraz’s interest in Raspadskaya.
Net gain on financial assets and liabilities amounted to gain of U.S.$8 million in 2010 as compared to a net loss of U.S.$6 million in 2009. The net
gain in 2010 included a gain from sales of Ukraine VAT government bonds (U.S.$6 million), a net gain on foreign currency swaps on Russian bonds
(U.S.$4 million) and a impairment of financial assets of Evraz’s investments in Delong Holdings Limited (‘Delong Holdings’) of U.S.$4 million.
The ‘excess of interest in the net fair value of acquiree’s identifiable assets’ in 2010 was U.S.$4 million, all of which was attributable to the
acquisition of the Inprom Group. The ‘excess of interest in the net fair value of acquiree’s identifiable assets’ in 2009 was U.S.$6 million, all of
which was attributable to the acquisition of Carbofer.
Loss on disposal of assets held for sale amounted to U.S.$4 million in 2010 and primarily related to the disposal of the Tomusinskaya 5-6 coal
deposit, net of Evraz’s share of the gain on bargain purchase recognized by Raspadskaya.
income tax expense (Benefit)
Income tax expense amounted to U.S.$163 million in 2010 compared to an income tax benefit of U.S.$46 million in 2009 and with an income
tax expense of U.S.$1,192 million in 2008. Evraz’s income tax expense in 2010 was partially offset by a benefit of U.S. $125 million relating to
enacting a new tax code in Ukraine. Evraz’s effective tax rate, defined as income tax expense (benefit) as a percentage of profit (loss) before tax,
decreased from 39.1% in 2008 to 13.6% in 2009 and increased to 23.5% in 2010. Losses at some subsidiaries cannot be offset against profits
earned by other subsidiaries. Therefore, the effective rate depends on general economic situation.
Net Profit (loss) Attributable to equity holders of the Parent entity
As a result of the factors set forth above, Evraz’s net profit (loss) attributable to equity holders of the parent entity decreased from a profit of
U.S.$1,797 million in 2008 to a loss of U.S.$295 million in 2009 and increased to a profit of U.S.$548 million in 2010.
Net Profit (loss) Attributable to Non-controlling interests
Net profit (loss) attributable to non-controlling interests in subsidiaries amounted to net loss of U.S.$16 million in 2010, representing 3% of
total net profit, compared to net profit of U.S.$3 million in 2009, representing 1% of total net loss, and a net profit of U.S.$62 million in 2008,
representing 3% of total net profit. Share of net profit (loss) attributable to non-controlling interests largely reflected the offset of losses against
profits attributable to different non-controlling shareholders in subsidiaries in 2010, 2009 and 2008. Evraz’s strategy during the periods under
review was to acquire non-controlling interests in its subsidiaries.
104 AnnuAl RepoRt And Accounts 2010
management report
liquidity and Capital resources
CAPITAl REquIREMENTS
In addition to meeting its working capital requirements, Evraz expects that repayments of outstanding debt, capital expenditure, acquisitions and
dividends will represent Evraz’s most significant use of funds for a period of several years. The amount and term of Evraz’s obligations in respect
of outstanding debt is described under ‘ – Contractual obligations and commercial commitments’.
Evraz’s capital expenditure program is focused on the reconstruction and modernization of its existing production facilities in order to reduce
costs, improve process flows and expand its product range. See, ‘Business—Acquisitions and Dispositions—Greenfield Projects’. Evraz also
plans to utilize capital expenditure to increase its production, sales and market shares of higher margin products.
Evraz spent U.S.$832 million for total annual capital expenditures in 2010. Evraz’s capital expenditure plans are subject to change depending,
among other things, on the development of market conditions and the cost and availability of funds. Evraz’s 2011 budget anticipates total capital
expenditures for 2011 to be approximately U.S.$1,211 million. See ‘Business’.
Evraz’s acquisitions of subsidiaries (net of cash acquired) totaled U.S.$27 million in 2010, while purchases of non-controlling interests in
subsidiaries amounted to U.S.$13 million and purchase of interest in associates amounted to U.S.$9 million.
CAPITAl RESOuRCES
The following table presents Evraz’s cash flow activity for 2010, 2009 and 2008.
(U.S.$ million)
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
CASH AND CASH EquIVAlENTS AT END OF YEAR
Year ended 31 December
2010
1,662
(757)
(886)
12
671
683
2009
1,698
179
(2,149)
(259)
930
671
2008
4,563
(3,736)
(127)
603
327
930
Historically, Evraz has relied on cash flow provided by operations, and short-term and long-term debt, and issues of equity 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 increasingly replace short-term debt with 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 program 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 internationally, from banks and the capital markets. 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 U.S.$1,662 million in 2010 as compared to U.S.$1,698 million in 2009. Cash provided
by operating activities before working capital adjustments increased from U.S.$1,045 million in 2009 to U.S.$2,030 million in 2010. Working
capital movements in 2010 and 2009 were largely driven by changes in value of inventories and influence of prices on the amounts of accounts
receivable and payable.
Net cash used in investment activities totaled U.S.$757 million in 2010 as compared to net cash received from investment activities of
U.S.$179 million in 2009. Substantially all the cash used in investment activities related to purchases of property, plant and equipment.
Net cash used in financing activities amounted to U.S.$886 million in 2010 compared to U.S.$2,149 million in 2009. This change reflects a
reduction in debt and interest paid.
In 2010 and 2009, the most significant credit facilities obtained by Evraz directly from capital markets and from international and Russian banks
to finance its capital requirements included:
Gazprombank $950 Million Credit Facility
On 23 October 2009 ZSMK, NTMK and NKMK signed three agreements for credit facilities of U.S.$500 million, U.S.$300 million and U.S.$150
million, each with a tenor of 45 months. As at 31 December 2010, each of the facilities were fully drawn. The facilities are secured with the cross
guarantees of the borrowers and a pledge of 50% (less one share) of KGOK.
GE Capital u.S.$225 Million Asset Based loan
On 18 December 2009 EINA signed a U.S.$225 million four-year committed revolving asset based loan facility (‘ABL’). The facility is secured with
the inventories and receivables of the borrower and guaranteed by its operating subsidiaries.
The credit facility was arranged by a syndicate of banks coordinated by GE Capital Markets, Inc.
Raiffeisenbank u.S.$157 Million Credit Facility
On 27 April and 10 December 2010, NKMK and ZSMK signed two unsecured revolving credit line- facility agreements of U.S.$46 million and
U.S.$111 million, respectively, with ZAO Raiffeisenbank (Russia), each with a tenor of 36 months. As of 31 December 2010, Evraz has fully drawn
down the U.S.$111 million facility. Interest is payable on both facilities at a rate equal to LIBOR plus a margin set at 3.85% per annum.
105 AnnuAl RepoRt And Accounts 2010
management report
Nordea Bank u.S.$404 million borrowings
On 23, 24 and 29 July 2010 NTMK, ZSMK and TC EvrazHolding drew down the loan facilities from Nordea Bank totaling U.S.$404 million,
maturing in June 2014. Interest under this facility is payable at a rate equal to LIBOR plus a margin set at 4.3% per annum.
The facilities refinanced Nordea Bank’s loans totaling U.S.$357 million that were due in the fourth quarter of 2010, as well as certain other
short-term debt.
GE Capital CAD300 Million ABl
On 6 September 2010, EICA signed a CAD300 million (approximately U.S.$285 million) four-year committed revolving ABL. The facility is secured
with the inventories and receivables of the borrower and guaranteed by its operating subsidiaries.
The credit facility was arranged by a group of banks coordinated by GE Capital Markets.
u.S.$950 million Syndicated structured credit facility
On 19 November 2010, the Issuer signed a U.S.$950 million structured credit facility, maturing in 2015 and secured with assignment of sales
proceeds under certain export contracts. Interest under the facility is payable at a rate equal to LIBOR plus a margin calculated with reference to
Evraz’s net leverage ratio, currently set at 2.8% per annum.
The proceeds of the facility were used to fully prepay the outstanding amount of the U.S.$3,214 million syndicated facility with the final maturity
falling on 2012.
OOO EvrazHolding Finance Rouble Bond Issues
On 26 March 2010, Evraz’s subsidiary OOO EvrazHolding Finance issued a Rouble 15 billion (approximately U.S.$500 million) three-year bond
bearing a coupon of 9.25% per annum, payable semi-annually. The bonds were guaranteed by the Issuer. The bonds are admitted to trading on
the Moscow Interbank Currency Exchange (‘MICEX’), list ‘B’.
On 1 November, 2010 OOO EvrazHolding Finance issued a Rouble 15 billion 5-year bond at a coupon rate of 9.95% per annum payable
semi-annually. The bonds were guaranteed by the Issuer. The notes are admitted to trading on MICEX, list ‘V’.
Bonds of both issues were included in the Central Bank of Russia’s Lombard list. Proceeds from both issues were used to refinance certain
shorter term debt.
OOO Sibmetinvest Rouble Bond Issue
In October 2009, Evraz’s subsidiary, OOO Sibmetinvest, issued a Rouble 20 billion (approximately US$680 million) five-year bond issue at an
annual rate of 13.5%.
lIquIDITY
As the table below illustrates, Evraz’s estimated liquidity, defined as cash and cash equivalents, amounts available under credit facilities and
short-term bank deposits with original maturity of more than three months, totaled U.S.$1,694 million as of 31 December 2010 and U.S.$2,038
million as of 31 December 2009.
As of 31 December 2010, Evraz had unutilized borrowing facilities in the amount of U.S.$1,010 million, including U.S.$506 million of committed
facilities and U.S.$504 million of uncommitted facilities.
Committed facilities consisted of credit facilities available for Russian, North American and European operations in the amounts of U.S.$288
million, U.S.$216 million and U.S.$2 million respectively.
Uncommitted facilities consisted of revolving credit lines of U.S.$372 million with western banks for export trade financing at East Metals S.A.
and credit facilities available for South African, European, and North American operations in the amounts of U.S.$68 million, U.S.$60 million and
U.S.$4 million respectively.
Evraz’s current ratio, defined as current assets divided by current liabilities, increased from 1.12 as of 31 December 2009 to 1.77 as of
31 December 2010. The increase in the current ratio primarily resulted from decreases in short-term loans and the current portion of long-term
loans due to repayments and refinancing activities on the part of management.
Evraz’s corporate treasury monitors the financial requirements of Evraz’s various subsidiaries and has various instruments at its disposal to
ensure that each subsidiary has sufficient liquidity to meet its obligations and capital requirements.
(U.S.$ million)
Estimated liquidity
Cash and cash equivalents
Amount available under credit facilities
Short-term bank deposits
TOTAl ESTIMATED lIquIDITY
As of 31 December
2010
2009
683
1,010
1
1,694
671
1,345
22
2,038
106 AnnuAl RepoRt And Accounts 2010
management report
Contractual Obligations and Commercial Commitments
The following table sets forth the principal amount of Evraz’s obligations in respect of loans and borrowings as of 31 December 2010 and 2009 by
period:
(U.S.$ million)
Short-term loans and borrowings (including
current portion of long-term borrowings)
Long-term loans and borrowings
TOTAl
Total
625
7,392
8,017
As of 31 December
2010
2009
Less
than 1
year
1–2
years
2–5
years
More
than 5
years
Less
than 1
year
Total
1–2
years
2–5
years
More
than 5
years
625
–
625
–
308
308
–
6,526
6,526
–
1,909
1,909
–
–
–
558
558
6,249
–
1,834
3,283
1,132
8,158
1,909
1,834
3,283
1,132
As of 31 December 2010, 2009 and 2008, Evraz had equipment with a carrying value of U.S.$0.0, U.S.$11 million and U.S.$1,131 million,
respectively, pledged as collateral under loan agreements. In addition, Evraz pledged inventory with a carrying value of U.S.$203 million,
U.S.$81 million and U.S.$648 million as of 31 December 2010, 2009 and 2008, respectively. As of 31 December 2010, 50% (less one share)
of Kachkanarsky Mining-and-Processing Integrated Works was pledged as collateral under bank loans. This subsidiary represents 2.4% of the
consolidated assets and 0.3% of the consolidated revenue of Evraz as at such date. As of 31 December 2010, the net assets (including intra
group balances) of Kachkanarsky Mining-and-Processing Integrated Works were U.S.$1,115 million.
As of 31 December 2010 and 2009, Evraz had accrued liabilities in respect of post-employment benefits that Evraz provides to employees of
certain of its subsidiaries pursuant to collective bargaining agreements and defined benefit plans of U.S.$315 million and U.S.$307 million
respectively. These amounts represent the present value of Evraz’s defined benefit obligation less the fair value of plan assets and adjusted for
unrecognized actuarial gains (losses) and past service costs, discounted to present value.
Defined contributions are made by Evraz to the Russian and Ukrainian state pension, social insurance, medical insurance and unemployment funds
at the statutory rates in force (approximately 23%), based on gross salary payments. Evraz has no legal or constructive obligation to pay further
contributions in respect of such benefits, its only obligation being to pay contributions as they fall due. These contributions are expensed as incurred.
As of 31 December 2010, Evraz had contractual commitments for the purchase of production equipment and construction works of
approximately U.S.$290 million.
Evraz is also involved in a number of social programs designed to support education, health care and the development of the social infrastructure
in areas where Evraz’s assets are located. In 2011, Evraz plans to spend approximately U.S.$106 million under these programs.
Evraz has made a commitment to reduce environmental pollution and contamination in accordance with an environmental protection program. In
the period from 2011 to 2015, Evraz is committed to spending approximately U.S.$326 million under the environmental programs.
Tax Contingencies
Russian and Ukrainian tax, currency and customs legislation are subject to varying interpretations, and changes, which can occur frequently.
Management’s interpretation of such legislation as applied to the transactions and activity of Evraz may be challenged by the relevant regional
and federal authorities. Recent events within Russia suggest that the tax authorities are taking a more assertive position in their 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, significant additional taxes, penalties and interest may be assessed. 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 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 end of the reporting period as those that can be subject to different interpretations of the tax laws and other regulations and
are not accrued in these Consolidated Financial Statements could be up to approximately U.S.$34 million.
Contractual Commitments
At 31 December 2010, Evraz had contractual commitments for the purchase of production equipment and construction works for approximately
U.S.$290 million.
Social Commitments
Evraz is involved in a number for social programs aimed to support education, health care and social infrastructure development in towns where
Evraz’s assets are located. In 2011, Evraz plans to spend approximately U.S.$106 million under these programs.
INFlATION
Whereas Evraz’s revenue depend substantially on international prices for steel products, Evraz’s costs are closely linked to domestic cost
factors. Inflation moderated in Russia during recent years; although the rate remained at 8.8% in 2010, the same level as in 2009. In 2008,
overall price trends during the first three quarters 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. In contrast the
fourth quarter of 2008 brought a significant fall in prices in line with the reduction in demand for metallurgical goods in both Russian and global
markets caused by the deepening of the recession and the weakening in international trade. However, stabilization of the economic situation due
to government stimulus programs in 2009 was followed by a gradual recovery in the prices of metallurgical goods driven by a revival of demand
and increased business activity during 2010. The table below shows the trends in consumer price indices from 2008 to 2010 in countries where
Evraz has production facilities.
107 AnnuAl RepoRt And Accounts 2010
management report
Russian Consumer Price Index, change in Rouble(1)
2008
13.3%
2009
8.8%
Ukrainian Consumer Price Index, change in UAH(1)
22.3%
12.3%
U.S. Consumer Price Index, change in U.S.D(1)
Canadian Consumer Price Index, change in CAD(1)
Italian Consumer Price Index, change in EUR(1)
Czech Consumer Price Index, change in CZK(1)
South African Consumer Price Index, change in ZAR(1)
0.1%
2.3%
2.2%
3.6%
9.5%
2.7%
0.3%
1.0%
1.0%
6.6%
Note:
(1) Represents the change from 31 December of the prior year to 31 December of the indicated year.
2010
8.8%
9.1%
1.5%
1.8%
1.9%
2.3%
3.3%
2008
to 2010
Source
34.1%
Federal State Statistics Service
49.8%
4.4%
4.5%
5.2%
7.0%
State Statistics Committee
of Ukraine
U.S.Bureau of Labor Statistics
Statistics Canada
Istituto nazionale di statistica
Czech Statistical Office
20.6%
Statistics South Africa
The table below presents changes in the nominal exchange rates of national currencies against the U.S. dollar from 2008 to 2010 in countries
where Evraz has production facilities.
Nominal Rouble/ U.S.$ exchange rate, change(1)
Nominal UAH/ U.S.$ exchange rate, change(1)
Nominal CAD/ U.S.$ exchange rate, change(1)
Nominal EUR/ U.S.$ exchange rate, change(1)
Nominal CZK/ U.S.$ exchange rate, change(1)
2008
(16.5)%
(34.4)%
(19.3)%
(5.5)%
(6.6)%
2009
(2.9)%
(3.6)%
16.5%
3.5%
5.3%
Nominal ZAR/ U.S.$ exchange rate, change(1)
(27.1)%
26.2%
Note:
(1) Represents the change from 31 December of the prior year to 31 December of the indicated year.
quANTITATIVE AND quAlITATIVE DISClOSuRES IN RESPECT OF MARKET RISK
Overview
2010
2008
to 2010
(0.8)%
(19.5)%
Source
CBR
0.3%
5.7%
(7.2)%
(2.0)%
11.3%
(36.6)%
National Bank of Ukraine
(0.7)%
(9.2)%
(3.6)%
Bank of Canada
The European Central Bank
Czech National Bank
2.5%
The South African Reserve Bank
In the ordinary course of its business Evraz is exposed to risks related to changes in exchange rates, interest rates, commodity prices, energy and
transportation tariffs. Evraz does not usually enter into hedging or forward contracts in respect of any of these risks except that Evraz concluded
swap contracts in 2009 and 2010 to manage the currency exposure on Rouble denominated bonds in the total amount of 50,000 million Russian
Roubles (See note 26 in the Consolidated Financial Statements).
Exchange and Interest Rate Risk
Evraz’s presentation currency is the U.S. 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, the Euro in respect of Palini, the Rand in
respect of Evraz Highveld and the South African operations of Stratcor, the Hryvnia in respect of the Ukrainian subsidiaries, the Canadian dollar in
respect of EICA and the U.S. dollar in respect of other subsidiaries.
The Rouble is not a fully convertible currency outside the territory of Russia. Within Russia, official exchange rates are determined daily by the
CBR. Market rates may differ from the official rates but the differences are, generally, within narrow parameters monitored by the CBR.
Evraz’s products are typically priced in local currencies in respect of domestic sales of Evraz’s operations and U.S. dollars and Euros in respect
of international sales. Evraz’s direct costs, including raw materials, labor and transportation, are incurred primarily in the local currencies of the
subsidiaries. Other costs, such as interest expense, are incurred largely in Roubles, U.S. dollars and Euros.
The mix of Evraz’s revenue and costs is such that appreciation in real terms of the local currencies of its subsidiaries against the U.S. dollar tends
to result in an increase in Evraz’s costs relative to its revenue, while depreciation of the local currencies against the U.S. dollar in real terms tends
to result in a decrease in Evraz’s costs relative to its revenue. For example, according to the CBR the Rouble depreciated in real terms against the
U.S. dollar by 1.1% and 0.4% in 2008 and 2009 respectively and appreciated by 4% in 2010.
In addition, nominal depreciation of the local currencies against the U.S. dollar would typically result in a decrease in the reported U.S. dollar value
of Evraz’s assets (and liabilities) denominated in local currencies, while nominal appreciation of the local currencies against the U.S. dollar would
typically result in an increase in the reported U.S. dollar value of Evraz’s assets (and liabilities) denominated in local currencies. Moreover, nominal
appreciation/depreciation of the local currencies against the U.S. dollar generally has a similar effect when the income statements of Evraz’s
subsidiaries are translated into U.S. dollars in connection with the preparation of the Consolidated Financial Statements. For example, according
to the CBR the average exchange rate of the Rouble against the U.S. dollar appreciated by 2.9% in 2008, underwent a significant depreciation of
21.7% in nominal terms during 2009 and appreciated by 4.5% in 2010.
108 AnnuAl RepoRt And Accounts 2010
management report
The following table summarizes Evraz’s outstanding principal amounts of interest bearing debt, including loans and other borrowings, by currency
and interest rate method as of 31 December 2010 and 31 December 2009:
As of 31 December
2010
2009
u.S. dollar
denominated
Rouble
denominated
Euro-
denominated
Denominated
in other
currencies
u.S. dollar
denominated
Rouble
denominated
Euro-
denominated
Total
Denominated
in other
currencies
Total
TOTAl DEBT,
of which
Fixed-rate debt
Variable rate
debt
6,028
3,957
1,661
1,661
320
135
2,071
–
185
8
–
8
8,017
5,753
7,172
4,080
685
677
287
55
14
–
8,158
4,812
2,264
3,092
8
232
14
3,346
A hypothetical, instantaneous and simultaneous 10% appreciation of the Rouble, Euro, Czech Koruna and South African Rand against the U.S.
dollar as of 31 December 2010 would have resulted in an increase of approximately U.S.$221 million in borrowings denominated in Roubles,
Euros and Czech Korunas held as of 31 December 2010.
Evraz incurs interest rate risk on liabilities with variable interest rates. In case of changes in the current market fixed or variable interest rates,
management considers the refinancing of a particular debt on more favorable terms. With regard to cash flow sensitivity analysis for variable rate
instruments please refer to note 29 to the Consolidated Financial Statements.
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 movements in the general market spot prices for steel because sales are either
on the spot market or under contracts linked to current market prices. 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 supply 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, scrap
and other raw material inputs. Evraz’s exposure to fluctuations in the price of iron ore and coking coal is limited due to its ability to obtain these
products from its own production facilities and by strategic sales to third parties of coking coal and iron ore. Where Evraz obtains these products
from internal sources, the effect of price fluctuations is accounted 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.
Electricity, Natural and Transportation Tariff Risk
Evraz is also exposed to uncertainty with regard to the prices of the electricity and natural gas that it consumes in the production of steel and
the mining of iron ore and coal. Prices in respect of both electricity and natural gas in Russia and Ukraine are currently below market prices in
Western Europe and are regulated by government authorities in both countries, thereby limiting Evraz’s exposure to fluctuations in the cost of
these products.
In response of the above risks, Evraz started in 2010 implementation of Pulverized Coal Injection (‘PCI’) technology in the production of pig iron
at its Russian steel mills ZSMK and NTMK. This is expected to allow Evraz to use steam coal as fuel for blast furnaces by the end of 2012. PCI is
also expected to allow Evraz to discontinue using natural gas in blast furnaces and to save annually up to 650 million cubic meters of natural gas
at NTMK and up to 600 million cubic meters at ZSMK. Coke consumption is estimated to decrease by more than 20%. Management believes the
initiative will also reduce Evraz’s environmental impact.
Russian Operations
The Russian electricity sector is characterized by limited competition and regulated prices. Pricing policy is determined by the Federal Tariffs
Service, a governmental agency authorized 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 authorized to regulate
prices within a specific region. Power may also be purchased from the Federal Wholesale Electricity Market (‘FOREM’). Most sellers of power on
the domestic market are regional generation companies and most participants in FOREM are regional generating companies that seek to sell a
power surplus to regional generating companies with supply deficits as well as industrial companies granted special access to FOREM. Evraz’s
subsidiary MEF has been granted such access to FOREM.
In 2009 and in 2010, Evraz’s Russian operations purchased approximately 5,903 million kWh and 6,174 million kWh of electricity, representing
approximately 75% and 62% of their respective requirements, from local electricity companies, former subsidiaries of UES. The latter was the
government controlled national holding company for the Russian power sector restructured and liquidated in June 2008. The Government has
implemented a liberalization plan for electricity pricing aimed at increasing the proportion of electricity sales made via a market based pricing
system. Moreover, according to the Russian Government’s Macroeconomic Long-term Forecast, electricity tariffs for industrial users will reach
7.7-7.8 U.S. cents per kWh in 2012. Evraz’s average cost of electricity in Russia was 4.63 U.S. cents per kWh in 2009 and 5.5 U.S. cents per kWh
in 2010. Assuming a price of 7.8 U.S. cents per kWh, Evraz’s Russian operations would have incurred additional costs of approximately U.S.$189
million and U.S.$144 million in the years ended 31 December 2009 and 2010 respectively. Further electricity price increases may occur in the
future as the industry is further restructured and becomes controlled to a greater extent by the private sector.
Evraz’s Russian operations also purchase significant amounts of natural gas (2,990 million cubic meters in 2010), 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 dominant producer
and monopoly distributor of natural gas within Russia. Domestic natural gas prices are regulated by the government and have been rising during
recent years. Evraz’s average price for natural gas in Russia reached U.S.$65 per thousand cubic meters and U.S.$82 per thousand cubic meters
109 AnnuAl RepoRt And Accounts 2010
management report
in 2009 and 2010 respectively. Despite these recent price increases, natural gas prices in Russia remain significantly below western European
levels, a factor that helps to provide Evraz with a cost advantage over its competitors. According to the Russian Government’s Macroeconomic
Long-term Forecast, domestic gas prices for industrial users reach U.S.$121 per thousand cubic meters in 2012. Assuming a price of U.S.$121
per thousand cubic meters, Evraz’s Russian operations would have incurred additional costs of approximately U.S.$155 million and U.S.$116
million in 2009 and 2010 respectively.
ukrainian Operations
Evraz, through the purchase of DMZ, DKHZ, Dneprokoks, Bagleykoks and Sukha Balka in 2008, has extended its operations to Ukraine where the
electricity and natural gas markets are also characterized by regulated prices.
Natural gas prices have been a matter of negotiation between the Russian state owned monopoly Gazprom and the Ukrainian Government since
winter 2005–2006. The latest announced indicative Russian natural gas price level for Ukraine in 2011 is between U.S.$300–330 which, on the
one hand, represents a 5–15% increase in Ukrainian prices compared to 2010 but, on the other hand, is comparable with current price levels in
the Czech Republic. In 2010 Evraz’s Ukrainian operations purchased approximately 136 million cubic meters of natural gas at an average price
of U.S.$284 per thousand cubic meters. Assuming a price of U.S.$338 per thousand cubic meters (as in Czech Vitkovice Steel in 2010), Evraz’s
Ukrainian operations would have incurred additional costs of approximately U.S.$7 million in 2010.
Higher natural gas prices, inflation and other factors will encourage the authorities to also increase electricity prices. The estimated mid-term
indicative price level for the Ukrainian electricity market of 13.1 U.S. cents per kWh corresponds to inflation trends and to current price levels in
the Czech Republic. Evraz’s Ukrainian operations purchased approximately 502 million kWh of electricity at an average price of 6.9 U.S. cents per
kWh in 2010. Assuming a price of 13.1 U.S. cents per kWh, Evraz’s Ukrainian operations would have incurred additional costs of approximately
U.S.$31 million in 2010.
Transportation
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 Trade 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 adversely 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 impact on margins.
110 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Contents
Viii 111
Index to the Notes to the Consolidated Financial
Statements
112 independent auditor's
report
113 Consolidated FinanCial
statements For the Years
ended 31 deCember 2010, 2009
and 2008
113 Consolidated Statement of Operations
114 Consolidated Statement of Comprehensive
Income
115 Consolidated Statement of Financial Position
116 Consolidated Statement of Cash Flows
118 Consolidated Statement of Changes in Equity
121 Notes to the Consolidated Financial Statements
d
e
t
a
d
i
l
o
s
n
o
C
i
s
t
n
e
m
e
t
a
t
s
l
a
C
n
a
n
i
F
1
3
r
e
b
m
e
c
e
d
d
e
d
n
e
s
r
a
e
Y
8
0
0
2
d
n
a
9
0
0
2
0
1
0
2
,
,
111 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
index to the notes
to the Consolidated
Financial statements
1. Corporate information
2. significant accounting policies
Basis of Preparation
Changes in Accounting Policies
Significant Accounting Judgements
and Estimates
Foreign Currency Transactions
Basis of Consolidation
Investments in Associates
Interests in Joint Ventures
Property, Plant and Equipment
Leases
Goodwill
Intangible Assets Other Than Goodwill
Financial Assets
Inventories
Accounts Receivable
Value Added Tax
Cash and Cash Equivalents
Borrowings
Financial Guarantee Liabilities
Equity
Provisions
Employee Benefits
Share-based Payments
Revenue
Current Income Tax
Deferred Income Tax
3. segment information
4. business Combinations
Steel and Mining Businesses in Ukraine
Claymont Steel
IPSCO Inc.
Vanady-Tula
Steel Dealers
Inprom Group
Disclosure of Other Information in Respect of
Business Combinations
5. Goodwill
6. acquisitions of non-controlling interests
in subsidiaries
121
121
121
122
125
128
128
129
129
130
130
130
131
132
132
132
133
133
133
133
133
133
134
134
135
135
135
136
143
143
144
145
146
147
148
149
149
151
income and expenses
income taxes
7.
8.
9. property, plant and equipment
10. intangible assets other than Goodwill
11. investments in Joint Ventures
and associates
Corber Enterprises Limited
Kazankovskaya
Streamcore
12. disposal Groups held for sale
13. other non-Current assets
14. inventories
15. trade and other receivables
16. related party disclosures
17. other taxes recoverable
18. other Current Financial assets
19. Cash and Cash equivalents
20. equity
Share Capital
Earnings per Share
Dividends
Legal Reserve
Other Movements in Equity
21. loans and borrowings
22. Finance lease liabilities
23. employee benefits
24. share-based payments
25. provisions
26. other long-term liabilities
27. trade and other payables
28. other taxes payable
29. Financial risk management objectives
and policies
Credit Risk
Liquidity Risk
Market Risk
Fair Value of Financial Instruments
Capital Management
30. non-cash transactions
31. Commitments and Contingencies
32. subsequent events
152
153
157
159
161
161
162
162
163
165
167
167
167
169
169
170
170
170
171
172
172
172
173
175
176
181
184
184
185
185
186
186
187
189
190
191
192
192
193
112 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Ernst & Young
Socieˆteˆ anonyme
7, rue Gabriel Lippmann
Parc d'Activite Sydrall 2
L-5365 Munsbach
B.P. 780
L-2017 Luxembourg
Tel: +352 42 124 1
Fax: +352 42 124 5555
www.ey.com/luxembourg
R.C.S. Luxembourg B 47 771
TVA LU 16063074
Independent auditor's report
To the Shareholders and Board of Directors of
Evraz Group S.A.
1, Alleˆe Scheffer
L-2520 LUXEMBOURG
Following our appointment by the General Meeting of the Shareholders dated 17 May 2010, we have audited the accompanying
consolidated financial statements of Evraz Group S.A., which comprise the consolidated statements of financial position as at
31 December 2010, 2009 and 2008, the consolidated statements of operations, the consolidated statements of comprehensive
income, the consolidated statements of changes in equity, the consolidated statements of cash flows for each year then ended, and
a summary of significant accounting policies and other explanatory information.
Board of Directors’ responsibility for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as the
Board of Directors determines is necessary to enable the preparation and presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Responsibility of the ‘reˆviseur d’entreprises agreˆeˆ’
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing as adopted for Luxembourg by the ‘Commission de Surveillance du Secteur
Financier’. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about 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 consolidated financial
statements. The procedures selected depend on the judgement of the ‘reˆviseur d’entreprises agreˆeˆ’, including the assessment
of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the ‘reˆviseur d’entreprises agreˆeˆ’ considers internal control relevant to the entity’s preparation and fair presentation of
the consolidated 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 effectiveness 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 the Board of Directors, 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 give a true and fair view of the financial position of Evraz Group S.A. as of
31 December 2010, 2009 and 2008, and of its financial performance and its cash flows for each year then ended in accordance with
International Financial Reporting Standards as adopted by the European Union.
Ernst & Young
Socieˆteˆ anonyme
Cabinet de reˆvision agreˆeˆ
Luxembourg, 30 March 2011
Thierry Bertrand
A member firm of Ernst & Young Global Limited
113 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated
statement oF operations
(in millions of us dollars, except for per share information)
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
Other operating expenses
Profit/(loss) 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, net
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/(loss) before tax
Income tax benefit/(expense)
nET PRofIT/(Loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
basic, for profit/(loss) attributable to equity holders of the parent entity,
US dollars
diluted, for profit/(loss) attributable to equity holders of the parent
entity, US dollars
Year ended December 31,
Notes
2010
2009*
2008
3
3
7
7
7
5, 9, 10
7
7
7
11
7
12
4
8
20
20
$ 13,144
$ 9,505
$ 19,990
250
13,394
(10,319)
3,075
(807)
(732)
(64)
(52)
(147)
104
63
(110)
1,330
13
(728)
73
8
(4)
4
(1)
695
(163)
$ 532
$ 548
(16)
$ 532
267
9,772
(8,124)
1,648
(626)
(628)
(53)
(39)
(180)
156
38
(121)
195
40
(677)
2
97
(5)
6
4
(338)
46
390
20,380
(13,463)
6,917
(856)
(895)
(114)
(37)
(880)
(471)
28
(60)
3,632
57
(655)
194
(129)
(43)
–
(5)
3,051
(1,192)
$ (292)
$ 1,859
$ (295)
$ 1,797
3
62
$ (292)
$ 1,859
$ 3.95
$ (2.19)
$ 14.55
$ 3.95
$ (2.19)
$ 14.50
* The amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made in connection with the changes in accounting policies
(Note 2) and the completion of initial accounting (Note 4).
The accompanying notes form an integral part of these consolidated financial statements.
114 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF ComprehensiVe inCome
(in millions of us dollars)
Year ended December 31 of
Notes
2010
$ 532
nET PRofIT/(Loss)
other comprehensive income
Effect of translation to presentation currency
Net gains/(losses) on available-for-sale financial assets (Note 13)
Net (gains)/losses on available-for-sale financial assets reclassified to profit
or loss (Notes 7 an 13)
Income tax effect
Deferred income tax benefit resulting from reduction in tax rate recognised
in equity
Decrease in revaluation surplus in connection with the impairment of
property, plant and equipment
Income tax effect
Effect of translation to presentation currency of the Group’s joint ventures
and associates
Share of other comprehensive income of joint ventures and associates
accounted for using the equity method
Total other comprehensive income/(loss)
8
9
8
11
2009*
$ (292)
108
12
(8)
–
4
–
(8)
1
(7)
(10)
(10)
95
64
(8)
4
–
(4)
–
(7)
1
(6)
(9)
(9)
45
2008
$ 1,859
(2,288)
(150)
150
–
–
7
–
–
–
(116)
(116)
(2,397)
$ (538)
$ (522)
(16)
$ (538)
ToTAL ComPREhEnsIvE InComE/(Loss), nET of TAx
$ 577
$ (197)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
$ 584
(7)
$ 577
$ (228)
31
$ (197)
* The amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made in connection with the changes in accounting policies
(Note 2) and the completion of initial accounting (Note 4).
The accompanying notes form an integral part of these consolidated financial statements.
115 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF FinanCial position
(in millions of us dollars)
Year ended December 31,
Notes
2010
2009*
2008
AssETs
non-current assets
Property, plant and equipment
Intangible assets other than goodwill
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
Other non-current financial assets
Other non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Loans receivable
Receivables from related parties
Income tax receivable
Other taxes recoverable
Other current financial assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
ToTAL AssETs
EquITY And LIABILITIEs
Equity
Equity attributable to equity holders of the parent entity
Issued capital
Treasury shares
Additional paid-in capital
Revaluation surplus
Legal reserve
Unrealised gains and losses
Accumulated profits
Translation difference
Non-controlling interests
non-current liabilities
Long-term loans
Deferred income tax liabilities
Finance lease liabilities
Employee benefits
Provisions
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 non-controlling shareholders
9
10
5
11
8
13
13
14
15
16
17
18
19
12
20
20
20
4
20
21
8
22
23
25
26
27
21
16
28
22
25
4
Liabilities directly associated with disposal groups classified as held for sale
12
ToTAL EquITY And LIABILITIEs
$ 8,607
1,004
2,219
750
100
118
103
12,901
2,070
1,213
192
1
80
54
353
52
683
4,698
2
4,700
$ 17,601
$ 375
–
1,742
180
36
–
4,632
(1,214)
5,751
247
5,998
7,097
1,072
38
315
279
143
8,944
1,173
205
714
217
78
180
19
54
6
–
13
2,659
–
2,659
$ 17,601
$ 8,585
1,098
2,186
634
70
66
128
12,767
1,828
1,001
134
1
107
58
258
120
671
4,178
7
4,185
$ 16,952
$ 375
–
1,739
208
36
4
4,065
(1,260)
5,167
275
5,442
5,931
1,231
58
307
176
68
7,771
1,069
112
1,992
235
108
140
17
35
17
–
13
3,738
1
3,739
$ 16,952
$ 9,012
1,108
2,167
551
44
118
160
13,160
2,416
1,369
76
108
137
262
397
589
930
6,284
7
6,291
$ 19,451
$ 332
(9)
1,054
218
30
–
4,377
(1,330)
4,672
245
4,917
6,064
1,389
40
292
153
58
7,996
1,479
107
3,922
322
156
154
15
63
–
309
11
6,538
–
6,538
$ 19,451
* The amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made in connection with the changes in accounting policies
(Note 2) and the completion of initial accounting (Note 4).
The accompanying notes form an integral part of these consolidated financial statements.
116 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF Cash Flows
(in millions of us dollars)
CAsh fLows fRom oPERATInG ACTIvITIEs
Net profit/(loss)
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities:
Deferred income tax (benefit)/expense (Note 8)
Depreciation, depletion and amortisation (Note 7)
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange (gains)/losses, net
Interest income
Interest expense
Share of (profits)/losses of associates and joint ventures
(Gain)/loss on financial assets and liabilities, net
(Gain)/loss on disposal groups classified as held for sale, net
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
Bad debt expense
Changes in provisions, employee benefits and other long-term assets and liabilities
Expense arising from the equity-settled awards (Note 24)
Share-based payments under cash-settled awards (Note 24)
Other
Changes in working capital:
Inventories
Trade and other receivables
Prepayments
Receivables from/payables to related parties
Taxes recoverable
Other assets
Trade and other payables
Advances from customers
Taxes payable
Other liabillities
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
Proceeds from the transaction with a 49% ownership interest in NS Group (Note 18)
Purchases of subsidiaries, net of cash acquired (Notes 4 and 11)
Purchases of non-controlling interests
Purchases of interest in associates/joint ventures
Purchases of other investments
Sale of other investments
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 (Note 12)
Dividends received
Other investing activities, net
net cash flows from/(used in) investing activities
The accompanying notes form an integral part of these consolidated financial statements.
Year ended December 31,
2010
2009*
2008
$ 532
$ (292)
$ 1,859
(186)
925
52
147
(104)
(13)
728
(73)
(8)
4
(4)
1
48
(15)
2
(3)
(3)
(231)
979
39
180
(156)
(40)
677
(2)
(97)
5
(6)
(4)
41
(16)
6
(35)
(3)
(402)
1,195
37
880
471
(57)
655
(194)
129
43
–
5
33
25
35
–
12
2,030
1,045
4,726
(191)
(239)
(44)
(34)
(91)
38
107
80
5
1
680
438
(52)
(162)
239
(56)
(353)
1
(73)
(9)
(499)
345
100
165
(355)
(3)
238
(203)
51
(2)
1,662
1,698
4,563
(46)
5
(1)
2
–
(27)
(13)
(9)
–
–
17
29
(832)
21
42
1
54
(757)
(28)
40
(3)
114
506
(20)
(8)
–
(67)
48
(16)
20
(441)
6
28
1
(1)
179
(1)
32
(147)
33
–
(1,914)
(120)
–
(896)
99
3
29
(1,103)
27
161
70
(9)
(3,736)
117 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF Cash Flows
(Continued)
(in millions of us dollars)
Year ended December 31,
2010
2009*
2008
CAsh fLows fRom fInAnCInG ACTIvITIEs
Issue of shares, net of transaction costs of $nil, $5 million and $1 million, respectively
(Notes 4, 20 and 24)
$ –
$ 310
Repurchase of vested share-based awards (Notes 20 and 24)
Purchase of treasury shares (Note 20)
Sale of treasury shares (Note 20)
Contribution from/(distribution to) a shareholder (Note 4)
Dividends paid by the parent entity to its shareholders
Dividends paid by the Group’s subsidiaries to non-controlling shareholders
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Gain on derivatives not designated as hedging instruments (Note 26)
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest
Payments under covenants reset (Note 21)
Restricted deposits at banks in respect of financing activities
Repayment of loans provided by related parties, including interest
Payments under finance leases, including interest
Payments of restructured liabilities, including interest
Proceeds from sale-leaseback
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 by the Group
–
–
–
–
–
(1)
3,172
(4,142)
31
106
(29)
–
–
(23)
–
–
(886)
(7)
12
671
$ 683
$ (594)
11
(341)
(3)
(5)
7
65
(90)
(2)
3,427
(4,987)
–
(794)
(85)
1
–
(31)
–
38
(2,149)
13
(259)
930
$ 671
$ (586)
29
(141)
$ (1)
(77)
(197)
81
(68)
(1,276)
(81)
5,657
(3,949)
–
(54)
–
–
(21)
(20)
(121)
–
(127)
(97)
603
327
$ 930
$ (565)
44
(1,680)
* The amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made in connection with the changes in accounting policies
(Note 2) and the completion of initial accounting (Note 4).
The accompanying notes form an integral part of these consolidated financial statements.
118 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF Changes in equity
(in millions of us dollars)
At december 31, 2009 (as previously
reported)
Change in accounting policies (Note 2)
Adjustments to provisional values
(Note 4)
–
–
At december 31, 2009 (as restated)
375
Net profit
Other comprehensive income/(loss)
Reclassification of revaluation surplus
to accumulated profits in respect of
the disposed items of property, plant
and equipment
Total comprehensive income/(loss) for
the period
Acquisition of non-controlling interests
in existing subsidiaries (Note 6)
Derecognition of non-controlling
interests in subsidiaries (Note 20)
Share-based payments (Note 24)
Dividends declared by the Group’s
subsidiaries to non-controlling
shareholders (Note 20)
–
–
–
–
–
–
–
–
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Legal
reserve
unrealised
gains and
losses
Accumulated
profits
Translation
difference
non-
controlling
interests
Total
Total Equity
$ 375
$ –
$ 1,739
$ 6,338
$ 36
$ 4
$ 3,164 $ (1,372) $ 10,284
$ 324 $ 10,608
–
–
–
–
–
–
–
–
–
–
–
–
–
1,739
–
–
–
–
1
–
2
–
(6,130)
–
208
–
(6)
(22)
(28)
–
–
–
–
–
–
36
–
–
–
–
–
–
–
–
–
–
4
–
(4)
–
(4)
–
–
–
–
905
112
(5,113)
(49)
(5,162)
(4)
–
(4)
4,065
(1,260)
5,167
548
–
–
46
548
36
–
275
(16)
9
(4)
5,442
532
45
22
–
–
–
–
570
46
584
(7)
577
(3)
–
–
–
–
–
–
–
(2)
(14)
(16)
–
2
–
(6)
–
(6)
2
(1)
(1)
AT dECEmBER 31, 2010
$ 375
$ –
$ 1,742
$ 180
$ 36
$ –
$ 4,632
$ (1,214)
$ 5,751
$ 247
$ 5,998
The accompanying notes form an integral part of these consolidated financial statements.
119 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF Changes in equity
(Continued)
(in millions of us dollars)
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Legal
reserve
unrealised
gains and
losses
Accumulated
profits
Translation
difference
non-
controlling
interests
Total
Total Equity
At december 31, 2008
$ 332
$ (9)
$ 1,054
$ 218
$ 30
$ –
$ 4,377
$ (1,330)
$ 4,672
$ 245
$ 4,917
Net loss*
Other comprehensive income/(loss)*
Reclassification of revaluation surplus
to accumulated profits in respect of
the disposed items of property, plant
and equipment*
Total comprehensive income/(loss) for
the period*
Issue of share capital (Note 20)
Transaction costs in respect of the
issue of shares (Note 20)
Equity component of convertible bonds
(Note 20)
Derecognition of non-controlling
interests arising on acquisition of
subsidiaries (Note 4)
Contribution from a shareholder
(Note 4)
Purchase of treasury shares (Note 20)
Sale of treasury shares (Note 20)
Exercise of share options (Note 20)
Appropriation of net profit to legal
reserve (Note 20)
Dividends declared by the Group’s
subsidiaries to non-controlling
shareholders (Note 20)
–
–
–
–
43
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
12
2
–
–
–
–
–
–
492
(5)
133
–
65
–
–
–
–
–
–
(7)
(3)
(10)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
4
(295)
–
–
4
–
–
–
–
–
–
–
–
–
–
3
(292)
–
–
–
(5)
–
–
(6)
(3)
(6)
–
–
70
–
70
–
–
–
–
–
–
–
–
–
–
(295)
67
–
(228)
535
(5)
133
(5)
65
(5)
6
(1)
–
–
3
28
–
31
–
–
–
–
–
–
–
–
–
(292)
95
–
(197)
535
(5)
133
(5)
65
(5)
6
(1)
–
(1)
(1)
AT dECEmBER 31, 2009
$ 375
$ –
$ 1,739
$ 208
$ 36
$ 4
$ 4,065
$ (1,260)
$ 5,167
$ 275
$ 5,442
* The amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made in connection with the changes in accounting policies
(Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
120 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
Consolidated statement
oF Changes in equity
(Continued)
(in millions of us dollars)
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Legal
reserve
unrealised
gains and
losses
Accumulated
profits
Translation
difference
non-
controlling
interests
Total
Total Equity
At december 31, 2007
$ 320
$ –
$ 286
$ 211
$ 29
$ –
$ 4,108
$ 996
$ 5,950
$ 406
$ 6,356
Net profit
Other comprehensive income/
(loss)
Total comprehensive income/
(loss) for the period
Issue of share capital (Notes 4
and 20)
Transaction costs in respect of the
issue of shares (Note 20)
Acquisition of non-controlling
interests in existing subsidiaries
(Notes 4 and 6)
Decrease in non-controlling
interests arising due to change in
ownership within the Group
Distribution to a shareholder
(Note 4)
Change in the fair value of liability
to a shareholder (Note 4)
Equity-settled share-based
payments (Note 24)
Purchase of treasury shares
(Note 20)
Sale of treasury shares (Note 20)
Exercise of share options
(Note 20)
Appropriation of net profit to legal
reserve (Note 20)
Dividends declared by the parent
entity to its shareholders (Note 20)
Dividends declared by the Group’s
subsidiaries to non-controlling
shareholders (Note 20)
–
–
–
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(197)
108
80
–
–
–
–
–
–
746
(1)
21
–
–
–
2
–
–
–
–
–
–
–
7
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,797
–
1,797
62
1,859
–
(2,326)
(2,319)
(78)
(2,397)
1,797
(2,326)
(522)
(16)
(538)
–
–
(37)
3
(18)
215
–
–
(39)
(145)
(1)
(1,506)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
758
(1)
–
–
758
(1)
(16)
(62)
(78)
3
(3)
–
(18)
215
2
(197)
69
(65)
–
(1,506)
–
–
–
–
–
–
–
–
(18)
215
2
(197)
69
(65)
–
(1,506)
–
(80)
(80)
AT dECEmBER 31, 2008
$ 332
$ (9) $ 1,054
$ 218
$ 30
$ – $ 4,377 $ (1,330) $ 4,672
$ 245
$ 4,917
The accompanying notes form an integral part of these consolidated financial statements.
121 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
notes to the Consolidated
FinanCial statements
Years ended december 31, 2010, 2009 and 2008
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 March 30, 2011.
Evraz Group S.A. (‘Evraz Group’ or ‘the Company’) is a joint stock company registered under the laws of Luxembourg on December 31, 2004.
The registered address of Evraz Group is 1, Alleˆe 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 produces vanadium products and owns and operates certain mining assets. The Group is one of the largest steel producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of Evraz Group.
The major subsidiaries included in the consolidated financial statements of Evraz Group were as follows at December 31:
Subsidiary
OAO Nizhny Tagil Iron & Steel Plant
OAO West-Siberian Iron & Steel Plant
OAO Novokuznetsk Iron & Steel Plant
Evraz Vitkovice Steel a.s.
Evraz Highveld Steel and Vanadium Limited
Dnepropetrovsk Iron and Steel Works
Evraz Inc. NA
Evraz Inc. NA Canada
OAO Yuzhkuzbassugol
OAO Kachkanarsky Mining-and-Processing Integrated
Works
OAO Evrazruda
OAO Sukha Balka
Effective
ownership interest, %
2010
2009
2008
Business activity
Location
100.00
100.00
100.00
100.00
85.12
96.04
100.00
100.00
100.00
100.00
100.00
99.42
100.00
100.00
100.00
100.00
85.12
96.03
100.00
100.00
100.00
100.00
100.00
99.42
100.00
Steel production
100.00
Steel production
100.00
Steel production
Russia
Russia
Russia
100.00
Steel production
Czech Republic
85.12
Steel production
South Africa
96.03
Steel production
Ukraine
100.00
100.00
100.00
100.00
100.00
99.42
Steel mill
Steel mill
Coal mining
Ore mining
and processing
Ore mining
Ore mining
USA
Canada
Russia
Russia
Russia
Ukraine
At December 31, 2010, the Group employed approximately 110,000 employees, excluding joint venture’s and associates’ employees.
going Concern
These consolidated financial statements have been prepared on a going concern basis that contemplates the realisation of assets and
satisfaction of liabilities and commitments in the normal course of business. The Group’s activities in all of its operating segments have been
adversely affected by uncertainty and instability in international financial, currency and commodity markets resulting from the global economic
crisis of 2008–2009. In 2010, the Group reported net profit of $532 million and EBITDA of $2,350 million whereas in 2009 net loss amounted to
$(292) million and EBITDA was $1,237 million (Note 3). The Group expects that the recovery will continue in 2011.
At December 31, 2010, the Group was in compliance with all of its financial covenants (Note 21). The Board and the management anticipate that
the Group will comply with all debt covenants during twelve months after the date of authorisation of issue of these financial statements.
2. significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’),
as adopted by the European Union (‘EU’).
International Financial Reporting Standards are issued by the International Accounting Standard Board (‘IASB’). As of December 31, 2010, all
IFRSs that were published by IASB and that are mandatory for application are the same as those adopted by the EU and mandatory in the EU, with
the exception of:
• IAS 39 ‘Financial Instruments: Recognition and Measurement’, which was partially adopted by the EU;
• Improvements to IFRSs issued in May 2010.
122 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Basis of preparation (continued)
Both exceptions have no effect on the Group’s consolidated financial statements. As a result, the Group’s consolidated financial statements
comply with International Financial Reporting Standards as issued by the IASB.
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 measured at fair value, 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.
ComPLETIon of InITIAL ACCounTInG
In 2010, the Group finalised its purchase price allocation for the acquisition of steel dealers (Note 4). As a result, the Group recognised
adjustments to the provisional values of identifiable assets, liabilities and contingent liabilities of the entity at the date of acquisition and restated
consolidated financial statements as of December 31, 2009 and for the year then ended.
Changes in accounting policies
In the preparation of these consolidated financial statements, the Group followed the same accounting policies and methods of computation as
compared with those applied in the previous year, except for:
• the change in accounting policy in respect of the subsequent measurement of property, plant and equipment, i.e. the adoption of a cost model
under IAS 16 ‘Property, Plant and Equipment’;
• the adoption of new standards and interpretations and revision of the existing standards as of January 1, 2010.
PRoPERTY, PLAnT And EquIPmEnT
Prior to January 1, 2009, the Group applied the cost model for the measurement of property, plant and equipment. The Group’s property, plant
and equipment were stated at purchase or construction cost, excluding the costs of day-to-day servicing, less accumulated depreciation and
any impairment in value. Property, plant and equipment acquired in business combinations were measured at fair value at the dates of business
combinations.
As of 1 January 2009, the Group made a voluntary change to its accounting policies to account for selected classes of property, plant and
equipment (land, buildings and constructions, machinery and equipment) under the revaluation model instead of the cost model. The Group
continued to apply the cost model for other classes of property, plant and equipment.
Given the difficulties in understanding the effects on the financial statements from the application of the revaluation model and given that
most companies in the industry continue to apply the cost model of accounting, the Group’s consolidated financial statements had become
non-comparable with its peers.
Accordingly, the Group has resolved to revert to the cost model of accounting for all classes of property, plant and equipment as it provides more
relevant and reliable information about the Group's financial position and financial performance.
In accordance with the requirements of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, this change in accounting
policies should be applied retrospectively, therefore, the Group retrospectively adjusted amounts for the year ended December 31, 2009
in these financial statements. The Board of Directors of Evraz Group S.A. approved this change in accounting policy and its retrospective
application. The formal shareholders’ approval of this change will be obtained during the forthcoming shareholders' meeting which is scheduled
for May, 16, 2011.
The Group made certain adjustments to the assets and liabilities as of December 31, 2009 and June 30, 2010 and the financial results for
the year ended December 31, 2009 and for the six-month period ended June 30, 2010. The amounts for the year ended December 31, 2008
presented as part of these consolidated financial statements were not affected by the retrospective application. The effects of the retrospective
application are summarised below.
123 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Changes in accounting policies (continued)
Property, Plant and Equipment (continued)
(US$ million)
AssETs
Property, plant and equipment
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
non-current assets
Inventories
Cash and cash equivalents*
Current assets
Assets of disposal groups classified as held for sales
ToTAL AssETs
EquITY And LIABILITIEs
Revaluation surplus
Accumulated profits
Translation difference
Equity attributable to equity holders of the parent entity
Minority interests
Equity
Deferred income tax liabilities
non-current liabilities
ToTAL EquITY And LIABILITIEs
(US$ million)
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Revaluation deficit on property, plant and equipment
Other operating expenses
Profit/(loss) from operations
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on disposal groups classified as held for sale, net
Excess of interest in the net fair value of acquiree’s identifiable assets, liabilities
and contingent liabilities over the cost of acquisition*
Profit/(loss) before tax
Income tax benefit/(expense)
nET PRofIT/(Loss)
Attributable to:
Equity holders of the parent entity
Minority interests
Earnings/(losses) per share:
December 31, 2009
Restated
As previously
reported
Adjustment
$ 8,585
2,186
634
70
12,767
1,828
671
4,178
7
$ 14,941
$ (6,356)
2,211
687
40
19,171
1,886
675
4,240
13
(25)
(53)
30
(6,404)
(58)
(4)
(62)
(6)
$ 16,952
$ 23,424
$ (6,472)
$ 208
4,065
(1,260)
5,167
275
5,442
1,231
7,771
$ 6,338
$ (6,130)
3,164
(1,372)
10,284
324
10,608
2,537
9,077
901
112
(5,117)
(49)
(5,166)
(1,306)
(1,306)
$ 16,952
$ 23,424
$ (6,472)
Year ended December 31, 2009
Restated
$ (8,124)
1,648
As previously
reported
$ (8,756)
1,016
(626)
(628)
(39)
(180)
–
(121)
195
2
(5)
6
(338)
46
$ (292)
(623)
(645)
(81)
(163)
(564)
(128)
(1,047)
(8)
(19)
10
(1,600)
339
$ (1,261)
$ (295)
$ (1,251)
3
(10)
$ (292)
$ (1,261)
Adjustment
$ 632
632
(3)
17
42
(17)
564
7
1,242
10
14
(4)
1,262
(293)
$ 969
$ 956
13
$ 969
basic and diluted, for profit/(loss) attributable to equity holders of the parent
entity, US dollars
$ (2.19)
$ (9.30)
$ 7.11
* the change reflects an adjustment amounting to $4 million made in connection with the completion of initial accounting (Note 4).
124 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Changes in accounting policies (continued)
Property, Plant and Equipment (continued)
(US$ million)
AssETs
Property, plant and equipment
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
non-current assets
Inventories
Cash and cash equivalents*
Current assets
Assets of disposal groups classified as held for sale
ToTAL AssETs
EquITY And LIABILITIEs
Revaluation surplus
Accumulated profits
Translation difference
Equity attributable to equity holders of the parent entity
Minority interests
Equity
Deferred income tax liabilities
non-current liabilities
ToTAL EquITY And LIABILITIEs
(US$ million)
Cost of revenue
Gross profit
General and administrative expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Revaluation deficit on property, plant and equipment
Profit/(loss) from operations
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on disposal groups classified as held for sale, net
Profit/(loss) before tax
Income tax benefit/(expense)
nET PRofIT/(Loss)
Attributable to:
Equity holders of the parent entity
Minority interests
Earnings/(losses) per share:
June 30, 2010
As previously
reported
$ 14,736
2,165
738
35
Restated
$ 8,170
2,140
717
70
Adjustment
$ (6,566)
(25)
(21)
35
12,365
18,942
(6,577)
1,972
650
4,412
106
2,042
654
4,486
113
(70)
(4)
(74)
(7)
$ 16,883
$ 23,541
$ (6,658)
$ 189
4,273
(1,575)
5,037
269
5,306
1,193
7,929
$ 7,059
2,990
(1,887)
10,312
319
10,631
2,526
9,262
$ (6,870)
1,283
312
(5,275)
(50)
(5,325)
(1,333)
(1,333)
$ 16,883
$ 23,541
$ (6,658)
Six-month period June 30, 2010
Restated
$ (4,919)
1,460
(363)
As previously
reported
$ (5,296)
1,083
(375)
(13)
(54)
–
689
71
(36)
323
(131)
(24)
(38)
(138)
167
22
(52)
(264)
(6)
$ 192
$ (270)
$ 190
2
$ 192
$ (267)
(3)
$ (270)
Adjustment
$ 377
377
12
11
(16)
138
522
49
16
587
(125)
$ 462
$ 457
5
$ 462
basic and diluted, for profit/(loss) attributable to equity holders of the parent
entity, US dollars
$ 1.37
$ (1.93)
$ 3.30
125 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Changes in accounting policies (continued)
nEw/REvIsEd sTAndARds And InTERPRETATIons AdoPTEd In 2010
• IfRs 2 (revised) ‘share-based Payment’ – Group Cash-settled share-based Payment Transactions
The amendment to IFRS 2 clarified the scope and the accounting for group cash-settled share-based payment transactions. It did not have an
impact on the financial position or performance of the Group.
• IfRs 3 (revised) ‘Business Combinations’
The revised standard introduced significant changes in the accounting for business combinations occurring from January 1, 2010. Changes
affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of
a contingent consideration and business combinations achieved in stages. The adoption of these amendments did not have an effect on the
financial position or performance of the Group in 2010.
• IAs 27 (revised) ‘Consolidated financial statements’
The revised standard requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction
with owners in their capacity as owners, i.e. such transactions do not give rise to goodwill, nor a gain or loss. Furthermore, the amended standard
changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. These amendments did not have a
significant impact on the financial position or performance of the Group.
• IfRIC 17 ‘distributions of non-Cash Assets to owners’
This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a
distribution of reserves or as dividends. The interpretation did not have an effect on the financial position or performance of the Group.
• Amendment to IAs 39 ‘financial Instruments: Recognition and measurement’ – Eligible hedged Items
The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial
instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The amendment did
not have any impact on the financial position or performance of the Group, as the Group has not entered into any such hedges.
• Amendments to standards following may 2008 and April 2009 ‘improvements to IfRs’ project
These amendments clarify the application of certain provisions of the standards.
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:
• IAS 24 (revised) ‘Related Party Disclosures’ (effective for annual periods beginning on or after January 1, 2011);
• IFRS 9 ‘Financial Instruments’ (effective for annual periods beginning on or after January 1, 2013);
• IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ (effective for annual periods beginning on or after July 1, 2010);
• Amendment to IAS 32 ‘Financial Instruments: Presentation’ (effective for annual periods beginning on or after February 1, 2010);
• Amendments to IFRIC 14/IAS 19 ‘Prepayments of a Minimum Funding Requirement’ (effective for annual periods beginning on or after
January 1, 2011);
• Amendments to standards following May 2010 ‘improvements to IFRS’ project (separate transitional provisions for each standard).
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 a 49% ownership interest in NS Group does not represent an investment in an associate (Note 4).
• For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment
or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include
a significant or prolonged decline in the fair value of the investment below its cost. The determination of what is ‘significant’ or ‘prolonged’
requires judgment. In making this judgment, the Group evaluates, among other factors, historical share price movements and the duration
or extent to which the fair value of an investment is less than its cost. Based on these criteria, in 2008, the Group identified an impairment of
$150 million on available-for-sale investments – quoted shares, which is recognised within gain/(loss) on financial assets and liabilities in the
consolidated statement of operations for the year ended December 31, 2008 (Notes 7 and 13).
126 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
significant accounting Judgements and estimates (continued)
EsTImATIon unCERTAInTY
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed
below.
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 indication 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 individual 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 2010, 2009 and 2008, the Group recognised an impairment loss of $102 million, $15 million and $117 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-generating 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 2010 and 2009, the Group changed its estimation of useful lives of property, plant and equipment, which resulted in a $10 million increase
and $102 million decrease in depreciation expense, respectively as compared to the amounts that would have been charged had no change
in estimate occurred. In 2008, the change in estimates of useful lives of property, plant and equipment resulted in an additional depreciation
expense of approximately $22 million.
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 liabilities 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 suitable discount rate in order to calculate the present value of those cash
flows.
The carrying amount of goodwill at December 31, 2010, 2009 and 2008 was $2,219 million, $2,186 million and $2,167 million, respectively.
More details are provided in Note 5. In 2010, 2009 and 2008, the Group recognised an impairment loss in respect of goodwill in the amount of
$16 million, $160 million and $756 million, respectively (Note 5).
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.
127 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
significant accounting Judgements and estimates (continued)
Estimation uncertainty (continued)
site Restoration Provisions
The Group reviews site restoration provisions at each reporting date and adjusts them to reflect the current best estimate 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 end of the reporting period 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.
In 2010, the independent experts made a re-assessment of site restoration provisions (Note 25).
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 employee 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.).
Allowances
The Group makes allowances for doubtful receivables to account for estimated losses resulting from the inability of customers to make required
payments. When evaluating the adequacy of an allowance for doubtful accounts, management 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, industry or specific customer conditions may require adjustments to the allowance for doubtful
accounts recorded in the consolidated financial statements. As of December 31, 2010, 2009 and 2008, allowances for doubtful accounts in
respect of trade and other receivables have been made in the amount of $117 million, $92 million, and $93 million, respectively (Note 29).
The Group makes an allowance for obsolete and slow-moving raw materials and spare parts (Note 14). In addition, certain finished goods of the
Group are carried at net realisable value (Note 14). Estimates of net realisable value of finished goods are based on the most reliable evidence
available at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events
occurring subsequent to the end of the reporting period to the extent that such events confirm conditions existing at the end of the period.
Litigations
The Group exercises judgment in measuring and recognising provisions and the exposure to contingent liabilities related 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. More details are provided
in Note 31.
Current Taxes
Russian and Ukrainian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Further, the
interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities 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 and Ukraine 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 31.
deferred Income Tax Assets
Deferred tax assets are reviewed at each reporting 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 probability 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 these estimates or if these estimates
must be adjusted 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 statement of operations.
128 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
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 currencies of the Group’s subsidiaries are the Russian rouble, US dollar, euro, Czech koruna, South African rand, Canadian dollar
and Ukrainian hryvnia. 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 end of the reporting period, and their statements of operations
are translated at the exchange rates that approximate the exchange rates at the dates of the transactions. The exchange differences arising on
the translation are taken directly to a separate component of equity. On disposal of a subsidiary with the functional currency other than the US
dollar, the deferred cumulative amount recognised in equity relating to that particular subsidiary is recognised in the statement of operations.
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 end of the reporting period. All resulting differences are taken to the statement of operations.
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 otherwise 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 intercompany 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 necessary, accounting policies for
subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
Non-controlling 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. Non-controlling interests are presented in the consolidated statement of financial
position within equity, separately from the parent’s shareholders’ equity.
Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
ACquIsITIon of suBsIdIARIEs fRom JAnuARY 1, 2010
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount
of any non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree
either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair
value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in profit or
loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is
finally settled within equity.
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 effected 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.
Comparative information presented for the periods before the completion of initial accounting for the acquisition is presented as if the initial
accounting had been completed from the acquisition date.
129 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Basis of Consolidation (continued)
ACquIsITIon of suBsIdIARIEs PRIoR To JAnuARY 1, 2010
The previous accounting policies relating to business combinations include the following differences as compared with the policies applied
strating from January 1, 2010:
• Transaction costs directly attributable to the acquisition formed part of the acquisition costs.
• The non-controlling interest (formerly known as minority interest) could be measured only at the proportionate share of the acquiree’s
identifiable net assets.
• Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect
previously recognised goodwill.
• Contingent consideration was recognised if the Group had a present obligation, the economic outflow was more likely than not and a reliable
estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill.
InCREAsEs In ownERshIP InTEREsTs In suBsIdIARIEs
The differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for such
increases is either added to additional paid-in capital, if positive, or charged to accumulated profits, if negative, in the 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 statements at the historical cost
of the controlling entity (the ‘Predecessor’). Related goodwill inherent in the Predecessor'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 financial 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 non-ConTRoLLInG InTEREsTs
The Group derecognises non-controlling interests if non-controlling shareholders have a put option over their holdings. The difference between
the amount of the liability recognised in the statement of financial position over the carrying value of the derecognised non-controlling 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 statement of operations and its share of movements in reserves is
recognised in equity. However, 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 has legal or constructive obligations to make payments to, or on behalf of, the associate. If the
associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the
share of losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates;
unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
interests in Joint Ventures
The Group’s interest in its joint ventures 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 joint ventures. The statement
of operations reflects the Group's share of the results of operations of joint ventures.
130 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
property, plant and equipment
The Group’s property, plant and equipment is 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 criteria are met.
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 business 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, infrastructure, buildings, machinery and equipment.
At each end of the reporting period 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 impairment
loss in the statement of operations or other comprehensive income. 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 methods 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.
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Other assets
Useful lives (years)
Weighted average remaining
useful life (years)
15–60
4–45
7–20
3–15
18
11
14
5
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 improvements 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.
leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether
the fulfilment 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 present 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 statement of operations on a straight-line basis over the lease term.
goodwill
Goodwill represents the excess of the aggregate of the consideration transferred for an acquisition of a subsidiary or an associte and the amount
recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair
value of the net assets of the acquiree, the difference is recognised in the consolidated statement of operations.
131 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
goodwill (continued)
Goodwill on acquisition of a subsidiary is included in intangible assets. Goodwill on acquisition of an associate is included in the carrying amount
of the investments in associates.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or
more frequently, if events or changes in circumstances indicate that the carrying amount may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units that
are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Impairment is determined by assessing the recoverable 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.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill 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. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating
unit retained.
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 accounting 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.
Customer relationships
Trade names and trademarks
Water rights and environmental permits with definite lives
Patented and unpatented technology
Contract terms
Other
Useful lives (years)
Weighted average remaining
useful life (years)
1–15
5
5
5
1–49
5–10
12
1
1
1
45
8
Certain water rights and environmental permits are considered to have indefinite lives as 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. Emission rights (allowances)
for each compliance period (one year) are issued at the beginning of the year, actual emissions are verified after the end of the year.
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 statement of financial position and subsequently recognised 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.
132 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
intangible assets other than goodwill (continued)
Emission Rights (continued)
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 Assets’ and it is measured at the best estimate
of the expenditure required to settle the present obligation at the end of the reporting period being the present market price of the number of
allowances required to cover emissions made up to the end of the reporting period.
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 recognised 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 recognised 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 management has the positive 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 management has the express intention of holding the
investment for less than 12 months from the end of the reporting period or unless they will need to be sold to raise operating capital, in which
case they are included in current assets. Management 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 investment is determined
to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the statement of operations. Reversals of
impairment losses in respect of equity instruments are not recognised in the statement of operations. 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 statement of operations.
For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market
bid prices at the close of business on the end of the reporting period. For investments where there is no active 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 average basis and includes
expenditure incurred in acquiring or producing inventories and bringing them to their existing location and condition. 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 allowance 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 financial assets.
133 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
Value added tax
The tax authorities permit the settlement of sales and purchases value added tax (‘VAT’) on a net basis.
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 end of the
reporting period, 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.
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, 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.
Prior to 2008, borrowing costs were expensed as incurred. Since January 1, 2008 borrowing costs relating to qualifying assets are capitalised (Note 9).
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 end of the reporting period 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 deduction in equity from
the proceeds. Any excess of the fair value of consideration received over the par value of shares issued 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 statement of
operations on the purchase, sale, issue or cancellation of the treasury shares.
dIvIdEnds
Dividends are recognised as a liability and deducted from equity at the end of the reporting period only if they are declared before or on the end
of the reporting period. Dividends are disclosed when they are proposed before the end of the reporting period or proposed or declared after the
end of the reporting period 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 example under an insurance contract, the reimbursement is recognised as
a separate asset but only when the reimbursement 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 specific 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 within property, plant and equipment.
134 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
employee Benefits
soCIAL And PEnsIon ConTRIBuTIons
Defined contributions are made by the Group to the Russian and Ukrainian state pension, social insurance, medical insurance and
unemployment funds at the statutory rates in force (approximately 23%), 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.
EmPLoYEE 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-monetary benefits. The amounts of benefits are stipulated in the collective bargaining
agreements and/or in the plan documents.
The Group involves an independent qualified actuary in the measurement of all employee benefits obligations.
The liability recognised in the statement of financial position in respect of post-employment benefits is the present value of the defined benefit
obligation at the end of the reporting period 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 annually using the projected unit credit method. The present value
of the benefits is determined by discounting the estimated 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 related 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 become 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 obligations are to be settled directly.
The Group includes expected return on plan assets in interest expense caption of the consolidated statement of operations.
oThER CosTs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other services. These amounts
principally represent an implicit cost of employment and, accordingly, have been charged to cost of sales.
share-based payments
In 2005, 2006 and 2010, the Group adopted management compensation schemes, under which certain directors, senior executives
and employees of the Group received remuneration in the form of share-based payment transactions, whereby they rendered services as
consideration for equity instruments (‘equity-settled transactions’).
The cost of equity-settled transactions with non-executive directors and employees is measured by reference to the fair value of the Company’s
shares 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 24. 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 transactions 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 charge or credit in the
statement of operations for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest. Once a share-settled transaction is vested, no further accounting entries are
made to reverse the cost already charged, even if the instruments that are the subject of the transaction are subsequently forfeited. In this case,
the Group makes a transfer between 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 modification.
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.
135 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
2. significant accounting policies (continued)
share-based payments (continue)
Cash-settled share-based payments represent transactions in which the Group acquires goods or services by incurring a liability to transfer cash
or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the Group's shares or other equity
instruments. The extended portion of the options under Plan 2005 (Note 24) could be settled in cash.
The cost of cash-settled transactions is measured initially at fair value at the grant date using the Black-Scholes-Merton model. This fair value
is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each
reporting date up to and including the settlement date with changes in fair value recognised in the statement of operations.
The dilutive effect of outstanding share-based awards is reflected as additional share dilution in the computation of earnings per share (Note 20).
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.
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 recovered 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 end
of the reporting period.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of operations.
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 carrying 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 expected 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 end of the reporting period.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where
the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
136 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information
For management purposes, the Group is organised into business units based on their products and services, and has four reportable operating
segments:
• Steel production segment includes production of steel and related products at eleven steel mills.
• Mining segment includes iron ore and coal mining and enrichment.
• Vanadium products segment includes extraction of vanadium ore and production of vanadium products. Vanadium slag arising in steel-making
process is also allocated to vanadium segment.
• Other operations include energy generating companies, seaports, shipping and railway transportation companies.
Management and investment companies were not allocated to any of the segments.
No operating segments have been aggregated to form the above reportable segments.
Transfer prices between operating segments are on an arm’s-length basis in a manner similar to transactions with third parties.
Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on EBITDA. This performance indicator is calculated based on
management accounts that differ from the IFRS consolidated financial statements for the following reasons:
1. for the last month of the reporting period, the statement of operations for each operating segment is prepared using a forecast for that month;
2. the statement of operations is based on local GAAP figures with the exception of depreciation expense which approximates the amount under
IFRS.
Segment revenue is revenue reported in the Group's statement of operations that is directly attributable to a segment and the relevant portion
of the Group’s revenue that can be allocated on a reasonable basis to a segment, whether from sales to external customers or from transactions
with other segments.
Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant
portion of an expense that can be allocated on a reasonable basis to the segment, including expenses relating to external counterparties and
expenses relating to transactions with other segments.
Segment result is segment revenue less segment expense that is equal to earnings before interest, tax and depreciation and amortisation
(‘EBITDA’).
Segment EBITDA is determined as segment’s profit/(loss) from operations adjusted for impairment of assets, profit/(loss) on disposal of
property, plant and equipment and intangible assets, foreign exchange gains/(losses) and depreciation, depletion and amortisation expense.
Segment assets and liabilities are not reviewed by the Group’s chief operating decision maker and presented in these consolidated financial
statements in accordance with the previous accounting policies in respect of segment information.
Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable
to the segment or can be allocated to the segment on a reasonable basis. Segment assets do not include income tax assets. As segment's
segment result does not include interest or dividend income, its segment assets do not include the related receivables, loans, investments, or
other income-producing assets.
Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to
the segment or can be allocated to the segment on a reasonable basis. Segment liabilities do not include income tax liabilities. As segment result
does not include interest expense, segment liabilities do not include the related interest-bearing liabilities.
The Group adopted IFRS 8 ‘Operating segments’ starting from January 1, 2009. The Group did not restate the segment information for prior
periods reported as comparative information in these consolidated financial statements, because the necessary information is not available and
the cost to develop it would be excessive. Consequently, the Group disclosed segment information for the current period on both the new basis
of segmentation in accordance with IFRS 8 ‘Operating Segments’ and the basis used in previous periods in accordance with IAS 14 ‘Segment
Reporting’. The adoption of IFRS 8 did not result in a change in reportable segments previously disclosed by the Group.
137 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
The following tables present measures of segment profit or loss based on management accounts in accordance with the new accounting policies
in respect of segment information.
Year ended december 31, 2010
(US$ million)
Revenue
Sales to external customers
Inter-segment sales
Total revenue
sEGmEnT REsuLT – EBITdA
Year ended december 31, 2009
(US$ million)
Revenue
Sales to external customers
Inter-segment sales
Total revenue
sEGmEnT REsuLT – EBITdA
Steel
production
$ 12,592
359
12,951
$ 1,445
Mining
$ 322
2,056
2,378
$ 898
Vanadium
products
Other
operations
Eliminations
Total
$ 280
$ 140
$ –
$ 13,334
257
537
$ 90
536
676
(3,208)
(3,208)
–
13,334
$ 122
$ (155)
$ 2,400
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
$ 9,292
$ 188
$ 226
$ 117
$ –
$ 9,823
129
9,421
$ 950
1,160
1,348
$ 179
36
262
$ 12
439
556
$ 110
(1,764)
(1,764)
–
9,823
$ –
$ 1,251
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profit or loss before
tax per the consolidated financial statements prepared under IFRS.
Year ended december 31, 2010
(US$ million)
Revenue
Forecasted vs. actual revenue
Reclassifications and other adjustments
REvEnuE PER IfRs fInAnCIAL sTATEmEnTs
EBITdA
Forecasted vs. actual EBITDA
Exclusion of management services from segment result
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
$ 12,951
$ 2,378
$ 537
$ 676
$ (3,208)
$ 13,334
112
(940)
(7)
136
$ 12,123
$ 2,507
$ 1,445
$ 898
(24)
62
(33)
(11)
(6)
(14)
32
–
19
37
(4)
33
$ 566
$ 90
(1)
2
3
(41)
(37)
(1)
140
$ 815
$ 122
–
591
100
(40)
$ (2,617)
$ 13,394
$ (155)
$ 2,400
–
2
–
66
68
–
–
45
–
45
(39)
98
15
33
107
EBITdA based on IfRs financial statements
$ 1,439
$ 935
$ 53
$ 190
$ (110)
$ 2,507
Unallocated subsidiaries
Depreciation, depletion and amortisation expense
Impairment of goodwill
Impairment of property, plant and equipment and intangible
assets
Gain/(loss) on disposal of property, plant and equipment
and intangible assets
Foreign exchange gains/(losses), net
(558)
(282)
–
–
(81)
(20)
(33)
65
(18)
(2)
(47)
(16)
–
–
–
(37)
–
(30)
(1)
1
(157)
$ 2,350
(924)
(16)
(131)
(52)
64
–
–
–
–
–
$ 832
$ 613
$ (10)
$ 123
$ (110)
$ 1,291
Unallocated income/(expenses), net
PRofIT/(Loss) fRom oPERATIons
Interest income/(expense), net
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on financial assets and liabilities
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/(Loss) BEfoRE TAx
39
$ 1,330
$ (715)
73
8
(4)
4
(1)
$ 695
138 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
Year ended december 31, 2009
(US$ million)
REvEnuE
Forecasted vs. actual revenue
Reclassifications and other adjustments
REvEnuE PER IfRs fInAnCIAL sTATEmEnTs
EBITdA
Forecasted vs. actual EBITDA
Exclusion of management services from segment result
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
$ 9,421
$ 1,348
$ 262
$ 556
$ (1,764)
$ 9,823
(54)
(389)
(2)
110
$ 8,978
$ 1,456
$ 950
$ 179
(27)
53
(15)
(34)
(23)
–
30
–
70
100
3
98
$ 363
$ 12
–
–
–
(24)
(24)
–
209
$ 765
$ 110
–
4
–
53
57
–
(26)
(53)
2
$ (1,790)
$ 9,772
$ –
$ 1,251
–
–
12
–
12
(27)
87
(3)
65
122
EBITdA based on IfRs financial statements
$ 927
$ 279
$ (12)
$ 167
$ 12
$ 1,373
Unallocated subsidiaries
Depreciation, depletion and amortisation expense
Impairment of goodwill
Impairment of property, plant and equipment and intangible
assets
Gain/(loss) on disposal of property, plant and equipment
and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
PRofIT/(Loss) fRom oPERATIons
Interest income/(expense), net
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on financial assets and liabilities
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/(Loss) BEfoRE TAx
(624)
(160)
(24)
(25)
54
$ 148
(281)
(38)
(35)
–
4
(12)
1
$ (9)
–
–
–
–
–
–
(2)
–
$ (50)
$ 130
$ 12
(136)
$ 1,237
(978)
(160)
(20)
(39)
55
$ 95
100
$ 195
$ (637)
2
97
(5)
6
4
$ (338)
139 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
Under the previous basis of segmentation in accordance with IAS 14 ‘Segment Reporting’, the Group’s primary reporting format was business
segments and its secondary format was geographical segments. The following tables present revenue and profit information regarding business
segments for the years ended December 31, 2010, 2009 and 2008 in accordance with the previous accounting policies in respect of segment
information.
Year ended december 31, 2010
(US$ million)
REvEnuE
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
Sales to external customers
$ 11,976
$ 736
$ 536
$ 146
$ – $ 13,394
147
12,123
1,771
2,507
30
566
669
815
(2,617)
–
(2,617)
13,394
$ 832
$ 613
$ (10)
$ 123
$ (110)
$ 1,448
Share of profits/(losses) of joint ventures and associates
(32)
105
–
–
Investments in joint ventures and associates
32
718
–
–
$ 11,960
$ 3,293
$ 620
$ 503
$ 16,376
Inter-segment sales
ToTAL REvEnuE
REsuLT
sEGmEnT REsuLT
Unallocated expenses
PRofIT/(Loss) fRom oPERATIons
Other income/(expenses), net
Income tax expense
nET PRofIT/(Loss)
AssETs And LIABILITIEs
Segment assets
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 losses recognised in statement of operations
Impairment losses reversed through statement of
operations
Impairment losses recognised in other comprehensive
income
$ 1,636
$ 525
$ 246
$ 50
$ 516
$ 307
$ 10
$ 44
$ 877
123
(579)
(96)
15
–
–
(289)
(21)
1
(7)
–
(22)
(16)
–
–
–
(37)
(30)
–
–
123
(927)
(163)
16
(7)
(118)
$ 1,330
73
(708)
(163)
$ 532
750
475
$ 17,601
$ 2,457
9,146
$ 11,603
140 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
Year ended december 31, 2009
(US$ million)
REvEnuE
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
Sales to external customers
$ 8,855
$ 435
$ 354
$ 128
$ –
$ 9,772
123
8,978
1,021
1,456
9
363
637
765
(1,790)
(1,790)
–
9,772
$ 148
$ (9)
$ (50)
$ 130
$ 12
$ 231
Share of profits/(losses) of joint ventures and associates
(1)
3
–
–
Investments in joint ventures and associates
65
569
–
–
$ 11,435
$ 3,397
$ 592
$ 516
$ 15,940
Inter-segment sales
ToTAL REvEnuE
REsuLT
sEGmEnT REsuLT
Unallocated expenses
PRofIT/(Loss) fRom oPERATIons
Other income/(expenses), net
Income tax expense
nET PRofIT/(Loss)
AssETs And LIABILITIEs
Segment assets
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 losses recognised in statement of operations
Impairment losses reversed through statement of
operations
Impairment losses recognised in other comprehensive
income
$ 1,373
$ 484
$ 155
$ 43
$ 208
$ 150
$ 2
$ 33
$ 393
7
(545)
(229)
45
–
–
(289)
(18)
22
(8)
54
(54)
–
–
–
–
(48)
–
–
–
61
(936)
(247)
67
(8)
(36)
$ 195
2
(535)
46
$ (292)
634
378
$ 16,952
$ 2,055
9,455
$ 11,510
141 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
Year ended december 31, 2008
(US$ million)
REvEnuE
Sales to external customers
Inter-segment sales
ToTAL REvEnuE
REsuLT
sEGmEnT REsuLT
Unallocated expenses
PRofIT/(Loss) fRom oPERATIons
Steel
production
Mining
Vanadium
products
Other
operations
Eliminations
Total
$ 17,623
$ 1,290
$ 1,201
302
17,925
2,344
3,634
5
1,206
$ 266
756
1,022
$ – $ 20,380
(3,407)
–
(3,407)
20,380
$ 2,746
$ 971
$ 170
$ 83
$ 20
$ 3,990
Share of profits/(losses) of joint ventures and associates
–
194
–
–
–
Other income/(expenses), net
Income tax expense
nET PRofIT/(Loss)
AssETs And LIABILITIEs
Segment assets
$ 12,794
$ 3,684
$ 478
$ 547
Investments in joint ventures and associates
10
541
–
–
Unallocated assets
ToTAL AssETs
Segment liabilities
Unallocated liabilities
ToTAL LIABILITIEs
$ 1,881
$ 460
$ 101
$ 70
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 losses recognised in statement of operations
$ 740
$ 415
$ 9
$ 30
$ 1,194
1,534
(756)
(821)
–
(380)
(56)
–
(43)
–
–
(47)
(3)
1,534
(1,226)
(880)
(358)
$ 3,632
194
(775)
(1,192)
$ 1,859
$ 17,503
551
1,397
$ 19,451
$ 2,512
12,022
$ 14,534
142 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
(US$ million)
steel Production
Construction products
Flat-rolled products
Railway products
Tubular products
Semi-finished products
Other steel products
Other products
Rendering of services
mining
Iron ore
Coal
Other products
Rendering of services
vanadium Products
Vanadium in slag
Vanadium in alloys and chemicals
Other products
Rendering of services
other operations
Rendering of services
2010
2009
2008
$ 3,331
$ 2,184
$ 4,949
2,005
1,466
1,309
2,340
383
1,064
77
1,448
1,113
1,008
2,018
236
729
119
3,236
2,221
1,753
3,512
562
1,305
85
11,975
8,855
17,623
330
355
26
25
736
39
493
3
2
537
146
146
175
219
22
19
435
60
290
3
1
354
128
128
708
461
84
37
1,290
290
909
–
2
1,201
266
266
$ 13,394
$ 9,772
$ 20,380
Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended December 31 was as follows:
(US$ million)
Russia
USA
Canada
Thailand
Ukraine
Taiwan
United Arab Emirates
South Africa
China
Kazakhstan
Philippines
Germany
Italy
Czech Republic
Austria
Poland
Korea
Turkey
Indonesia
Vietnam
Japan
Syria
Slovakia
Great Britain
Jordan
Other countries
2010
$ 4,692
1,674
1,451
550
471
459
410
407
367
342
285
219
205
189
188
139
126
118
113
93
71
65
64
28
29
639
2009
$ 2,950
1,543
861
285
233
228
415
298
528
210
250
116
140
120
148
93
174
130
74
226
21
62
51
25
101
490
2008
$ 7,575
3,232
1,283
479
913
504
289
649
172
327
149
417
343
295
415
166
760
192
143
234
121
104
119
173
74
1,252
$ 13,394
$ 9,772
$ 20,380
143 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
3. segment information (continued)
None of the Group’s customers amounts to 10% or more of the consolidated revenues. 3.
Carrying amounts of the Group’s assets by geographical area in which the assets are located at December 31 were as follows:
(US$ million)
Russia
USA
Canada
South Africa
Ukraine
Czech Republic
Switzerland
Italy
Cyprus
Luxembourg
Other countries
2010
$ 8,245
2,864
2,638
1,029
1,215
515
435
336
154
138
32
2009
2008
$ 7,555
$ 8,252
2,935
2,523
1,131
1,235
455
490
334
148
113
33
3,604
2,415
1,052
1,533
613
646
415
159
723
39
$ 17,601
$ 16,952
$ 19,451
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:
(US$ million)
Russia
USA
South Africa
Canada
Czech Republic
Ukraine
Other countries
2010
$ 764
2009
$ 293
2008
$ 971
34
36
11
4
26
9
30
26
15
14
13
3
50
53
15
19
84
8
$ 884
$ 394
$ 1,200
4. Business Combinations
steel and mining Businesses in ukraine
On December 11, 2007, Lanebrook Limited (‘Lanebrook’, the ultimate parent of the Group, acquired majority shares in selected production
assets in Ukraine which included the following:
• a 99.25% ownership interest in Sukha Balka iron ore mining and processing complex;
• a 95.57% ownership interest in Dnepropetrovsk Iron and Steel Works;
• three coking plants (Bagleykoks -– 94.37%, Dneprokoks – 98.65%, and Dneprodzerzhinsk Coke Chemical Plant – 93.86% of shares
outstanding).
Lanebrook has acquired these production assets (‘Palmrose’) on the working capital free and debt free basis. Under the share purchase
agreement, the seller had 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. Total consideration for the acquisition of Palmrose amounted to $2,108 million,
comprising cash in the amount of $1,060 million paid by the Group on behalf of Lanebrook and 4,195,150 Evraz Group’s shares with the fair
value at the date of acquisition of $1,048 million.
In December 2007, the Group signed an agreement with Lanebrook to acquire Palmrose. Under that agreement, total consideration for the
acquisition of Palmrose from Lanebrook comprised cash in the amount of $1,110 million and 4,195,150 Evraz Group’s shares that should have
been issued for the settlement of this acquisition.
On April 14, 2008, the Group acquired a 51.4% share in Palmrose for a cash consideration of $1,110 million. In June 2008, that agreement was
amended increasing the cash portion of the consideration payable to Lanebrook by $18 million.
The Group obtained control over Palmrose on April 14, 2008. The acquisition of 51.4% and 48.6% ownership interests in Palmrose were
considered as linked transactions and were accounted for as a single transaction in these financial statements. As a result, on April 14, 2008,
the Group effectively acquired 100% ownership interest in Palmrose with a deferred consideration in respect of 48.6% ownership interest.
144 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
steel and mining Businesses in ukraine (continued)
In accordance with the accounting policy (Note 2), the Group accounted for this acquisition by applying the pooling of interests method and
presented its consolidated financial statements as if the transfer of controlling interest in the subsidiary had occurred from the date of acquisition
of the subsidiary by Lanebrook, which was December 11, 2007.
As a result, the financial position and the results of operations of Palmrose were included in the Group’s consolidated financial statements
beginning December 11, 2007.
The table below sets forth the fair values of Palmrose’s consolidated identifiable assets, liabilities and contingent liabilities at the date of its
acquisition by the predecessor:
(US$ million)
Mineral reserves
Other property, plant and equipment
Receivables from the seller
Total assets
Non-current liabilities
Deferred income tax liabilities
Current liabilities
Total liabilities
non-controlling interests
nET AssETs
Purchase consideration
GoodwILL
In 2007, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiaries
Cash paid
nET CAsh ouTfLow
December 11, 2007
$ 429
1,307
822
2,558
57
377
839
1,273
40
$ 1,245
$ 2,108
$ 863
$ –
(1,060)
$ (1,060)
$68 million paid by the Group to Lanebrook in 2008 was recorded as a distribution to a shareholder in the consolidated statement of cash flows.
The excess of the consideration paid by the Group to its shareholder over the historical cost of net assets transferred to the Group, including the
predecessor's goodwill, was charged to accumulated profits and recorded as a distribution to a shareholder in the amount of $18 million and
$50 million in the consolidated statements of changes in equity for the years ended December 31, 2008 and 2007, respectively.
On September 9, 2008, the remaining 48.6% ownership interest in Palmrose was transferred to the Group in exchange for new shares issued by
Evraz Group S.A. The liability to Lanebrook in respect of the 48.6% ownership interest in Palmrose was measured at the fair value of Evraz Group’s
shares and amounted to $972 million as of December 31, 2007. The change in the fair value of that liability was credited to accumulated profits
in the amount of $215 million and $76 million in the consolidated statements of changes in equity for the years ended December 31, 2008 and
2007, respectively.
In addition, in 2008, the Group purchased non-controlling interests in Dnepropetrovsk Iron and Steel Works (0.46%) and Sukha Balka (0.17%) for
a total cash consideration of $3 million. The excess of the amounts of consideration over the carrying values of non-controlling interests acquired
amounting to $1 million was charged to accumulated profits.
In 2009, the Group and Lanebrook Limited signed an amendment agreement under which the purchase price for the acquired businesses has
been reduced by $65 million. This reduction in the purchase price was accounted for as a contribution from a shareholder in the consolidated
statement of changes in equity.
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 plate producer located in the United
States.
145 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
Claymont steel (continued)
In accordance with the US legislation, following the acquisition of the controlling interest in Claymont Steel, all the 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. The company then merged with
the Group’s wholly owned subsidiary. Total cash consideration for the acquisition of a 100% ownership interest in Claymont Steel amounted to
$420 million, including transaction costs of $7 million.
As a result, the financial position and the results of operations of Claymont Steel were included in the Group’s consolidated financial statements
beginning January 16, 2008.
The table below sets forth the fair values of identifiable assets, liabilities and contingent liabilities of Claymont Steel at the date of acquisition:
(US$ million)
Property, plant and equipment
Intangible assets
Other non-current assets
Inventories
Accounts and notes receivable
Cash and cash equivalents
Total assets
Non-current liabilities
Deferred income tax liabilities
Current liabilities
Total liabilities
nET AssETs
Purchase consideration
GoodwILL
In 2008, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiary
Cash paid
nET CAsh ouTfLow
January 16, 2008
$ 161
40
–
52
44
5
302
136
58
59
253
$ 49
$ 420
$ 371
$ 5
(420)
$ (415)
For the period from January 16, 2008 to December 31, 2008, Claymont Steel reported net loss amounting to $4 million.
ipsCo inc.
In March 2008, the Group entered into an agreement with SSAB, a Swedish steel company, to acquire IPSCO’s Canadian plate and pipe business.
IPSCO is a leading North American producer of steel plates and pipes for the oil and gas industry.
Under the structure of the transaction, the Group and OAO TMK (‘TMK’), the Russian leading tubular player, acquired plate and pipe businesses
for $4,211 million (excluding transaction costs and working capital adjustment to purchase consideration paid by TMK, if any) comprising certain
Canadian plate and pipe businesses, a US metal scrap company (together – ‘IPSCO Inc.’), and US tubular and pipe businesses. The Group
has also entered into a back-to-back agreement with TMK and its affiliates, which consisted of an on-sale of the acquired US tubular and pipe
businesses, including 51% in NS Group, to TMK for $1,250 million.
In addition, the Group signed an option agreement that gave it the right to sell and gave TMK the right to buy 49% in NS Group for approximately
$511 million plus interest at an annual rate ranging from 10% to 12% accrued from June 12, 2008 to the date when the option is exercised. The
put option could be exercised by the Group in respect of the whole stake held by the Group and not earlier than October 22, 2009. The call option
could be exercised by TMK in respect of any shareholding in NS Group starting from June 12, 2008.
On June 12, 2008, the acquisition was completed. As a result, the net cost of the acquisition of 100% of IPSCO Inc. for the Group amounted to
$2,450 million, including transaction costs of $65 million.
The financial position and the results of operations of IPSCO Inc. were included in the Group’s consolidated financial statements beginning
June 12, 2008.
146 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
ipsCo inc. (continued)
The table below sets forth the fair values of IPSCO Inc.’s consolidated identifiable assets, liabilities and contingent liabilities at the date of
acquisition:
(US$ million)
Property, plant and equipment
Intangible assets
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Non-current liabilities
Deferred income tax liabilities
Current liabilities
Total liabilities
nET AssETs
Purchase consideration
GoodwILL
In 2008, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiary
Cash paid
nET CAsh ouTfLow
June 12, 2008
$ 726
607
18
551
186
2
2,090
4
319
169
492
$ 1,598
$ 2,450
$ 852
$ 2
(1,501)
$ (1,499)
$938 million of purchase consideration was paid by a bank on behalf of the Group directly to the seller. Transaction costs amounting to
$10 million were paid in 2009. At December 31, 2009, accounts payable include $1 million of unpaid transaction costs.
For the period from June 12 to December 31, 2008, IPSCO Inc. reported net loss amounting to $87 million.
The investment in a 49% ownership interest in NS Group was included in short-term investments caption of the consolidated statement of
financial position as of December 31, 2008. In 2009, TMK exercised its call option for a 49% ownership interest in NS Group (Note 18).
Vanady-tula
On December 20, 2007, the Group signed an option agreement with OOO SGMK-Engineering (the ‘Seller’) in respect of shares of OAO Vanady-Tula
(‘Vanady-Tula’), a vanadium refinery located in Russia. Under the agreement, the Group had the right to acquire (the call option) and OOO SGMK-
Engineering had the right to sell to the Group (the put option) 90.84% of shares in Vanady-Tula for 3,140 million roubles ($108 million at the
exchange rate as of November 2, 2009, the date of the business combination). The options were extended to December 31, 2009. The exercise
of the options was conditional upon the approval of the regulatory authorities. To secure the put option, the Group provided the seller with a non-
interest bearing deposit in the amount of 3,091 million roubles ($121 million at the exchange rate as at the payment date and $105 million at the
exchange rate as of December 31, 2008 – Note 13). The deposit would have been repayable to the Group if neither the call option nor the put
option were exercised before their expiration.
During 2008 and 2009, the Group purchased shares in Vanady-Tula and immediately prior to the business combination held a 1.88% ownership
interest in the entity. The consideration paid for these shares was $2 million.
On November 2, 2009, the Group obtained the necessary regulatory approvals. The share options became exercisable and economic benefits
have been effectively transferred to the Group since that date. As a result, the financial position and results of operations of Vanady-Tula were
included in the Group’s consolidated financial statements beginning November 2, 2009 as the Group effectively exercised control over the
entity’s operations since that date.
In December 2009, the option agreement was dissolved and the companies entered into a new agreement for the purchase of an 82.96%
ownership interest in Vanady-Tula. The purchase consideration amounted to 2,854 million roubles ($95 million at the exchange rate as of the date
of the transaction, which was completed on December 15, 2009).
147 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
Vanady-tula (continued)
The table below sets forth the fair values of Vanady-Tula’s consolidated identifiable assets, liabilities and contingent liabilities at the date of
business combination:
(US$ million)
Property, plant and equipment
Inventories
Accounts and notes receivable
Total assets
Deferred income tax liabilities
Current liabilities
Total liabilities
nET AssETs
fair value of net assets attributable to 92.72% ownership interest
Purchase consideration
GoodwILL
In 2009, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiary
Cash paid
nET CAsh ouTfLow
November 2, 2009
$ 54
14
16
84
9
31
40
$ 44
41
$ 110
$ 69
$ –
(5)
$ (5)
At December 31, 2009, the Group’s accounts receivable include $12 million due from the seller.
For the period from November 2, 2009 to December 31, 2009, Vanady-Tula reported net profit amounting to $2 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’). On December 15, 2009, the date when the Group became the legal owner of the
shares under the new purchase agreement, the Group derecognised all non-controlling interests in the entity and accrued a liability to the
non-controlling shareholders in the amount of $17 million. This transaction resulted in a $5 million charge to accumulated profits.
In February, 2010, the Group made an offer to non-controlling shareholders of Vanady-Tula to sell their stakes to the Group. The non-controlling
shareholders sold an 11.26% ownership interest to the Group. The Russian legislation allows a shareholder owning more than 95% of a company to
increase its stake to 100% through a forced disposal of the shares held by non-controlling shareholders. Consequently, in August 2010, the Group
started the buy out of non-controlling shares of Vanady-Tula. In November, 2010, the Group completed the buy-out of the remaining shares (3.90%).
The total purchase consideration for a 15.16% ownership interest amounted to 521 million Russian roubles ($18 million at the exchange rate as
of the dates of transactions).
steel dealers
On October 15, 2009, the Group acquired a 100% interest in a holding company owning steel dealers throughout Russia (formerly known as
Carbofer). The purchase consideration amounted to $11 million.
The financial position and the results of operations of this holding were included in the Group’s consolidated financial statements beginning
October 15, 2009. At December 31, 2009, the acquisition was accounted for based on provisional values as the Group, as of the date of
authorisation of issue of the financial statements for the year ended December 31, 2009, has not completed purchase price allocation in
accordance with IFRS 3 ‘Business Combinations’.
In 2010, the Group finalised its purchase price allocation on the acquisition of steel dealers. As a result, the Group recognised adjustments to the
provisional values of identifiable assets, liabilities and contingent liabilities at the date of acquisition.
148 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
steel dealers (continued)
The table below sets forth the fair values of consolidated identifiable assets, liabilities and contingent liabilities at October 15, 2009:
(US$ million)
Property, plant and equipment
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Current liabilities
Total liabilities
nET AssETs
Purchase consideration
ExCEss of InTEREsT In ThE nET fAIR vALuE of ACquIREE’s IdEnTIfIABLE
AssETs, LIABILITIEs And ConTInGEnT LIABILITIEs ovER ThE CosT
of ACquIsITIon
In 2009, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiary
Cash paid
nET CAsh ouTfLow
Provisional fair values
Final estimation of fair values
$ 7
7
73
45
8
140
119
119
$ 21
$ 11
$ 10
$ 7
7
73
45
4
136
119
119
$ 17
$ 11
$ 6
$ 4
(9)
$ (5)
In 2010, the Group paid $1 million of purchase consideration. At December 31, 2010, unpaid purchase consideration was $1 million.
For the period from October 15 to December 31, 2009, steel dealers reported net loss amounting to $5 million.
inprom group
On December 22, 2010, the Group acquired 100% in a holding entity owning steel dealers throughout Russia (so called Inprom Group). Purchase
consideration consisted of cash amounting to $19 million plus the fair value of a deferred consideration of $21 million.
The financial position and the results of operations of Inprom were included in the Group’s consolidated financial statements beginning
December 22, 2010. The acquisition was accounted for based on provisional values as the Group, as of the date of authorisation of issue of these
financial statements, has not completed purchase price allocation in accordance with IFRS 3 ‘Business Combinations’.
The table below sets forth the provisional fair values of consolidated identifiable assets, liabilities and contingent liabilities at the date of
acquisition:
(US$ million)
Property, plant and equipment
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Non-current liabilities
Current liabilities
Total liabilities
non-controlling interests
nET AssETs
Purchase consideration
ExCEss of InTEREsT In ThE nET fAIR vALuE of ACquIREE’s IdEnTIfIABLE AssETs, LIABILITIEs
And ConTInGEnT LIABILITIEs ovER ThE CosT of ACquIsITIon
December 22, 2010
$ 123
26
31
24
8
212
8
161
169
(1)
$ 44
$ 40
$ 4
149 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
4. Business Combinations (continued)
inprom group (continued)
In 2010, cash flow on acquisition was as follows:
(US$ million)
Net cash acquired with the subsidiary
Cash paid
nET CAsh ouTfLow
$ 8
(18)
$ (10)
For the period from December 22 to December 31, 2010, Inprom Group reported net loss amounting to $1 million.
disclosure of other information in respect of Business Combinations
As the acquired subsidiaries either did not prepare financial statements in accordance with IFRS before the business combinations or applied
accounting policies that are significantly different from the Group’s accounting policies, it is impracticable to determine revenues and net profit
of the combined entity for each year presented on the assumption that all business combinations effected during each year had occurred at the
beginning of the respective year.
It is impracticable to determine the carrying amounts of each class of the acquirees' assets, liabilities and contingent liabilities, determined in
accordance with IFRS, immediately before the combination, because the acquirees did not prepare financial statements in accordance with IFRS
before acquisitions.
5. goodwill
The table below presents movement in the carrying amount of goodwill.
(US$ million)
At december 31, 2007
Goodwill recognised on acquisitions of subsidiaries (Note 4)
Adjustment to contingent consideration
Impairment
Palmrose
Claymont Steel
OSM Tubular – Portland Mill
Translation difference
At december 31, 2008
Goodwill recognised on acquisitions of subsidiaries (Note 4)
Adjustment to contingent consideration
Impairment
Palmrose
Claymont Steel
General Scrap
Evraz Inc. N.A. Canada (Surrey)
Translation difference
At december 31, 2009
Adjustment to contingent consideration
Impairment
Stratcor, Inc.
Translation difference
AT dECEmBER 31, 2010
Gross amount
$ 2,145
1,223
(2)
–
–
–
–
(443)
2,923
69
(5)
–
–
–
–
–
94
3,081
8
–
–
43
Impairment
losses
Carrying
amount
$ –
$ 2,145
–
–
(756)
(466)
(187)
(103)
–
1,223
(2)
(756)
(466)
(187)
(103)
(443)
(756)
2,167
–
–
(160)
(100)
(49)
(4)
(7)
21
(895)
–
(16)
(16)
(2)
69
(5)
(160)
(100)
(49)
(4)
(7)
115
2,186
8
(16)
(16)
41
$ 3,132
$ (913)
$ 2,219
150 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
5. goodwill (continued)
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)
Evraz Inc. NA (formerly Oregon Steel Mills)
Oregon Steel Portland Mill
OSM Tubular – Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
Claymont Steel
General Scrap (was a part of IPSCO at the time of IPSCO acquisition)
Evraz Inc. NA Canada (formerly IPSCO)
Calgary
Red Deer
Regina Steel
Regina Tubular
Others
Palmrose
Dnepropetrovsk Iron and Steel Works
Dneprodzerzhinsk Coke Chemical Plant
Bagleykoks
Dneprokoks
Evraz Palini e Bertoli
Vanady-Tula
Strategic Minerals Corporation
Nikom, a.s.
Evraz Highveld Steel and Vanadium Limited
Evro-Aziatskaya Energy Company
2010
2009
2008
$ 1,130
$ 1,130
$ 1,183
412
–
410
157
135
16
845
232
57
397
137
22
–
–
–
–
–
78
66
31
40
29
–
412
–
410
157
135
16
801
220
54
376
130
21
–
–
–
–
–
82
66
39
40
27
1
412
–
410
157
184
20
700
190
46
327
112
25
99
24
27
32
16
80
–
45
38
21
1
$ 2,219
$ 2,186
$ 2,167
The cash generating units within Evraz Inc. N.A. and Evraz Inc. N.A. Canada 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 as of December 31, 2010. For the purpose of the goodwill impairment testing the Group assessed the
recoverable amount of each cash generating unit to which the goodwill relates. The recoverable amount has been determined based on
value-in-use calculation using cash flows projections based on the actual operating results and business plans approved by management and
appropriate discount rates reflecting time value of money and risks associated with respective cash generating units. For the periods not covered
by management business plans, cash flow projections have been estimated by extrapolating the respective business plans results using a zero
real growth rate. For mining operations management business plans cover the full life of mines.
The key assumptions used by management in value-in-use calculation are presented in the table below.
Evraz Inc. NA
Evraz Inc. NA Canada
Evraz Palini e Bertoli
Vanady-Tula
Strategic Minerals Corporation
Nikom, a.s.
Evraz Highveld Steel and Vanadium Limited
Period of
forecast, years
Pre-tax discount
rate, %
5
5
5
5
5
5
5
11.63–13.05
13.05
12.77
13.39
14.28
13.19
14.65
Commodity
steel products
steel products
steel plates
vanadium products
ferrovanadium products
ferrovanadium products
ferrovanadium products
steel products
Average price
of the commodity
per ton in 2011
$ 899
$ 971
$ 660
$ 26,569
$ 34,980
$ 30,667
$ 38,154
$ 795
151 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
5. goodwill (continued)
The calculations of value-in-use are most sensitive to the following assumptions:
discount rates
Discount rates reflect the current market assessment of the risks specific to each cash generating unit. The discount rates have been determined
using the Capital Asset Pricing Model and analysis of industry peers. Reasonable changes in discounts rates could lead to further impairment
of goodwill at Evraz Inc. N.A. and Nikom cash generating units. A 10% increase in the discount rates would lead to an additional impairment of
$55 million.
sales prices
The prices of the products sold by the Group were estimated using industry research. The average prices for steel products in 2011 were
assumed to be 11% higher than the 2010 average. The Group expects that in 2012–2015 the nominal prices will grow on average by 5% and in
2016 and thereafter – by 3%. Reasonable changes in the assumptions for products prices could lead to an additional impairment at Evraz Inc.
N.A. cash generating units. If the prices assumed for 2011 and 2012 in the impairment test were 10% lower, this would lead to an additional
impairment of $27 million.
sales Volumes
Management assumed that the sales volumes of steel products would increase on average by 5% during 2011 and would grow evenly during the
following four years to reach normal asset capacity thereafter. Reasonable changes in sales volumes could lead to an additional impairment at
Evraz Inc. N.A. cash generating units. If the sales volumes were 10% lower than those assumed for 2011 and 2012 in the impairment test, this
would lead to an additional impairment of $11 million.
Cost Control measures
The recoverable amounts of cash generating units are based on the business plans approved by management. The reasonable deviation of cost
from these plans could lead to an additional impairment at Evraz Inc. N.A., Nikom and Vanady-Tula cash generating units. If the actual costs were
10% higher than those assumed for 2011 and 2012 in the impairment test, this would lead to an additional impairment of $56 million.
6. acquisitions of non-controlling interests in subsidiaries
highveld
In 2008, the Group acquired an additional non-controlling interest of 4.2% in Highveld Steel and Vanadium Corporation for a cash consideration
of $69 million. The excess of the amounts of consideration over the carrying values of non-controlling interests acquired amounting to $35 million
was charged to accumulated profits.
exercise of potential Voting rights
In 2008, the Group exercised options in respect of the interests in Caplink Limited and Velcast Limited, which owned a slab casting workshop
and equipment. Total cash consideration amounted to $6 million. The difference between the carrying values of non-controlling interests
acquired and the purchase consideration in the amount of $21 million was included in additional paid-in capital and $1 million was charged to
accumulated profits.
stratcor
In 2010, the Group acquired an additional non-controlling interest of 5.92% in Strategic Minerals Corporation (‘Stratcor’) for a cash consideration
of $8 million paid in 2009. The excess of the amount of consideration paid over the carrying value of acquired non-controlling interest amounting
to $3 million was charged to accumulated profits.
In addition, during the reporting period, the Group fully settled $16 million liability under earn-out payments for the acquisition of Stratcor in 2006
(Note 26).
ldpp
In 2010, the Group acquired an additional non-controlling interest of 25% in OAO Large Diameter Pipe Plant (‘LDPP’) for a cash consideration of
$8 million. The excess of the carrying value of acquired non-controlling interest over the amount of consideration paid amounting to $1 million
was recorded in additional paid-in capital.
152 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
7. income and expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended December 31:
(US$ million)
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
2010
2009
2008
$ (5,241)
$ (3,849)
$ (6,408)
(1,743)
(925)
(1,524)
(979)
(2,154)
(1,195)
In 2010 and 2009, the Group made a reversal of the allowance for net realisable value in the amount of $35 million and $177 million,
respectively. In 2008, the amount of a write-down of finished goods to net realisable value together with the allowance for obsolete and
slow-moving inventories that were recognised as expense amounted to $314 million.
The major components of other operating expenses were as follows:
(US$ million)
Idling, reduction and stoppage of production, including termination benefits
Restoration works and casualty compensations in connection with accidents
Write-off of Mezhegey licence
Other
2010
$ (45)
(17)
–
(48)
2009
$ (70)
(1)
–
(50)
2008
$ (19)
(4)
(12)
(25)
$ (110)
$ (121)
$ (60)
In July 2008, the Group won the tender to develop the Mezhegey coal deposit located in Russia. The Group offered $725 million in the tender held
by the Russian State Mineral Resources Agency. Due to significant deterioration of economic conditions in the second half of 2008, the Group
made a decision not to proceed with the purchase of the licence. In 2008, a prepayment amounting to $12 million, which was used to secure the
licence, was written off to other operating expenses. In 2010, a new tender was held by the Russian State Mineral Resources Agency and the
Group won the licence to develop the Mezhegey coal deposit for $32 million.
Interest expense consisted of the following for the years ended December 31:
(US$ million)
Bank interest
Interest on bonds and 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 contingent consideration
Other
Interest income consisted of the following for the years ended December 31:
2010
$ (241)
(423)
(6)
(32)
(15)
(1)
(10)
2009
$ (346)
(268)
(7)
(28)
(12)
(2)
(14)
2008
$ (392)
(221)
(7)
(17)
(9)
(2)
(7)
$ (728)
$ (677)
$ (655)
(US$ million)
Interest on bank accounts and deposits
Interest on loans receivable
Interest on loans receivable from related parties
Interest on accounts receivable
Other
Gain/(loss) on financial assets and liabilities included the following for the years ended December 31:
(US$ million)
Gain/(loss) on available-for-sale financial assets (Note 13)
Gain/(loss) on extinguishment of debts (Note 21)
Loss on trading with Raspadskaya shares
Change in the fair value of derivatives (Notes 18 and 26)
Impairment of financial instrument relating to the transaction with 49% ownership
interest in NS Group (Note 18)
Other
2010
$ 9
1
2
1
–
2009
$ 17
10
6
7
–
2008
$ 37
15
–
1
4
$ 13
$ 40
$ 57
2010
$ (2)
–
–
4
–
6
2009
$ –
103
(1)
1
(2)
(4)
2008
$ (150)
80
(27)
(10)
(3)
(19)
$ 8
$ 97
$ (129)
153 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
8. income taxes
The Group’s income was subject to tax at the following tax rates:
Russia
Canada
Cyprus
Czech Republic
Italy
South Africa
Switzerland
Ukraine
USA
2010
20.00%
28.00%
10.00%
19.00%
31.40%
28.00%
10.09%
25.00%
35.00%
2009
20.00%
29.00%
10.00%
20.00%
31.40%
28.00%
12.10%
25.00%
35.00%
2008
24.00%
29.00%
10.00%
21.00%
31.40%
28.00%
10.04%
25.00%
35.00%
In November 2008, a reduction of income tax rate from 24% to 20% was announced by the Russian government. The new rate became effective from
January 1, 2009. As such, the respective deferred tax assets and liabilities at December 31, 2008 were measured using the announced tax rate.
In 2010, a new Tax Code has been adopted in Ukraine, which introduced a gradual reduction in income tax rates from 25% in 2010 to 16%
in 2014. In addition, in accordance with the new Tax Code the carrying values of property, plant and equipment per statutory books as of
April 1, 2011 will become a new tax base of these assets for income tax calculations. The Group’s subsidiaries measured the respective
deferred tax assets and liabilities at December 31, 2010 based on the new tax bases using the announced tax rates and a forecast of temporary
differences reversal.
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 income tax benefit/(expense) relating to origination and reversal of temporary
differences
Deferred income tax benefit relating to changes in tax rates
Deferred income tax benefit relating to changes in tax regulations other than tax rates
Less: deferred income tax recognised directly in other comprehensive income
InComE TAx BEnEfIT/(ExPEnsE) REPoRTEd In ThE ConsoLIdATEd sTATEmEnT
of oPERATIons
2010
$ (415)
(8)
119
17
125
(1)
2009
$ (179)
(6)
219
13
–
(1)
2008
$ (1,622)
28
302
107
–
(7)
$ (163)
$ 46
$ (1,192)
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 to income tax expense as reported in the Group’s consolidated 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 20% (2009: 20%, 2008: 24%)
Adjustment in respect of income tax of previous years
Deferred income tax benefit resulting from reduction in tax rate
Deferred income tax benefit relating to changes in tax regulations other than tax rates
Less: deferred income tax recognised directly in other comprehensive income
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
Utilisation of previously unrecognised tax losses
Benefit arising from early payment of income tax
Tax paid on dividends to minorities
2010
$ 695
(139)
(8)
17
125
(1)
(254)
–
–
82
–
15
–
–
–
2009
$ (338)
2008
$ 3,051
68
(6)
13
–
(1)
(111)
–
(1)
68
11
–
5
–
–
(732)
28
107
–
(7)
(430)
23
(153)
(100)
43
25
5
6
(7)
InComE TAx ExPEnsE REPoRTEd In ThE ConsoLIdATEd sTATEmEnT
of oPERATIons
$ (163)
$ 46
$ (1,192)
154 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
8. income taxes (continued)
In 2008, the effect of non-deductible expenses included $(181) million in respect of impairment of goodwill and $(94) million in respect
of non-deductible foreign exchange losses related to Canadian and Luxembourg entities.
Deferred income tax assets and liabilities and their movements for the years ended December 31 were as follows:
Year ended december 31, 2010
(US$ million)
2010
Change
recognised
in statement
of operations
Received from
tax authorities
Change
recognised
in other
comprehensive
income
Change due
to business
combinations
Change due
to disposal of
subsidiaries
Translation
difference
2009
deferred income tax
liabilities:
Valuation and
depreciation of
property, plant and
equipment
Valuation and
amortisation of
intangible assets
Other
deferred income tax
assets:
Tax losses available
for offset
Accrued liabilities
Impairment of accounts
receivable
Other
Allowance for deferred
tax assets
nET dEfERREd
InComE TAx AssET
nET dEfERREd
InComE TAx LIABILITY
$ 1,074
(184)
274
89
1,437
(38)
(7)
(229)
150
197
33
140
(55)
465
100
5
67
6
8
(55)
31
24
$ 1,072
(236)
–
–
–
–
(74)
–
–
–
–
(74)
–
74
(1)
–
–
(1)
–
–
–
–
–
–
–
5
–
–
5
11
–
5
1
–
17
10
(13)
10 $ 1,257
–
–
(13)
15
4
29
297
92
1,646
–
–
–
–
–
–
–
5
2
–
(1)
–
6
203
128
22
132
–
485
(4)
70
(1)
(2)
(13)
19 $ 1,231
155 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
8. income taxes (continued)
Year ended december 31, 2009
(US$ million)
2010
Change
recognised
in statement
of operations
Received from
tax authorities
Change
recognised
in other
comprehensive
income
Change due
to business
combinations
Change due
to disposal of
subsidiaries
Translation
difference
2009
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
nET dEfERREd
InComE TAx AssET
nET dEfERREd
InComE TAx LIABILITY
$ 1,257
(42)
297
–
92
1,646
203
128
22
132
485
70
(49)
(11)
31
(71)
154
(20)
(3)
29
160
20
$ 1,231
(211)
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
–
–
(1)
–
–
–
–
–
9
–
–
–
9
4
–
2
1
7
8
(1)
10
–
–
–
–
–
–
–
–
–
–
–
–
17 $ 1,274
36
–
3
56
2
1
(1)
8
10
(2)
310
11
58
1,653
43
147
24
94
308
44
44
$ 1,389
156 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
8. income taxes (continued)
Year ended december 31, 2008
(US$ million)
2010
Change
recognised
in statement
of operations
Received from
tax authorities
Change
recognised
in other
comprehensive
income
Change due
to business
combinations
Change due
to disposal of
subsidiaries
Translation
difference
2009
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
nET dEfERREd
InComE TAx AssET
nET dEfERREd
InComE TAx LIABILITY
$ 1,274
(221)
310
11
58
1,653
43
147
24
94
308
44
(39)
(43)
(85)
(388)
14
(3)
2
1
14
27
$ 1,389
(375)
–
–
–
–
–
–
–
–
–
–
–
–
(7)
–
–
–
(7)
–
–
–
–
–
–
170
177
–
47
394
10
7
–
–
17
–
(7)
377
–
–
–
–
–
–
–
–
–
–
–
–
(268)
$ 1,600
(54)
226
–
(10)
54
106
(332)
1,986
(4)
(15)
(7)
(15)
(41)
23
158
29
108
318
(5)
22
(296)
$ 1,690
As of December 31, 2010, 2009 and 2008, deferred income taxes have been provided for in respect of undistributed earnings of the Group’s
subsidiaries amounting to $nil, $nil and $199 million, respectively, as management intended to dividend these amounts. Management does not
intend to distribute other accumulated earnings in the foreseeable future. The current tax rate on intra-group dividend income varies from 0% to 10%.
At December 31, 2010, the Group has not recognised a deferred tax liability and deferred tax asset in respect of temporary differences of
$5,764 million and $2,831 million, respectively (2009: $4,270 million and $2,713 million, respectively; 2008: $4,118 million and $2,826 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.
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, 2010, the unused tax losses carry forward approximated $3,365 million (2009: $2,757 million, 2008: $803 million). The Group
recognised deferred tax asset of $150 million (2009: $203 million, 2008: $43 million) in respect of unused tax losses. Deferred tax asset in the
amount of $655 million (2009: $463 million, 2008: $78 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 $2,555 million (2009: $1,873 million, 2008: $463 million) for which
deferred tax asset was not recognised arose in companies registered in Luxembourg, Cyprus, Russia, Ukraine and Canada. Losses in the amount
of $2,535 million (2009: $1,870 million, 2008: $459 million) are available indefinitely for offset against future taxable profits of the companies in
which the losses arose and $20 million (2009: $3 million, 2008: $4 million) will expire during 2016–2029.
157 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
9. property, plant and equipment
Property, plant and equipment consisted of the following as of December 31:
(US$ million)
Revalued amount or cost:
Land
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Assets under construction
Accumulated depreciation, depletion and impairment losses:
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Government grants:
Machinery and equipment, net
2010
2009
2008
$ 177
2,536
5,738
483
2,656
84
702
$ 164
2,456
5,342
445
2,617
77
539
$ 157
2,383
4,971
430
2,603
98
691
12,376
11,640
11,333
(854)
(2,046)
(203)
(607)
(55)
(711)
(1,631)
(173)
(485)
(50)
(570)
(1,218)
(133)
(359)
(35)
(3,765)
(3,050)
(2,315)
(4)
(5)
(6)
$ 8,607
$ 8,585
$ 9,012
The movement in property, plant and equipment for the year ended December 31, 2010 was as follows:
(US$ million)
At december 31, 2009,
cost, net of accumulated
depreciation and government
grants
Reclassifications between
categories
Additions
Assets acquired in business
combination
Assets put into operation
Disposals
Depreciation and depletion
charge
Impairment losses recognised
in statement of operations
Impairment losses reversed
through statement of
operations
Impairment losses recognised
or reversed through other
comprehensive income
Transfer to/from assets held
for sale
Change in site restoration and
decommissioning provision
Translation difference
AT dECEmBER 31, 2010,
CosT, nET of ACCumuLATEd
dEPRECIATIon And
GovERnmEnT GRAnTs
Buildings and
constructions
Machinery and
equipment
Transport and
motor vehicles
Mining
assets
Other
assets
Land
Assets
under
construction
Total
$ 164
$ 1,745
$ 3,706
$ 272
$ 2,132
$ 27
$ 539
$ 8,585
–
–
11
1
(1)
–
–
–
–
–
–
2
1
2
47
54
(9)
(4)
4
55
423
(39)
1
6
2
45
(3)
3
25
–
70
(12)
(1)
–
3
11
(2)
–
840
5
(604)
(10)
–
877
123
–
(76)
(149)
(453)
(40)
(151)
(10)
–
(803)
(4)
3
(4)
(6)
2
–
(40)
8
(1)
(9)
–
38
–
–
–
–
–
(3)
(8)
1
(2)
(75)
71
(5)
–
–
–
–
–
1
(65)
(117)
3
–
–
–
(6)
15
(7)
(90)
73
27
$ 177
$ 1,682
$ 3,688
$ 280
$ 2,049
$ 29
$ 702
$ 8,607
158 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
9. property, plant and equipment (continued)
The movement in property, plant and equipment for the year ended December 31, 2009 was as follows:
(US$ million)
At december 31, 2008,
cost, net of accumulated
depreciation and government
grants
Reclassifications
Additions
Assets acquired in business
combination
Assets put into operation
Disposals
Depreciation and depletion
charge
Impairment losses recognised
in statement of operations
Impairment losses reversed
through statement of
operations
Impairment losses recognised
or reversed through other
comprehensive income
Disposal of assets due to sale
of a subsidiary
Transfer to/from assets held
for sale
Change in site restoration and
decommissioning provision
Translation difference
AT dECEmBER 31, 2009,
CosT, nET of ACCumuLATEd
dEPRECIATIon And
GovERnmEnT GRAnTs
Buildings and
constructions
Machinery and
equipment
Transport and
motor vehicles
Mining
assets
Other
assets
Land
Assets
under
construction
Total
$ 157
$ 1,813
$ 3,747
$ 297
$ 2,244
$ 63
$ 691
$ 9,012
5
–
–
3
–
–
–
–
(4)
–
–
–
3
35
–
31
56
(11)
(12)
10
26
346
(26)
(1)
1
2
24
(4)
5
11
–
72
(1)
(34)
–
–
15
(1)
(151)
(445)
(43)
(147)
(17)
(28)
(33)
15
20
(3)
(1)
(3)
5
(13)
(1)
–
–
6
68
–
–
–
–
–
–
(4)
(4)
22
–
(10)
–
3
(63)
–
–
–
–
(2)
–
3
2
371
2
(516)
(6)
–
(7)
–
–
–
–
–
2
–
393
61
–
(49)
(803)
(72)
57
(8)
(11)
(5)
14
(4)
$ 164
$ 1,745
$ 3,706
$ 272
$ 2,132
$ 27
$ 539
$ 8,585
159 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
9. property, plant and equipment (continued)
The movement in property, plant and equipment for the year ended December 31, 2008 was as follows:
(US$ million)
At december 31, 2007,
cost, net of accumulated
depreciation and government
grants
Reclassifications
Additions
Assets acquired in business
combination
Assets put into operation
Disposals
Depreciation and depletion
charge
Impairment losses recognised
in statement of operations
Transfer to assets held for sale
Change in site restoration
provision
Buildings and
constructions
Machinery and
equipment
Transport and
motor vehicles
Mining
assets
Other
assets
Land
Assets
under
construction
Total
$ 147
$ 1,876
$ 3,984
$ 363
$ 2,933
$ 76
$ 728 $ 10,107
–
–
29
–
(2)
–
–
2
–
160
1
174
166
(10)
(177)
(16)
1
5
(130)
27
630
671
(26)
(631)
(45)
6
15
(754)
(18)
3
2
67
(4)
(3)
32
–
122
(5)
(13)
–
15
11
(1)
(52)
(220)
(22)
(1)
–
–
(63)
(53)
–
21
(583)
–
1
–
(4)
4
–
1,135
1,198
37
(1,037)
(21)
–
(2)
–
–
887
–
(69)
(1,102)
(117)
10
41
(153)
(1,943)
Translation difference
(19)
(367)
AT dECEmBER 31, 2008,
CosT, nET of ACCumuLATEd
dEPRECIATIon And
GovERnmEnT GRAnTs
$ 157
$ 1,813
$ 3,747
$ 297
$ 2,244
$ 63
$ 691
$ 9,012
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $250 million,
$121 million and $145 million as of December 31, 2010, 2009 and 2008, respectively.
Impairment losses were identified in respect of certain items of property, plant and equipment that were recognised as functionally obsolete or as
a result of the testing at the level of cash generating units.
The amount of borrowing costs capitalised during the year ended December 31, 2010 was $5 million (2009: $7 million, 2008: $18 million). In
2010, the rate used to determine the amount of borrowing costs eligible for capitalisation was 6.3%, which is the effective interest rate of the
specific borrowings.
10. intangible assets other than goodwill
Intangible assets consisted of the following as of December 31:
(US$ 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
2010
2009
2008
$ 1,353
$ 1,276
$ 1,117
31
64
10
11
53
31
64
9
42
46
28
63
9
66
56
1,522
1,468
1,339
(441)
(25)
(6)
(8)
(3)
(35)
(518)
(307)
(19)
(5)
(6)
(2)
(31)
(370)
(171)
(12)
(3)
(4)
(8)
(33)
(231)
$ 1,004
$ 1,098
$ 1,108
160 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
10. intangible assets other than goodwill (continued)
As of December 31, 2010, 2009 and 2008, water rights and environmental permits with a carrying value $56 million had an indefinite useful life.
(US$ million)
At december 31, 2009, cost,
net of accumulated amortisation
Additions
Amortisation charge
Emission allowances granted
Emission allowances used/sold/
purchased for the period
Impairment loss recognised
in statement of operations
Impairment losses reversed through
statement of operations
Translation difference
AT dECEmBER 31, 2010, CosT, nET
of ACCumuLATEd AmoRTIsATIon
Customer
relationships
Trade
names and
trademarks
Water rights and
environmental
permits
Patented and
unpatented
technology
Contract
terms
Other
Total
$ 969
$ 12
–
(113)
–
–
–
1
55
–
(6)
–
–
–
–
–
$ 59
–
(1)
–
–
–
–
–
$ 3
$ 40
$ 15
$ 1,098
–
(2)
–
–
–
–
1
–
(1)
–
–
(30)
–
(1)
7
(4)
6
(5)
–
–
(1)
7
(127)
6
(5)
(30)
1
54
$ 912
$ 6
$ 58
$ 2
$ 8
$ 18
$ 1,004
The movement in intangible assets for the year ended December 31, 2009 was as follows:
(US$ million)
At december 31, 2008, cost,
net of accumulated amortisation
Additions
Amortisation charge
Emission allowances granted
Emission allowances used/sold
for the period
Impairment loss recognised
in statement of operations
Impairment losses reversed through
statement of operations
Translation difference
AT dECEmBER 31, 2009, CosT, nET
of ACCumuLATEd AmoRTIsATIon
Customer
relationships
Trade
names and
trademarks
Water rights and
environmental
permits
Patented and
unpatented
technology
Contract
terms
Other
Total
$ 946
$ 16
$ 60
$ 5
$ 58
$ 23
$ 1,108
–
(104)
–
–
(15)
8
134
–
(5)
–
–
–
2
(1)
–
(1)
–
–
–
–
–
–
(2)
–
–
–
–
–
–
(18)
–
–
–
–
–
1
(4)
5
(11)
–
–
1
1
(134)
5
(11)
(15)
10
134
$ 969
$ 12
$ 59
$ 3
$ 40
$ 15
$ 1,098
The movement in intangible assets for the year ended December 31, 2008 was as follows:
(US$ million)
At december 31, 2007, cost,
net of accumulated amortisation
Additions
Assets acquired in business
combination
Amortisation charge
Emission allowances granted
Emission allowances used for the
period
Impairment loss recognised in
statement of operations
Translation difference
AT dECEmBER 31, 2008, CosT, nET
of ACCumuLATEd AmoRTIsATIon
Customer
relationships
Trade
names and
trademarks
Water rights and
environmental
permits
Patented and
unpatented
technology
Contract
terms
Other
Total
$ 627
$ 25
$ 61
–
613
(98)
–
–
–
(196)
–
–
(6)
–
–
(3)
–
–
–
(1)
–
–
–
–
$ 7
–
–
(2)
–
–
–
–
$ 66
$ 20
$ 806
–
27
(9)
–
–
–
(26)
2
7
(8)
12
(1)
(4)
(5)
2
647
(124)
12
(1)
(7)
(227)
$ 946
$ 16
$ 60
$ 5
$ 58
$ 23
$ 1,108
161 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
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, 2007
Share of profit/(loss)
Dividends distributed
Return of capital to a shareholder
Assets acquired in business combination (Note 4)
Translation difference
Investment at december 31, 2008
Additional investments
Share of profit/(loss)
Impairment of investments
Disposal of investments
Translation difference
Investment at december 31, 2009
Share of profit/(loss)
Impairment of investments
Group’s share in excess of net assets of ZAO Koksovaya
transferred to Raspadskaya over consideration received
(Note 12)
Translation difference
Corber Streamcore
Kazankovskaya Other associates
$ 573
212
(95)
(35)
–
(114)
541
–
40
–
–
(12)
569
105
–
52
(8)
$ –
–
–
–
–
–
–
42
–
–
–
2
44
–
(23)
–
$ 15
(14)
–
–
–
(1)
–
–
–
–
–
–
–
–
–
–
–
$ 4
–
–
–
7
(1)
10
13
–
(1)
(1)
–
21
1
(10)
–
(1)
Total
$ 592
198
(95)
(35)
7
(116)
551
55
40
(1)
(1)
(10)
634
106
(33)
52
(9)
InvEsTmEnT AT dECEmBER 31, 2010
$ 718
$ 21
$ –
$ 11
$ 750
Share of profit/(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
(US$ million)
Share of profit/(loss), net
Impairment of investments
Losses recognised in excess of the Group's investment in the associate (Note 13)
shARE of PRofITs/(LossEs) of JoInT vEnTuREs And AssoCIATEs RECoGnIsEd
In ThE ConsoLIdATEd sTATEmEnT of oPERATIons
Corber enterprises limited
2010
$ 106
(33)
–
$ 73
2009
$ 40
(1)
(37)
$ 2
2008
$ 198
–
(4)
$ 194
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. The Group has 50% share in the joint venture, i.e. effectively owns 40% in OAO Raspadskaya.
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
non-controlling interests
nET AssETs
2010
$ 798
970
27
77
275
165
2009
$ 864
746
38
44
335
24
2008
$ 935
643
5
56
268
73
2,312
2,051
1,980
361
194
81
636
340
325
186
111
622
291
333
188
102
623
277
$ 1,336
$ 1,138
$ 1,080
162 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
11. investments in Joint Ventures and associates (continued)
Corber enterprises limited (continued)
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
Non-controlling interests
nET PRofIT
50% of unrealised profits on transactions with the joint venture
Group’s share of profits of the joint venture
Kazankovskaya
2010
$ 706
(323)
(119)
$ 264
$ 214
50
$ 264
(2)
$ 105
2009
$ 497
(252)
(141)
$ 104
$ 82
22
$ 104
(1)
$ 40
2008
$ 1,200
(362)
(311)
$ 527
$ 420
107
$ 527
2
$ 212
ZAO Kazankovskaya (‘Kazankovskaya’) is a coal mining company that was acquaired as part of the purchase of Yuzhkuzbassugol in 2007. The
Group owns 50% in Kazankovskaya.
The table below sets forth Kazankovskaya’s assets and liabilities as of December 31:
(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/(LIABILITIEs)
The table below sets forth Kazankovskaya’s income and expenses:
(US$ million)
Revenue
Cost of revenue
Other expenses, including income taxes
net loss
GRouP’s shARE of Loss of ThE AssoCIATE
including: share of loss allocated against loan receivable from Kazankovskaya (Note 13)
streamcore
2010
$ –
–
1
1
1
3
65
4
24
93
2009
$ –
21
2
1
1
25
48
8
15
71
2008
$ 38
46
2
1
1
88
83
–
13
96
$ (90)
$ (46)
$ (8)
2010
$ 14
(32)
(23)
$ (41)
$ (21)
–
2009
$ 15
(26)
(55)
$ (66)
$ (33)
(33)
2008
$ 15
(24)
(27)
$ (36)
$ (18)
(4)
In 2009, the Group acquired a 50% interest in Streamcore, a joint venture established for the purpose of exercising joint control over facilities for
scrap procurement and processing in Siberia, Russia. Cash consideration amounted to $42 million.
The table below sets forth the fair values of Streamcore’s identifiable assets, liabilities and contingent liabilities at the date of acquisition:
(US$ million)
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Current liabilities
Total liabilities
nET AssETs
September 4, 2009
$ 59
1
11
71
5
5
10
$ 61
163 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
11. investments in Joint Ventures and associates (continued)
Kazankovskaya (continued)
The table below sets forth Streamcore’s assets and liabilities as of December 31:
(US$ million)
Property, plant and equipment
Accounts receivable
Total assets
Non-current liabilities
Deferred income tax liabilities
Current liabilities
Total liabilities
nET AssETs
2010
$ 52
17
69
4
–
1
5
$ 64
2009
$ 59
15
74
2
5
3
10
$ 64
The table below sets forth Streamcore’s income and expenses from the date of acquisition of interest in the joint venture:
(US$ million)
Revenue
Cost of revenue
Other expenses, including income taxes
net profit
GRouP’s shARE of PRofIT of ThE JoInT vEnTuRE
2010
$ 10
(9)
(1)
$ –
$ –
Period from September 4
to December 31, 2009
$ 5
(4)
(1)
$ –
$ –
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:
(US$ million)
Land
Other property, plant and equipment
Assets classified as held for sale
Liabilities directly associated with assets classified as held for sale
nET AssETs CLAssIfIEd As hELd foR sALE
2010
$ –
2
2
–
$ 2
2009
$ 1
6
7
1
$ 6
2008
$ –
7
7
–
$ 7
The table below demonstrates the carrying values of assets and liabilities, at the dates of disposal, of the subsidiaries and other business units
disposed of during 2008–2010.
(US$ million)
Property, plant and equipment
Goodwill
Inventory
Accounts and notes receivable
Assets held for sale acquired in business combinations
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
nET AssETs
Cash flows on disposal of subsidiaries and other business units were as follows:
(US$ million)
Net cash disposed of with subsidiaries
Transaction costs
Cash received
nET CAsh InfLow
2010
$ 90
–
–
22
–
112
13
1
–
14
$ 98
2010
$ –
–
42
$ 42
2009
$ 16
–
3
7
–
26
–
14
14
2008
$ 91
13
35
33
36
208
10
12
22
$ 12
$ 186
2009
$ –
–
28
$ 28
2008
$ –
(7)
168
$ 161
164 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
12. disposal groups held for sale (continued)
At December 31, 2008, receivables in respect of the sold assets in the amount of $10 million were included in accounts receivable. At December
31, 2010 and 2009, the Group owed $5 million in respect of the disposed business units.
The disposal groups sold during 2008–2010 are described below.
highveld’s Business units
In 2008, the Group sold Rand Carbide, a division of Evraz Highveld Steel and Vanadium Corporation (‘Highveld’), producing ferrosilicon and
various carbonaceous products. The division was included in the steel segment of the Group’s operations. Cash consideration amounting to
$39 million approximated the carrying value of the disposed assets.
In addition, for the purpose of acquisition of Highveld in 2007, 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 (collectively 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 included a ferrovanadium smelter located on the site of Highveld steel facility 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. The Highveld divestment package was included in the vanadium segment of the Group’s operations.
On April 21, 2008, Highveld concluded agreements with an associated company of Duferco Group for the sale of the above mentioned vanadium
production facilities, together with the 50% shareholding in SAJV, and a 35% non-dividend equity interest in Mapochs Mine (Pty) Ltd. The selling
price was $110 million (at the exchange rate as of the date of disposal), transaction costs amounted to $10 million, including $3 million paid
in 2007. On August 21, 2008, all regulatory consents were obtained, and the disposal was effected on August 29, 2008. In 2008, the Group
recognised a loss of $45 million representing the difference between the estimated fair value less costs to sell of the disposal group as of
December 31, 2007 and actual proceeds.
mine 12
On June 1, 2009, the Group entered into a contractual agreement to sell a 100% ownership interest in Mine 12, the coal mine located in Russia,
for a cash consideration of $2 million. Under the terms of the agreement, control over Mine 12 was transferred to the purchaser at the date of the
agreement and the Group ceased to consolidate Mine 12 from that date. In July 2009, the regulatory approval for the acquisition of Mine 12 was
received and the transaction was completed.
Loss from the sale of Mine 12 in the amount of $9 million was included in the consolidated statement of operations for the year ended
December 31, 2009.
sale of Koksovaya
In April, 2010, the Group sold ZAO Koksovaya to Raspadskaya, a subsidiary of Corber, the Group’s joint venture, which holds 80% in Raspadskaya.
ZAO Koksovaya is an operating hard-coking coal mine, which owns the license for Tomusinskaya 5-6 coal deposit. As part of the transaction,
the parties entered into a long-term off-take contract under which Raspadskaya committed to supply to the Group substantially all coal or
concentrate produced from coal extracted on the Tomusinskaya 5-6 deposit during 2010–2019.
The cash consideration amounted to $40 million. The loss from sale, net of the Group’s share in gain on the transaction recognised by
Raspadskaya (Note 11), amounted to $5 million and was included in loss on disposal groups classified as held for sale caption of the
consolidated statement of operations.
other disposal groups held for sale
Other disposal groups held for sale included a few small subsidiaries involved in non-core activities (construction business, trading activity and
recreational services) and other non-current assets.
165 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
13. other non-Current assets
non-Current Financial assets
(US$ million)
Investments in Delong Holdings Limited
Investments in Cape Lambert Iron Ore
Derivatives not designated as hedging instruments (Note 26)
Restricted deposits at banks
Loans issued to related parties (Note 29)
Loans receivable (Note 29)
Trade and other receivables (Note 29)
Other
other non-Current assets
(US$ million)
Deposit to secure put option for the shares of OAO Vanady-Tula (Note 4)
Prepayment for purchases of associates and joint ventures
Prepaids for purchases of non-controlling interests
Long-term input VAT
Defined benefit plan asset (Note 23)
Fees for future purchases under a long-term contract
Other
investments in delong holdings limited
2010
$ 37
–
5
9
46
17
3
1
2009
$ 43
–
–
18
–
4
1
–
2008
$ 23
10
–
2
38
5
40
–
$ 118
$ 66
$ 118
2010
$ –
9
–
11
19
11
53
2009
$ 12
–
8
59
15
12
22
$ 103
$ 128
2008
$ 105
28
–
2
4
–
21
$ 160
On February 18, 2008, the Group entered into a share purchase agreement to acquire up to approximately 51.05% of the issued share capital
of Delong Holdings Limited (‘Delong’), a flat steel producer, headquartered in Beijing (the People’s Republic of China – ‘China’), over an agreed
period of time. This transaction was 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 included an initial sale to
the Group of 10.01% 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 transaction). This transaction was completed on February 28, 2008.
Best Decade also granted the Group a call option to acquire an additional 32.08% of the issued share capital of Delong. The Group granted
Best Decade a put option with respect to 32.08% of the issued share capital of Delong, exercisable during the same period. The call option
and put option were subject to the satisfaction of certain conditions, including obtaining antitrust approval and clearance from Ministry of
Commerce and State Administration of Industry and Commerce of China. 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 was S$677 million ($469 million at the exchange rate as of
December 31, 2008).
Initially, the options were exercisable within six months after February 18, 2008, subsequently they were extended to August 18, 2009.
In addition, the beneficial shareholders of Best Decade have agreed to sell in the future approximately 8.96% of the issued 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 was estimated at S$3.9459 per share or S$189 million ($131 million at the exchange rate as of December 31, 2008).
The investments in Delong are classified as available-for-sale financial assets and measured at fair value based on market quotations. The
change in the fair value of these shares is initially recorded in other comprehensive income.
At December 31, 2008, the Group assessed the recoverability of these financial assets and considered them as impaired due to a significant
and prolonged decline in the fair value of the investments. The cumulative loss of $129 million, being the difference between the acquisition
cost and fair value of the shares at the reporting date, was recognised in gain/(loss) on financial assets and liabilities caption of the consolidated
statement of operations for the year ended December 31, 2008, within gain/(loss) on available-for-sale financial assets (Note 7). The foreign
exchange gain amounted to $2 million.
166 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
13. other non-Current assets (continued)
investments in delong holdings limited (continued)
In addition, the put option agreement for the shares of Delong was considered as onerous contract, in which the unavoidable costs of meeting
the obligations exceed the economic benefits expected to be received under it. The Group did not recognise any provision for onerous contract,
because the probability of the exercise of the put option was assessed as remote.
On August 18, 2009, the call and the put options under the agreement to acquire shares of Delong lapsed and ceased to have any further effect.
In 2009, the Group exercised the swap contract for the shares of Delong and used the proceeds to acquire approximately 5.47% of Delong shares
for a cash consideration of S$31 million ($22 million at the exchange rate as of the date of the transaction). The loss of $7 million, being the
difference between the acquisition cost and fair value of the shares at the reporting date, was recognised in gain/(loss) on financial assets and
liabilities caption of the consolidated statement of operations, within gain/(loss) on available-for-sale financial assets (Note 7).
In 2010, the Group recognised $6 million impairment loss on Delong shares, including $4 million – through comprehensive income and
$2 million – through the statement of operations.
investments in Cape lambert iron ore
In March – June 2008, the Group purchased quoted shares and options to acquire quoted shares of Cape Lambert Iron Ore, an Australian mining
company, for a total purchase consideration of $19 million. The Group recognised a gain of $5 million, representing the change in the fair value
of options, in gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations, within change in the fair value of
derivatives (Note 7). In July 2008, the Group additionally paid $15 million and, thereby, converted all of the options into shares. As of December
31, 2008, investments in Cape Lambert Iron Ore represented a 13.65% ownership interest in the entity.
The shares of Cape Lambert Iron Ore were classified as available-for-sale financial assets and measured at fair value based on market
quotations. The change in the fair value of these shares was initially recorded in other comprehensive income. At December 31, 2008, the Group
assessed the recoverability of these financial assets and considered them as impaired due to a significant and prolonged decline in the fair
value of the investments. The cumulative loss of $21 million, being the difference between the acquisition cost and fair value of the shares at the
reporting date, was recognised in gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations for the year
ended December 31, 2008, within gain/(loss) on available-for-sale financial assets (Note 7). The foreign exchange loss amounted to $8 million.
In 2009, the shares of Cape Lambert Iron Ore were sold for a cash consideration of $17 million. The gain in the amount of $7 million was
recognised in gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations, within gain/(loss) on
available-for-sale financial assets (Note 7).
loans issued to related parties
At December 31, 2008, amounts receivable from related parties represent rouble-denominated loans granted by Yuzhkuzbassugol to
Kazankovskaya (Note 11) in 2004–2005. The loans bore interest of 10% per annum and mature in 2013. In 2009, the interest rate was reduced
to 0.1%. In 2009 and 2008, the Group wrote off $37 million and $4 million in respect of this loan. These amounts were included in share of
profits/(losses) of joint ventures and associates caption of the consolidated statement of operations.
In 2010, the Group issued a $46 million loan to Lanebrook Limited, the controlling shareholder of the Group. The loan bears interest of 7.85% per
annum and matures on June 22, 2012. Under the agreement, Lanebrook Limited prepaid the full amount of interest totaling $7 million, which was
included in other long-term liabilities caption of consolidated statement of financial position as of December 31, 2010 (Note 26).
prepayment for purchases of associates and Joint Ventures
In 2010, the Group made a prepayment to a key management person for the acquisition of 29% ownership interest in Mediaholding Provincia.
This prepayment was included in other non-current assets caption of the consolidated statement of financial position as of December 31, 2010.
167 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
14. inventories
Inventories consisted of the following as of December 31:
(US$ million)
Raw materials and spare parts:
– at cost
– at net realisable value
work-in-progress:
– at cost
– at net realisable value
finished goods:
– at cost
– at net realisable value
2010
2009
2008
$ 906
$ 647
68
974
300
144
444
454
198
652
77
724
255
112
367
506
231
737
$ 974
145
1,119
376
156
532
496
269
765
$ 2,070
$ 1,828
$ 2,416
As of December 31, 2010, 2009 and 2008, the net realisable value allowance was $114 million, $145 million, $318 million, respectively.
As of December 31, 2010, 2009 and 2008, certain items of inventory with an approximate carrying amount of $203 million, $81 million and
$648 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 21).
15. trade and other receivables
Trade and other receivables consisted of the following as of December 31:
(US$ million)
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 29.
2010
$ 1,239
72
1,311
(98)
2009
$ 931
160
1,091
(90)
2008
$ 1,365
90
1,455
(86)
$ 1,213
$ 1,001
$ 1,369
16. 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 considering 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.
168 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
16. related party disclosures (continued)
Amounts owed by/to related parties at December 31 were as follows:
(US$ million)
Kazankovskaya
Lanebrook Limited
Marens
Raspadsky Ugol
Yuzhny GOK
Other entities
Less: allowance for doubtful accounts
Amounts due from related parties
Amounts due to related parties
2010
$ 21
53
–
2
19
9
104
(24)
$ 80
2009
$ 14
53
2
1
22
17
109
(2)
2008
$ 10
81
2
1
37
9
140
(3)
2010
$ 1
–
–
32
178
6
217
–
2009
$ 1
–
–
73
154
7
235
–
2008
$ 1
–
–
56
231
34
322
–
$ 107
$ 137
$ 217
$ 235
$ 322
Transactions with related parties were as follows for the years ended December 31:
(US$ million)
Interlock Security Services
Kazankovskaya
Raspadsky Ugol
Yuzhny GOK
Other entities
Amounts due from related parties
Amounts due to related parties
2010
$ 1
6
11
20
8
2009
$ 1
5
11
6
8
2008
$ 1
8
–
57
11
2010
$ 37
14
192
67
20
2009
$ 27
15
107
34
18
2008
$ 32
14
354
631
32
$ 46
$ 31
$ 77
$ 330
$ 201
$ 1,063
In addition to the disclosures presented in this note, the balances and transactions with related parties are disclosed in Notes 4, 11 and 13.
Interlock Security Services is a group of entities controlled by a member of the key management personnel. The entities provide security services
to the Russian subsidiaries of the Group.
Kazankovskaya is an associate of the Group (Note 11). The Group purchased coal from the entity and sold mining equipment and inventory to
Kazankovskaya.
Lanebrook Limited is a controlling shareholder of the Company. The amounts receivable from Lanebrook Limited represent overpayments for the
acquired working capital of the Ukrainian businesses (Note 4). In addition, in 2008, the Group acquired a 1% ownership interest in Yuzhny GOK for
a cash consideration of $38 million (Note 18). As part of the transaction, the Group signed a put option agreement that gives the Group the right
to sell these shares back to Lanebrook Limited for the same amount. The put option expires on December 31, 2011.
Marens is an entity under control of ultimate principal shareholders of the Group. In 2007, the Group granted a short-term interest-bearing loan
to Marens for financing the construction of the office building. In 2008, the loan was repaid to the Group, the outstanding balances represent the
unpaid interest.
OOO Raspadsky Ugol (‘Raspadsky Ugol’), a subsidiary of the Group’s joint venture, sells coal to the Group. Raspadsky Ugol represents
approximately 18% of volume of the Group’s coal purchases. The coal was sold at prevailing market prices at the dates of transactions. The Group
sells steel products and renders services to Raspadsky Ugol.
Yuzhny GOK, the ore mining and processing plant, is an associate of Lanebrook Limited. The Group sold steel products to Yuzhny GOK and
purchased iron ore from the entity.
The transactions with related parties are based on market prices.
Compensation to Key management personnel
Key management personnel include the following positions within the Group:
• directors of Evraz Group S.A.,
• vice presidents,
• top managers of major subsidiaries.
169 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
16. related party disclosures (continued)
Compensation to Key management personnel (continued)
In 2010, 2009 and 2008, key management personnel totalled 55, 58 and 60 persons, respectively. Total compensation to key management
personnel were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
(US$ million)
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 24)
Termination benefits
Other benefits
17. other taxes recoverable
Taxes recoverable consisted of the following as of December 31:
(US$ million)
Input VAT
Other taxes
2010
$ 21
12
1
1
4
3
2009
$ 18
10
1
3
–
1
2008
$ 22
29
1
18
–
1
$ 42
$ 33
$ 71
2010
$ 241
112
$ 353
2009
$ 173
85
$ 258
2008
$ 257
140
$ 397
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.
18. other Current Financial assets
Other current assets included the following as of December 31:
(US$ million)
2010
2009
2008
Financial instrument relating to the transaction with a 49% ownership interest in NS
Group (Note 4)
Investments in Yuzhny GOK (Note 16)
Bank deposits
Restricted deposits at banks
Financial assets at fair value through profit or loss (Note 13)
Other short-term investments
$ –
38
1
13
–
–
$ –
38
22
59
–
1
$ 508
38
25
–
18
–
$ 52
$ 120
$ 589
Financial instrument relating to the transaction with a 49% ownership interest in ns group
This financial instrument represented investment amounting to $511 million in a 49% ownership interest in NS Group (Note 4) which was sold on
January 30, 2009 for a cash consideration of $508 million. The Group recognised an impairment loss of $3 million, which was included in gain/
(loss) on financial assets and liabilities caption of the consolidated statement of operations for the year ended December 31, 2008 (Note 7).
Transaction costs paid in 2009 amounted to $2 million (Note 7).
Financial assets at Fair Value through profit or loss
In 2009, the Group recognised $7 million gain on swaps for the shares of Delong and Cape Lambert Iron Ore, which was included in gain/(loss) on
financial assets and liabilities caption of the consolidated statement of operations, within change in the fair value of derivatives.
170 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
19. Cash and Cash equivalents
Cash and cash equivalents, mainly consisting of cash at banks, were denominated in the following currencies as of December 31:
(US$ million)
US dollar
Russian rouble
South African rand
Euro
Canadian dollar
Ukrainian hryvnia
Czech koruna
Other
20. equity
share Capital
Number of shares
Authorised
Ordinary shares of €2 each
Issued and fully paid
Ordinary shares of €2 each
2010
$ 306
200
49
46
69
10
1
2
2009
$ 300
170
110
75
14
1
1
–
2008
$ 536
124
177
45
27
12
7
2
$ 683
$ 671
$ 930
2010
2009
2008
257,204,326
257,204,326
157,204,326
145,957,121
145,957,121
122,504,803
Shareholders of Evraz Group are entitled to standard rights provided under the laws of Luxembourg to shareholders of stock companies (‘socieˆteˆ
anonyme’). These rights comprise the right to vote at the shareholders meetings and the right to receive dividends.
ACquIsITIon of ThE ukRAInIAn BusInEssEs
On September 9, 2008, the Company issued 4,195,150 shares with par value of €2 each to settle the remaining liability for the acquisition of
Palmrose (Note 4). Share premium on this issue, being the difference between the fair value of the shares measured based on market quotations
at that date and nominal value of the issued shares, amounted to $746 million. Transaction costs were $1 million.
sCRIP dIvIdEnds
On January 30, 2009, the Extraordinary General Meeting approved the modification of the method of payment of the 2008 interim dividends:
euro equivalent of the outstanding dividends of $2.25 per share could be either exchanged for new shares of Evraz Group S.A. or paid in cash to
the shareholders who voted against or abstained from voting.
The voluntary partial scrip dividend alternative was voted for in respect of 97,553,473 shares, representing 79.62% of the Company’s share
capital, entitling the holders to subscribe to 9,755,347 new shares issued at a price of $22.50 per share. The new shares are ranked pari passu
with the existing ordinary shares of Evraz Group S.A. The Company’s major shareholder, Lanebrook Limited, subscribed to 9,193,477 shares.
shARE-BAsEd PAYmEnT TRAnsACTIons
Starting from May 23, 2007, the Group made a decision to cease the issuance of new shares for the settlement of share-based awards (Note 24).
Since that date the Group acquired its own shares (in the form of global depositary receipts) on the open market for the grantees or repurchased
the share options after vesting.
In 2009 and 2008, 234,813 and 275,994 share options, respectively, were repurchased after vesting. The cash spent on repurchase of vested
options, amounting to $3 million and $77 million in 2009 and 2008, respectively, was charged to accumulated profits.
TREAsuRY shAREs
During 2009 and 2008, the Group purchased 67,569 and 1,037,498 treasury shares, respectively, for $5 million and $197 million, respectively,
and sold 135,000 and 970,604 treasury shares, respectively, including 27,902 and 253,104 shares, respectively, that were sold to the plan
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 $6 million and $107 million in 2009 and 2008, respectively, was charged to accumulated profits. As of December 31, 2008,
the Group had 67,431 treasury shares.
171 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
20. Equity (continued)
Share Capital (continued)
Convertible bonds and equity offerings
On July 13, 2009, Evraz Group S.A. completed the offering of $600 million unsecured convertible bonds (the ‘Convertible Bonds Offering’) and
$300 million equity in the form of global depository receipts (‘GDRs’) listed on the London Stock Exchange, representing ordinary shares of Evraz
Group S.A. (the ‘Equity Offering’).
The bonds were issued at 100% of their principal amount. They bear interest of 7.25% per annum payable on a quarterly basis and mature
on July 13, 2014.
The conversion can be exercised at the option of bondholders on any date during the period from September 11, 2009 till July 6, 2014. The bonds
will be convertible into GDRs at an initial conversion price of $21.20 per GDR. The conversion price represents a 28% premium to the equity
offering placement price of $16.50 per GDR, which is the reference price for the convertible bonds. Lanebrook, the Company’s parent, and its
affiliate, subscribed for $200 million of the bonds.
The Group can early redeem the bonds at their principal amount plus accrued interest if 15% or less of the bonds remain outstanding.
In the equity offering, on July 13, 2009, 6,060,608 new shares were issued as GDRs at an issue price of $16.50 per GDR. The newly issued
shares represented approximately 4.4% of the Company’s issued share capital after the issue.
The Company granted to Goldman Sachs and Morgan Stanley (the ‘Joint Bookrunners’) in the convertible bonds offering an over-allotment option
to subscribe to additional bonds for up to $50 million, which was exercised in full on July 27, 2009 and resulted in an increase in the aggregate
principal amount of the bonds to $650 million.
The Company granted to the Joint Bookrunners in the equity offering an over-allotment option to subscribe to up to 909,090 additional GDRs,
represented by 303,030 additional new shares, corresponding to additional gross proceeds of $15 million. This option was exercised in full on
July 27, 2009. Transaction costs relating to the bonds and equity offerings amounted to $10 million and $5 million, respectively.
The Group considered that the convertible bonds represent a financial instrument that creates a financial liability and grants an option to the
holders of the instrument to convert it into an equity instrument of the Company. The Group recognised the liability and equity components
separately in its statement of financial position.
The Group determined the carrying amount of the liability component by measuring the fair value of a similar liability that does not have an
associated equity component. The fair value of this liability was calculated based on cash flows discounted at the Group’s market rate of interest
(without a conversion option) at the date of the convertible bonds offering (13.26%). The carrying amount of the equity instrument represented
by the option to convert the instrument into ordinary shares was then determined by deducting the fair value of the financial liability from the
fair value of the compound financial instrument as a whole. Transaction costs relating to the convertible bonds offering were allocated between
liability and equity components on a pro rata basis. As a result, the equity component of the convertible bonds amounting to $133 million was
included in equity.
inCrease of authorised share Capital
On July 31, 2009, Evraz Group S.A. increased its authorised share capital by 100,000,000 shares with par value of €2 each. In addition, in
connection with the issue of convertible bonds, the shareholders resolved to extend the authority of the Board of Directors to issue new shares
during the next five years as well as the right of the Company to acquire up to 10% of its own shares.
shares lending transaCtions
In order to facilitate the issuance of the convertible bonds, Morgan Stanley offered to certain institutional investors an opportunity to borrow
ordinary shares of Evraz Group S.A., represented by GDRs, during the term of the bonds by means of a loan of GDRs beneficially owned by
Lanebrook (the ‘Borrowed GDRs’).
On August 4, 2009, the Board of Directors approved the issue of the new ordinary shares to Lanebrook in the amount equal to the number
of shares underlying the borrowed GDRs. The Group effected a novation of the shares lending arrangements, whereby the Company was
substituted for Lanebrook as a lender of the borrowed GDRs. As a result, on August 12, 2009, 7,333,333 new shares were issued to Lanebrook
in exchange for the right to receive 7,333,333 shares lended under the shares lending transactions. These transactions had no impact on equity,
as the Group's net assets did not change as a result of these transactions.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average 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
172 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
20. equity (continued)
earnings per share (continued)
that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares for basic earnings per share
138,623,788
134,457,386
123,495,726
Effect of dilution: share-based awards
14,993
–
435,504
wEIGhTEd AvERAGE numBER of oRdInARY shAREs AdJusTEd
foR ThE EffECT of dILuTIon
Profit/(loss) for the year attributable to equity holders of the parent, US$ million
Basic earnings/(losses) per share
Diluted earnings/(losses) per share
138,638,781
134,457,386
123,931,230
$ 548
$ 3.95
$ 3.95
$ (295)
$ (2.19)
$ (2.19)
$ 1,797
$ 14.55
$ 14.50
2010
2009
2008
The weighted average number of ordinary shares for 2008 includes the shares that were issued as part of the cost of a business combination
(Note 4). When calculating earnings per share, it was assumed that the shares were issued on the date of acquisition of the Ukrainian businesses
(December 11, 2007), since this is the date from which the results of the newly acquired entities were recognised in the consolidated statement
of operations.
The fair value of shares issued as a scrip alternative on January 30, 2009 exceeded the cash alternative, thus giving rise to a bonus element in
the issue of shares. The per share figures for all the periods presented have been restated to include a bonus element of 1,045,216 shares in the
calculation of basic earnings per share from the beginning of the earliest period presented.
The weighted average number of ordinary shares for basic earnings per share does not include 7,333,333 shares issued in 2009 to Lanebrook in
exchange for the right to receive 7,333,333 shares lended under the shares lending transactions. These transactions had no impact on equity, as
the Group's net assets did not change as a result of these transactions.
In 2010 and 2008, share-based awards (Note 24) had a dilutive effect. In 2009, the Group reported net loss. Consequently, they were antidilutive.
In 2010 and 2009, the convertible bonds were antidilutive as the interest (net of tax) per ordinary share obtainable on conversion exceeded basic
earnings per share. 10,220,126 contingently issuable shares on conversion of the bonds could potentially dilute basic earnings per share in the future.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of
completion of these consolidated financial statements.
dividends
Dividends declared by Evraz Group S.A. during 2008–2010 were as follows:
Final for 2007
Interim for 2008
Date
of declaration
To holders
registered at
Dividends declared,
US$ million
US$ per share
15/05/2008
14/05/2008
29/08/2008
18/09/2008
497
1,011
4.20
8.25
Interim dividends for 2008 include $2 million in respect of treasury shares.
The shareholders meeting held May 15, 2009 resolved not to declare final dividends for 2008.
The shareholders meeting held May 17, 2010 resolved not to declare dividends for 2009.
In addition, certain subsidiaries of the Group declared dividends. The share of non-controlling shareholders in those dividends in 2010, 2009 and
2008 was $1 million, $1 million and $80 million, respectively.
legal reserve
According to the Luxembourg Law, the Company is required to create a legal reserve of 10% of share capital per the Luxembourg 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.
other movements in equity
ACquIsITIons of non-ConTRoLLInG InTEREsTs In suBsIdIARIEs
In 2010 and 2008, the Group acquired non-controlling interests in certain subsidiaries (Note 6). The excess of acquired non-controlling
interests over the consideration amounting to $1 million and $21 million, respectively, was recorded as additional paid-in capital and the excess
of consideration over the carrying value of non-controlling interests amounting to $3 million and $37 million, respectively, was charged to
accumulated profits.
173 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
20. equity (continued)
other movements in equity (continued)
dERECoGnITIon of non-ConTRoLLInG InTEREsTs In suBsIdIARIEs
In 2009, the Group derecognised non-controlling interests in Vanady-Tula resulting in a $5 million charge to accumulated profits (Note 4).
In 2010, the non-controlling shareholder’s right to put a 49% share in Frotora Holdings Ltd. (‘Frotora’) to the Group at fair value of the ownership
interest become exercisable. The Group derecognised a 49% ownership interest in Frotora amounting to $6 million and accrued a liability for the
same amount. The assets of Frotora comprised mostly the rights under a long-term lease of land to be used for a construction of a commercial
sea port in Ukraine. These rights are included in contract terms category of the intangible assets. In 2010, the Group recognised an impairment
loss of $30 million in respect of these rights due to the change in plans for the use of this land.
21. loans and Borrowings
Short-term and long-term loans and borrowings were as follows as of December 31:
(US$ million)
Bank loans
8.875 per cent notes due 2013
7.25 per cent convertible bonds due 2014 (Note 20)
8.25 per cent notes due 2015
9.5 per cent notes due 2018
10.875 per cent notes due 2009
13.5 per cent bonds due 2014
9.25 per cent bonds due 2013
9.95 per cent bonds due 2015
Liabilities under 12.00 per cent rouble bonds due 2011 and 2013 assumed in business
combination (Note 4)
Unamortised debt issue costs
Difference between the nominal amount and liability component of convertible bonds
(Note 20)
Interest payable
2010
$ 3,472
1,156
2009
$ 4,605
1,156
2008
$ 7,163
1,245
650
577
509
–
656
492
492
13
(192)
(104)
90
650
577
509
–
661
–
–
–
(196)
(126)
87
–
725
560
300
–
–
–
–
(94)
–
87
$ 7,811
$ 7,923
$ 9,986
As of December 31, 2010, 2009 and 2008, total interest bearing loans and borrowings consisted of short-term loans and borrowings in the
amount of $381 million, $411 million and $2,495 million, respectively, and long-term loans and borrowings in the amount of $7,636 million,
$7,747 million and $7,498 million, respectively, including the current portion of long-term liabilities of $244 million, $1,498 million and $1,346
million, respectively.
The average effective annual interest rates were as follows at December 31:
(US$ million)
US dollar
Russian rouble
Euro
Czech koruna
Long-term borrowings
Short-term borrowings
2010
8.01%
11.17%
5.05%
–
2009
7.30%
13.49%
5.11%
–
2008
6.56%
–
5.54%
–
2010
3.06%
12.50%
1.48%
–
2009
4.18%
2008
6.40%
13.25%
16.50%
1.46%
3.38%
6.06%
3.49%
The liabilities are denominated in the following currencies at December 31:
(US$ million)
US dollar
Russian rouble
Euro
Czech koruna
Unamortised debt issue costs
Difference between the nominal amount and liability component of convertible bonds
(Note 20)
2010
$ 6,079
1,699
322
7
(192)
(104)
2009
2008
$ 7,233
$ 9,345
701
297
14
(196)
(126)
364
348
23
(94)
–
$ 7,811
$ 7,923
$ 9,986
174 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
21. loans and Borrowings (continued)
Covenants reset
Some of the loan agreements and terms and conditions of 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 ratios, including restrictions in respect of indebtedness and
profitability.
In November 2009, the lenders under certain bank facilities approved the requested amendments to the agreements, which included a reset
of the financial covenants. The total principal amount of these borrowings at December 31, 2009 was $2,895 million. As a result, the financial
covenant ratios tested on the Group's consolidated numbers were loosened, with no testing for the year 2009; all financial covenant ratios that
were tested on the consolidated numbers of Mastercroft Limited were replaced with the new ratios tested on the Group's consolidated numbers;
new restrictions on capital expenditure, acquisitions and loans to third parties were established; a number of exemptions were introduced to the
debt incurrence covenants, where applicable, allowing the Group to refinance its current debt maturities in the ordinary course.
In December 2009, the Group received the consent of the holders of its notes due in 2013, 2015 and 2018 totalling $2,242 million to amend
the terms of certain covenants in the notes. The financial covenant ratios of the notes were subsequently amended in a manner similar to the
amendments to the bank facilities.
In connection with the covenants reset, the Group incurred transaction costs comprising consent fees and legal fees amounting to $114 million,
which will be amortised during the period of the borrowings. These costs were fully paid during 2009 and 2010.
pledged assets
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.
At December 31, 2010, 2009 and 2008, the Group had equipment with a carrying value of $Nil, $11 million and $1,131 million, respectively,
pledged as collateral under the loan agreements. In addition, the Group pledged inventory with a carrying value of $203 million, $81 million
and $648 million as of December 31, 2010, 2009 and 2008, respectively. At December 31, 2010, 50% less one share of Kachkanarsky
Mining-and-Processing Integrated Works were pledged as collateral under bank loans. This subsidiary represents 2.4% of the consolidated
assets and 0.3% of the consolidated revenues of the Group. At December 31, 2010, the net assets (including intra-group balances) of
Kachkanarsky Mining-and-Processing Integrated Works were $1,115 million.
notes and Bonds
In August and September 2004, EvrazSecurities issued guaranteed notes amounting to $300 million. The notes bore interest of 10.875% per
annum payable semi-annually and matured on August 3, 2009. In August 2009, the Group repaid all its liabilities under these notes.
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 guaranteed the due and punctual payments of all amounts in respect
of the notes.
On April 24 and May 27, 2008, Evraz Group S.A. issued notes for the total amount of $1,300 million due in 2013 and notes for the total amount of
$700 million due in 2018. The notes due in 2013 bear semi-annual coupon at the annual rate of 8.875% and must be redeemed at their principal
amount on April 24, 2013. The notes due in 2018 bear semi-annual coupon at the annual rate of 9.5% and must be redeemed at their principal amount
on April 24, 2018. The proceeds from the issue of the notes were used for financing a portion of the cost of the acquisition of IPSCO Inc. (Note 4).
In 2009, the Group issued convertible bonds in the amount of $650 million, which bear interest of 7.25% per annum and mature on July 13, 2014
(Note 20).
In 2009, the Group issued bonds in the total amount of 20,000 million Russian roubles, which bear interest of 13.50% per annum and mature on
October 16, 2014. In 2010, the Group issued bonds in the amount of 15,000 million Russian roubles, which bear interest of 9.25% per annum
and mature on March 22, 2013 and bonds amounting to 15,000 million Russian roubles, which bear interest of 9.95% per annum and mature on
October 26, 2015. The currency and interest rate risk exposures of these transactions were partially economically hedged (Note 26).
repurchase of notes and Bonds
In 2008, the Group re-purchased notes due 2013, 2015 and 2018 with the nominal amount of $220 million for a cash consideration of $121
million. As a result, the Group recognised a gain on extinguishment of debts in the amount of $99 million within gain/(loss) on financial assets and
liabilities caption of the consolidated statement of operations for the year ended December 31, 2008.
In 2009, the Group re-purchased notes due 2009, 2013, 2015 and 2018 with the nominal amount of $417 million for a cash consideration of
$302 million. As a result, the Group recognised a gain on extinguishment of debts in the amount of $115 million within gain/(loss) on financial
assets and liabilities caption of the consolidated statement of operations for the year ended December 31, 2009.
175 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
21. loans and Borrowings (continued)
early settlement
In August 2008, the Group repaid the liabilities of Claymont Steel (Note 4) under the bonds with the nominal value of $105 million due in
February 2015 at a premium of 14.75%. This premium together with the transaction costs, amounting to $19 million, was recorded in loss on
extinguishment of debts in the consolidated statement of operations for the year ended December 31, 2008.
In 2009, the Group repaid a bank loan ahead of schedule. As a result, the Group recognised a loss on extinguishment of debts in the amount
of $13 million within gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations for the year ended
December 31, 2009.
loans from the russian state Banks
In 2008, the Group signed loan agreements for $1,807 million with Vnesheconombank (‘VEB’) and 10,000 million Russian roubles ($340 million
as of December 31, 2008) with VTB. The facilities matured in one year from the dates of disbursement. The interest rates were set at one year
LIBOR plus 5% per annum (VEB) and 16.50% per annum (VTB). In 2008, the Group utilised $1,342 million under these loan agreements and
$805 million were disbursed in 2009. These facilities were used for refinancing of short-term loans.
In December 2009, the Group fully repaid its liabilities under $800 million loan from VEB and 10,000 million roubles loan from VTB.
In November 2009, the maturity of the VEB loan facility in the total amount of $1,007 million was extended for another twelve months.
Consequently, the VEB tranches totalling $805 million have been classified as non-current liabilities in the consolidated statement of financial
position as of December 31, 2009. In 2010, the Group fully repaid its liabilities under $1,007 million loan from VEB.
unamortised debt issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of
loans and notes.
unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of December 31:
(US$ million)
Unutilised borrowing facilities
2010
$ 1,010
2009
2008
$ 1,345
$ 1,679
22. 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
15 years. The estimated remaining useful life of leased assets varies from 1 to 34 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)
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Assets under construction
2010
$ 1
22
93
10
2009
$ 1
29
101
10
2008
$ –
16
73
–
$ 126
$ 141
$ 89
The leased assets are included in property, plant and equipment in the consolidated statement of financial position (Note 9).
176 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
22. Finance lease liabilities (continued)
Future minimum lease payments were as follows at December 31:
(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
2010
2009
2008
Minimum
lease
payments
Present value
of minimum
lease
payments
Minimum
lease
payments
Present value
of minimum
lease
payments
Minimum
lease
payments
Present value
of minimum
lease
payments
$ 25
$ 19
$ 24
$ 17
$ 20
$ 15
41
5
71
(14)
$ 57
33
5
57
–
$ 57
65
7
96
(21)
$ 75
51
7
75
–
$ 75
41
8
69
(14)
$ 55
34
6
55
–
$ 55
In the years ended December 31, 2010, 2009 and 2008, the average interest rates under the finance lease liabilities were 9.9%, 10.0%
and 10.0%.
23. employee Benefits
russian plans
In 2008–2010, the Russian subsidiaries of the Group provided regular lifetime pension payments and lump-sum amounts payable at the
retirement date. These benefits generally depend on years of service, level of remuneration and amount of pension payment under the collective
bargaining agreements. Other post-employment benefits consist of various 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 subsidiaries. At certain
subsidiaries, the lifetime pension payments have been cancelled for employees retiring after January 1, 2009 and lump-sum amounts payable at
the retirement date were stopped during 2009. These benefits have been 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.
In 2009, the Group realised a staff optimisation programme. The Group paid $22 million as termination benefits to approximately
10,000 employees discharged as a result of the staff optimisation measures. The termination payments were recognised as expense and
included in other operating expense caption of the consolidated statement of operations for the year ended December 31, 2009.
Defined contribution plans represent payments made by the Group to the Russian state pension, social insurance, medical insurance and
unemployment funds at the statutory rates in force, based on gross salary payments. The Group has no legal or constructive obligation to pay
further contributions in respect of those benefits.
ukrainian plans
The Ukrainian subsidiaries make regular contributions to the State Pension Fund thereby partially compensating preferential pensions paid by the
fund to employees who worked under harmful and hard conditions. The amount of such pension depends on years of service and salary.
The Ukrainian enterprises gradually increase these compensations and in 2012 they will compensate 100% of preferential pensions. In addition,
employees receive lump-sum payments on retirement under collective labour agreements. These benefits are based on years of service and
level of compensation. All these payments are considered as defined benefit plans.
usa and Canadian plans
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans, post-retirement healthcare and life insurance benefit
plans and supplemental retirement plans that cover all eligible employees. Benefits are based on pensionable years of service, pensionable
compensation, or a combination of both depending on the individual plan. Certain employees that were hired after specified dates 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 2–3% of annual wages. The new defined contribution plan is funded annually, and participants’
benefits vest after three years of service. The subsidiaries also offer qualified Thrift (401(k)) plans to all of their eligible employees.
177 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
23. employee Benefits (continued)
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
defined Benefit plans
2010
$ 203
2009
$ 187
2008
$ 283
The Russian, Ukrainian and the Other defined benefit plans are mostly unfunded and the USA and Canadian plans are partially funded.
The components of net benefit expense recognised in the consolidated statement of operations for the years ended December 31, 2010, 2009
and 2008 and amounts recognised in the consolidated statement of financial position as of December 31, 2010, 2009 and 2008 for the defined
benefit plans were as follows:
nET BEnEfIT ExPEnsE (RECoGnIsEd In CosT of sALEs And GEnERAL And AdmInIsTRATIvE ExPEnsEs)
Year ended december 31, 2010
(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
Minimum funding requirements
Curtailment gain/(loss)
nET BEnEfIT ExPEnsE
Year ended december 31, 2009
(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
Minimum funding requirements
Curtailment gain/(loss)
nET BEnEfIT ExPEnsE
Year ended december 31, 2008
(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
Minimum funding requirements
Curtailment gain
nET BEnEfIT ExPEnsE
Russian plans Ukrainian plans
USA &
Canadian plans
$ (5)
(16)
–
(3)
6
–
$ (5)
(8)
–
–
(2)
–
–
$ (14)
(34)
28
(4)
1
1
(1)
Other plans
$ (1)
(2)
–
–
–
–
–
Total
$ (25)
(60)
28
(7)
5
1
(1)
$ (18)
$ (15)
$ (23)
$ (3)
$ (59)
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ (5)
(11)
–
–
1
–
1
$ (6)
(7)
–
(1)
(2)
–
–
$ (13)
(33)
25
(2)
(1)
7
(1)
$ (1)
(2)
–
(1)
–
–
–
Total
$ (25)
(53)
25
(4)
(2)
7
–
$ (14)
$ (16)
$ (18)
$ (4)
$ (52)
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ (8)
(11)
–
(2)
1
–
13
$ (4)
(4)
–
–
(11)
–
–
$ (11)
(24)
25
(5)
–
(8)
–
$ (1)
(3)
–
1
–
–
–
Total
$ (24)
(42)
25
(6)
(10)
(8)
13
$ (7)
$ (19)
$ (23)
$ (3)
$ (52)
178 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
23. employee Benefits (continued)
defined Benefit plans (continued)
net benefit expense (recognised in cost of sales and general and administrative expenses) (continued)
Actual return on plan assets was as follows:
(US$ million)
Actual return on plan assets
including:
USA & Canadian plans
Russian plans
BEnEfIT LIABILITY
december 31, 2010
(US$ million)
Benefit obligation
Plan assets
Unrecognised net actuarial gains/ (losses)
Unrecognised past service cost
BEnEfIT AssET
BEnEfIT LIABILITY
december 31, 2009
(US$ million)
Benefit obligation
Plan assets
Unrecognised net actuarial gains/ (losses)
Unrecognised past service cost
BEnEfIT AssET
BEnEfIT LIABILITY
december 31, 2008
(US$ million)
Benefit obligation
Plan assets
Unrecognised net actuarial gains/ (losses)
Unrecognised past service cost
BEnEfIT AssET
BEnEfIT LIABILITY
2010
$ 44
44
–
2009
$ 66
65
1
2008
$ (101)
(101)
–
Total
$ 922
(464)
458
(165)
3
19
Russian plans Ukrainian plans
$ 192
$ 77
(1)
191
(68)
12
–
–
77
(2)
(10)
–
$ 135
$ 65
USA &
Canadian plans
$ 629
(463)
166
(95)
1
19
$ 91
Other plans
$ 24
–
24
–
–
–
$ 24
$ 315
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ 173
$ 72
$ 562
$ 20
(1)
172
(55)
14
–
–
72
(4)
(12)
–
(403)
159
(74)
–
15
–
20
–
–
–
Total
$ 827
(404)
423
(133)
2
15
$ 131
$ 56
$ 100
$ 20
$ 307
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ 150
$ 72
$ 475
$ 20
(1)
149
(31)
18
–
–
72
(12)
(15)
–
$ 136
$ 45
(316)
159
(67)
–
4
$ 96
Total
$ 717
(317)
400
(115)
3
4
–
20
(5)
–
–
$ 15
$ 292
179 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
23. employee Benefits (continued)
defined Benefit plans (continued)
movEmEnTs In BEnEfIT oBLIGATIon
(US$ million)
At december 31, 2007
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, 2008
Interest cost on benefit obligation
Current service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation
Curtailment gain
Disposal of subsidiaries
Translation difference
At december 31, 2009
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation
Disposal of subsidiaries
Translation difference
AT dECEmBER 31, 2010
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ 182
$ 56
$ 275
$ 22
11
8
(1)
–
(21)
13
(14)
(28)
150
11
5
(12)
29
(5)
(2)
(3)
173
16
5
(4)
(13)
17
(1)
(1)
4
4
33
–
(5)
17
–
(37)
72
7
6
(5)
(6)
–
–
(2)
72
8
5
–
(6)
(2)
–
–
24
11
–
229
(21)
(35)
–
(8)
475
33
13
(43)
46
–
–
38
562
34
14
–
(37)
39
–
17
3
1
–
–
(2)
2
–
(6)
20
2
1
(2)
(5)
–
–
4
20
2
1
–
(1)
–
–
2
Total
$ 535
42
24
32
229
(49)
(3)
(14)
(79)
717
53
25
(62)
64
(5)
(2)
37
827
60
25
(4)
(57)
54
(1)
18
$ 192
$ 77
$ 629
$ 24
$ 922
The amount of contributions expected to be paid to the defined benefit plans during 2011 approximates $70 million.
180 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
23. employee Benefits (continued)
defined Benefit plans (continued)
ChAnGEs In ThE fAIR vALuE of PLAn AssETs
(US$ million)
At december 31, 2007
Change in plan assets due to business
combinations
Expected return on plan assets
Contributions of employer
Benefits paid
Actuarial gains/(losses) on plan assets
Minimum funding requirements
Curtailment gain
Translation difference
At december 31, 2008
Expected return on plan assets
Contributions of employer
Benefits paid
Actuarial gains/(losses) on plan assets
Minimum funding requirements
Translation difference
At december 31, 2009
Expected return on plan assets
Contributions of employer
Benefits paid
Actuarial gains/(losses) on plan assets
Minimum funding requirements
Translation difference
AT dECEmBER 31, 2010
Russian plans Ukrainian plans
USA &
Canadian plans
Other plans
$ 2
$ –
$ 199
$ –
Total
$ 201
–
–
21
(21)
–
–
(1)
–
1
–
11
(12)
1
–
–
1
–
13
(13)
–
–
–
$ 1
–
–
5
(5)
–
–
–
–
–
–
5
(5)
–
–
–
–
–
6
(6)
–
–
–
235
25
17
(21)
(125)
(8)
–
(6)
316
25
24
(43)
40
7
34
403
28
37
(37)
16
1
15
–
–
2
(2)
–
–
–
–
–
–
2
(2)
–
–
–
–
–
1
(1)
–
–
–
235
25
45
(49)
(125)
(8)
(1)
(6)
317
25
42
(62)
41
7
34
404
28
57
(57)
16
1
15
$ –
$ 463
$ –
$ 464
The major categories of plan assets as a percentage of total plan assets were as follows at December 31:
USA & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Shares
Property
Cash
2010
2009
2008
86%
11%
0%
0%
3%
86%
9%
0%
3%
2%
76%
11%
4%
4%
5%
The following table is a summary of the present value of the benefit obligation, fair value of the plan assets and experience 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
2010
$ 922
464
(458)
60
9
2009
$ 827
404
(423)
54
24
2008
$ 717
325
(392)
(38)
16
2007
$ 535
201
(334)
(18)
5
2006
$ 131
24
(107)
11
–
181 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
23. employee Benefits (continued)
defined Benefit plans (continued)
Changes in the fair value of plan assets (continue)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
2010
2009
2008
Russian
plans
ukrainian
plans
usA &
Canadian
plans
other
plans
Russian
plans
ukrainian
plans
usA &
Canadian
plans
other
plans
Russian
plans
ukrainian
plans
usA &
Canadian
plans
other
plans
8%
12.6% 5.1–5.8% 3.9–8.3%
10%
12.4% 5.5–9.3% 4.2–9.5%
8.5%
10.85% 5.75–7.5%
4.3%
12%
– 0.9–7.3%
–
12%
– 1.3–8.5%
–
12%
– 6.75–8.5%
–
8%
8%
–
8%
–
3%
8% 3.0–3.2% 6.3–7.5%
– 6.8–10%
–
8%
8%
–
9%
3%
3–10%
6%
7–10%
0–7.75%
3.9%
9%
3–7.5% 6.3–7.5%
6%
10%
3–4%
3.2%
–
8–10%
–
–
–
8–10%
–
Discount rate
Expected rate of
return on assets
Future benefits
increases
Future salary
increase
Healthcare costs
increase rate
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.
24. share-based payments
On April 25, 2005, September 5, 2006 and December 14, 2010, the Group adopted Incentive Plans under which certain members of the Board
of Directors, senior executives and employees (‘participants’) could acquire or be gifted 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 options granted on September 5, 2006
under the Incentive Plan 2006 could be exercised for $65.37 per share. Shares under the Incentive Plan 2010 will be gifted to the participants
upon vesting.
The vesting dates under Plan 2005 were determined by the reference to the grant date (June 15, 2005) and became vested on the first, second
and third anniversary of the grant date. Under Plan 2006, the vesting date for each tranche was the date falling 15 days after the date when the
Board of Directors approves the annual results.
The actual vesting dates were as follows:
December 15, 2005
June 15, 2006
May 11, 2007
June 15, 2007
April 15, 2008
June 15, 2008
May 15, 2009
Incentive Plan 2006 Incentive Plan 2005
–
–
99,282
–
148,904
63,685
555,170
–
750,000
–
–
1,250,000
248,183
496,369
–
2,618,855
According to the Plan 2010, the vesting date for each tranche is the 90th day after announcement of the annual results. The expected vesting
dates under the Plan 2010 are as follows:
June 30, 2011
June 30, 2012
June 30, 2013
Incentive Plan 2010
128,759
96,570
96,569
321,898
182 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
24. share-based payments (continued)
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 the following rules were established:
• Plan 2010: unless otherwise determined by the Board or by a decision of the authorised person, a participant loses the entitlement for the
shares that were not gifted up to the date of termination.
• Plan 2006: all options granted to a participant, whether vested or not, expired on termination date.
• Plan 2005: unless otherwise determined by the Board of Directors, all options which were not vested on the grantee’s termination date
became vested and remained exercisable within the period of one year. The options which were vested on the grantee’s termination date
remained exercisable and expired automatically as of the date of expiration.
In 2007, the Board of Directors made a decision to cease the issuance of new shares under the share-based compensations plans. Starting
from May 23, 2007, the Group acquired its own shares in the form of global depositary receipts (‘GDR’) on the open market for the grantees or
repurchased the share-based awards after vesting.
On April 21, 2008, the Board of Directors resolved to delay the exercise of 17.5% of the options under Incentive Plan 2005. The participants
received the right to claim indemnification from the Company of the difference between the market price at the date of exercise and the price
of $100 per GDR. In addition, the participants had the right to receive dividends in respect of the extended portion and the right to vote under
these GDRs.
This modification of Incentive Plan 2005 was treated as a cash-settled award. At December 31, 2008, the liability in respect of that award was
$33 million.
In 2008, 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 2008–2010.
The Group accounted for share-based compensations at fair value pursuant to the requirements of IFRS 2 ‘Share-based Payment’. The weighted
average fair value of share-based awards granted in 2010, 2006 and 2005 was $102.07, $14.15 and $10.88 per share, respectively. The fair
value of the share-based awards under the extended portion was $272.34 per share. The fair value of these awards was estimated at the date of
grant using the Black-Scholes-Merton option pricing models with the following inputs, including assumptions:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rates (%)
Expected life (years)
Market prices of the shares at the grant dates
Incentive Plan 2010
Incentive Plan 2006 Incentive Plan 2005
1.2–1.5
n/a
n/a
0.5–2.5
$103.83
4–6
45.37
6–8
55.00
5.42–5.47
4.36–4.59
0.7–2.7
$66.06
0.5–3
$42.90
The liability under cash-settled award was measured using the following assumptions:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rates (%)
Expected life (years)
Market prices of the shares at the reporting date
December 31, 2008
n/a
84.10
2.59
0.3
$25.32
The industry average volatility has been used for valuation of the share-based awards granted in 2005, while for the share options granted in
2006 the historical volatility has been taken. The expected volatility reflects the assumption that it is indicative of future trends which may not
necessarily be the actual outcome.
183 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
24. share-based payments (continued)
The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share-based awards during
the years.
outstanding at January 1
Granted during the year
Forfeited during the year
Exercised during the year:
by purchase of shares on the open market
by repurchase of vested share-based awards
ouTsTAndInG AT dECEmBER 31
Vested at December 31
Exercisable at December 31
2010
No.
–
2009
2008
WAEP
No.
WAEP
No.
WAEP
$ –
370,340
$ 50.71
933,284
$ 48.72
334,755
(12,857)
–
–
–
321,898
–
–
–
–
–
$ –
$ –
–
(107,625)
(262,715)
(27,902)
(234,813)
–
–
–
–
–
–
48.30
(33,846)
51.70
(529,098)
(253,104)
(275,994)
–
45.13
47.55
$ –
$ –
–
370,340
$ 50.71
92,751
$ 45.96
5,029
43.50
The weighted average share price at the dates of exercise was $67.29 and $310.22 in 2009 and 2008, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of December 31, 2010 and 2008 was 1.4 years
and 0.3 years, respectively.
In the years ended December 31, 2010, 2009 and 2008, expense arising from the share-based compensations, was as follows:
(US$ million)
Expense arising from equity-settled share-based payment transactions
Expense arising from cash-settled share-based payment transactions
2010
$ 2
–
$ 2
2009
$ –
6
$ 6
2008
$ 2
33
$ 35
In 2010 and 2009, the Group paid $3 million and $35 million in respect of the cash-settled share-based compensations, respectively, $1 million
was unpaid at December 31, 2010.
184 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
25. provisions
In the years ended December 31, 2010, 2009 and 2008, the movement in provisions was as follows:
(US$ million)
At december 31, 2007
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Translation difference
At december 31, 2008
Additional provisions
Increase from passage of time
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Translation difference
At december 31, 2009
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Translation difference
AT dECEmBER 31, 2010
site restoration Costs
Site restoration
and decom-
missioning
costs
Legal claims
$ 134
$ 15
47
9
(10)
11
(5)
–
(26)
160
15
12
(1)
(6)
–
10
190
23
15
20
55
(5)
–
7
6
–
–
–
(3)
(13)
(1)
4
7
–
–
(3)
(2)
–
6
18
–
–
–
(5)
(2)
–
Other
provisions
$ 38
30
–
–
(1)
(9)
(3)
(3)
52
28
–
–
(59)
(6)
–
15
12
–
–
–
(15)
(1)
–
Total
$ 187
83
9
(10)
10
(17)
(16)
(30)
216
50
12
(1)
(68)
(8)
10
211
53
15
20
55
(25)
(3)
7
$ 305
$ 17
$ 11
$ 333
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The respective 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 6.10% to 13.00% (2009: from 8.00% to 13.00%, 2008: from 6.85% to 11.90%).
26. other long-term liabilities
Other long-term liabilities consisted of the following as of December 31:
(US$ million)
Contingent consideration payable for the acquisition of Stratcor
Deferred consideration payable for the acquisition of Inprom (Note 4)
Dividends payable under cumulative preference shares of a subsidiary to a related party
Employee income participation plans and compensations
Tax liabilities
Derivatives not designated as hedging instruments (Note 21)
Other liabilities
Less: current portion (Note 27)
2010
$ 24
21
14
3
33
38
24
157
(14)
$ 143
2009
$ 31
–
14
7
18
6
18
94
(26)
$ 68
2008
$ 34
–
14
16
18
–
7
89
(31)
$ 58
185 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
26. other long-term liabilities (continued)
Contingent Consideration payable
Contingent consideration represents additional payments for the acquisition of Stratcor in 2006. 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. In 2010, the
Group paid $16 million in respect of this liability.
derivatives not designated as hedging instruments
In 2009 and 2010, the Group issued rouble-denominated bonds in the total amount of 50,000 million Russian roubles (Note 21). To manage
the currency exposure, the Group concluded swap contracts under which it agreed to deliver US dollar-denominated interest payments at the
rates ranging from 7.50% to 8.90% per annum plus the notional amount totalling $1,466 million, in exchange for rouble-denominated interest
payments plus the notional amount totalling 43,794 roubles ($1,437 million at the exchange rate as of December 31, 2010). The exchange is
exercised on approximately the same dates as the payments under the bonds.
The swap conracts are summarised in the table below.
13.5 per cent bonds due 2014
9.25 per cent rouble bonds due 2013
9.95 per cent rouble bonds due 2015
Principal, millions
of roubles
Hedged amount,
millions of roubles
Swap amount,
US$ million
Interest rates on
the swap amount
20,000
15,000
15,000
50,000
14,019
14,778
14,997
43,794
$ 475
500
491
$ 1,466
7.50%–8.90%
5.75%–5.90%
5.65%–5.88%
These swap contracts were not designated as cash flow or fair value hedge. The Group accounted for these derivatives at fair value which
was determined using valuation techniques. In 2010 and 2009, the change in fair value of the derivatives, net of realised gain on the swap
transactions, amounting to $4 million and $(6) million, respectively, was recognised within gain/(loss) on financial assets and liabilities in the
consolidated statement of operations (Note 7).
27. trade and other payables
Trade and other payables consisted of the following as of December 31:
(US$ million)
Trade accounts payable
Accrued payroll
Termination benefits
Other long-term obligations with current maturities (Note 26)
Other payables
Maturity profile of the accounts payable is shown in Note 29.
28. other taxes payable
2010
$ 880
229
–
14
50
2009
$ 780
176
1
26
86
2008
$ 1,094
208
2
31
144
$ 1,173
$ 1,069
$ 1,479
Taxes payable were mainly denominated in roubles and consisted of the following as of December 31:
(US$ million)
VAT
Social insurance taxes
Property tax
Land tax
Personal income tax
Other taxes, fines and penalties
2010
$ 90
40
14
10
10
16
2009
$ 67
29
16
5
10
13
2008
$ 72
31
15
9
10
17
$ 180
$ 140
$ 154
186 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. 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 and major
Russian banks. Management periodically reviews the creditworthiness 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. There are no
significant concentrations of credit risk within the Group. The Group defines counterparties as having similar characteristics if they are related
entities. The major customers are Russian Railways and Vanomet AG (4% and 3.3% of total sales, respectively).
Some part of the Group’s sales is 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 payment 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 municipal enterprises
and governmental organisations that experience financial difficulties. The significant 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.
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
Long-term and short-term investments
Trade and other receivables
Loans receivable
Receivables from related parties
Cash and cash equivalents
2010
$ 22
5
76
1,216
18
124
683
2009
$ 77
–
104
1,002
5
107
671
2008
$ 2
–
622
1,409
113
156
930
$ 2,144
$ 1,966
$ 3,232
Receivables from related parties in the table above do not include prepayments in the amount of $2 million, $nil and $19 million as of
December 31, 2010, 2009 and 2008, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties is presented in the table below.
(US$ million)
Not past due
Past due
Less than six months
between six months and one year
over one year
2010
2009
2008
Gross
amount
$ 1,098
377
232
27
118
Impairment
$ (8)
(109)
(16)
(10)
(83)
Gross
amount
$ 842
364
187
28
149
$ 1,475
$ (117)
$ 1,206
Impairment
$ (1)
(91)
(5)
(8)
(78)
$ (92)
Gross
amount
$ 1,035
736
500
166
70
Impairment
$ (8)
(85)
(13)
(7)
(65)
$ 1,771
$ (93)
In the years ended December 31, 2010, 2009 and 2008, 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
2010
$ 92
45
(19)
(1)
2009
$ 93
40
(40)
(1)
2008
$ 79
35
(7)
(14)
$ 117
$ 92
$ 93
187 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
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 approach 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 monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets and liabilities.
The Group prepares the rolling 12-month financial plan which ensures that the Group has sufficient cash on demand to meet expected
operational expenses, financial obligations and investing activities as they arise. The Group exercises a daily monitoring of cash proceeds and
payments. The Group maintains credit lines and overdraft facilities that can be drawn down to meet short-term financing needs. The Group’s
objective is to refinance its short-term debt by long-term borrowings. The Group developed standard payment periods in respect of trade
accounts payable and monitors the timeliness of payments to its suppliers and contractors.
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including
interest payments.
Year ended december 31, 2010
(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 other
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
On demand
Less than
3 months
3 to 12
months
1 to 2 years
2 to 5 years
After 5
years
Total
$ 7
–
–
1
8
235
–
–
235
–
104
177
6
13
300
$ 20
55
1
2
78
224
19
5
248
–
795
37
–
–
832
$ 124
462
2
11
599
15
56
17
88
–
31
2
–
–
33
$ 25
509
3
8
545
283
62
12
357
–
–
–
–
–
–
$ 5,039
$ 538
$ 5,753
955
7
60
6,061
1,487
89
19
1,595
–
–
–
21
–
21
123
3
21
685
20
4
2
26
5
–
–
–
–
5
2,104
16
103
7,976
2,264
230
55
2,549
5
930
216
27
13
1,191
$ 543
$ 1,158
$720
$ 902
$ 7,677
$ 716
$ 11,716
188 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
Year ended december 31, 2009
(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 other
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
Year ended december 31, 2008
(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
Dividends payable
ToTAL non-InTEREsT BEARInG dEBT
On demand
Less than
3 months
3 to 12
months 1 to 2 years 2 to 5 years
After 5
years
Total
$ 930
$ 2,488
$ 1,091
$ 4,812
$ 5
–
–
17
22
242
–
–
242
5
196
112
17
13
343
$ 25
32
1
–
58
229
30
5
264
–
647
62
–
–
709
$ 273
384
2
1
374
3
7
660
1,314
1,135
103
16
1,254
–
23
14
–
–
37
904
69
22
995
–
–
–
–
–
–
841
7
28
3,364
795
42
32
869
–
–
–
–
–
–
217
5
25
1,338
41
5
3
49
–
–
–
–
–
–
1,848
18
78
6,756
3,346
249
78
3,673
5
866
188
17
13
1,089
$ 607
$ 1,031
$ 1,951
$ 2,309
$ 4,233
$ 1,387
$ 11,518
On demand
Less than
3 months
3 to 12
months
1 to 2 years
2 to 5 years
After 5
years
Total
$ 8
$ 61
$ 1,727
$ 1,333
$ 1,338
$ 4,587
–
–
1
9
414
–
–
414
6
519
104
320
949
54
2
–
117
627
59
4
690
–
670
56
–
726
357
3
16
2,103
$ 120
239
3
4
366
633
7
13
1,986
366
8
29
1,741
1,004
1,445
1,907
146
11
121
11
131
20
1,161
1,577
2,058
–
49
24
–
73
–
–
–
–
–
–
–
–
–
–
9
–
–
9
–
–
–
–
–
1,649
23
63
6,322
5,406
457
46
5,909
6
1,238
184
320
1,748
$ 1,372
$ 1,533
$ 3,337
$ 1,943
$ 4,044
$ 1,750
$ 13,979
Payables to related parties in the tables above do not include advances received in the amount of $1 million, $47 million and $138 million as of
December 31, 2010, 2009 and 2008, respectively.
189 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
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 other
obligations.
The Group incurs interest rate risk on liabilities with variable interest rates. The Group’s treasury function performs analysis of current interest
rates. In case of changes in market fixed or variable interest rates management may consider the 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 assets 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.
In estimating reasonably possible changes the Group assessed the volatility of interest rates during the reporting periods.
2010
2009
2008
Basis points
Effect on PBT
Basis points
Effect on PBT
Basis points
Effect on PBT
(US$ million)
(US$ million)
(US$ million)
(25)
100
–
–
–
–
(25)
100
$ 4
(17)
–
–
–
–
1
$ (2)
(25)
100
–
–
–
–
(25)
100
$ 8
(30)
–
–
–
–
1
$ (2)
(53)
53
(106)
106
(33)
33
(30)
30
$ 24
(24)
4
(4)
1
(1)
1
$ (1)
LIABILITIEs dEnomInATEd In us doLLARs
Decrease in LIBOR
Increase in LIBOR
Decrease in Prime rate
Increase in Prime rate
Decrease in Federal Funds Rate
Increase in Federal Funds Rate
LIABILITIEs dEnomInATEd In EuRo
Decrease in EURIBOR
Increase in EURIBOR
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 US dollars and euro.
The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, management believes that the
Group is secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency denominated
borrowings.
190 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
market risk (continued)
Currency Risk (continued)
The Group’s exposure to currency risk determined as the net monetary position in respective currencies was as follows:
(US$ million)
USD/RUB
EUR/RUB
EUR/USD
CAD/USD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
sensitivity Analysis
2010
$ 3,419
2009
$ 1,732
(283)
137
1,180
38
(282)
66
41
(1)
(43)
(297)
108
1,281
22
(154)
41
43
(88)
(15)
2008
$ 967
(390)
180
1,611
48
(216)
(7)
20
(203)
12
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 reasonably possible changes the Group assessed the volatility of foreign exchange rates
during the reporting periods.
2010
2009
2008
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
%
(US$ million)
%
(US$ million)
%
(US$ million)
USD/RUB
EUR/RUB
EUR/USD
CAD/USD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
(9.70)
9.70
(8.79)
8.79
(11.32)
11.32
(10.97)
10.97
(5.30)
5.30
(13.79)
13.79
(13.68)
13.68
(11.59)
11.59
(1.71)
1.71
(9.94)
9.94
(332)
332
25
(25)
(16)
16
(129)
129
(2)
2
39
(39)
(9)
9
(5)
5
–
–
4
(4)
(15.65)
15.65
(12.18)
12.18
(12.96)
12.96
(14.02)
14.02
(10.28)
10.28
(18.52)
18.52
(21.41)
21.41
(17.74)
17.74
(31.30)
31.30
(13.53)
13.53
(271)
271
36
(36)
(14)
14
(180)
180
(2)
2
29
(29)
(9)
9
(8)
8
28
(28)
2
(2)
(8.98)
8.98
(8.63)
8.63
(14.32)
14.32
(15.44)
15.44
(10.61)
10.61
(18.52)
18.52
(28.52)
28.52
(38.76)
38.76
(11.77)
11.77
(14.73)
14.73
(87)
87
34
(34)
(26)
26
(249)
249
(5)
5
40
(40)
2
(2)
(8)
8
24
(24)
(2)
2
Fair Value of Financial instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
(unobservable inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts receivable and
payable, short-term loans receivable and payable and promissory notes, approximate their fair value.
The Group held the following financial instruments measured at fair value:
191 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
Fair Value of Financial instruments (continued)
(US$ million)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2010
2009
2008
AssETs mEAsuREd AT fAIR vALuE
Available for sale financial assets
37
Financial assets at fair value through
profit or loss
Derivatives not designated as hedging
instruments
LIABILITIEs mEAsuREd AT fAIR vALuE
Liability at fair value through profit or loss
Derivatives not designated as hedging
instruments
Deferred consideration payable
for the acquisition of Inprom (Note 4)
–
–
–
–
21
–
–
5
–
38
–
–
–
–
16
–
–
43
–
–
–
–
–
–
–
–
–
6
–
–
–
–
12
–
–
33
18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
During the reporting period, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level
3 fair value measurements.
The following table shows financial instruments which carrying amounts differ from fair values.
2010
2009
2008
(US$ million)
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
8.875 per cent notes due 2013
7.25 per cent convertible bonds due 2014
8.25 per cent notes due 2015
9.5 per cent notes due 2018
10.875 per cent notes due 2009
13.5 per cent bonds due 2014
9.25 per cent bonds due 2013
9.95 per cent bonds due 2015
Carrying
amount
$ 1,201
1,807
1,144
551
555
499
–
670
502
498
Fair Value
$ 1,198
1,663
1,248
650
615
565
–
740
498
496
Liabilities under 12.00 per cent rouble bonds
due 2011 and 2013 assumed in business
combination
13
12
Carrying
amount
$ 1,234
2,894
1,132
Fair Value
$ 1,197
2,847
1,155
Carrying
amount
$ 369
4,253
1,260
528
551
497
–
674
–
–
–
624
554
508
–
667
–
–
–
–
718
567
314
–
–
–
–
Fair Value
$ 354
3,819
668
–
374
284
302
–
–
–
–
$ 7,439
$ 7,685
$ 7,510
$ 7,552
$ 7,481
$ 5,801
The fair value of the non-convertible bonds and notes was determined based on market quotations. The fair value of convertible bonds and
long-term 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 used for valuation of financial instruments were as follows:
Currency in which financial instruments are denominated
2010
2009
2008
USD
EUR
RUB
Capital management
7.7–8.3%
8.6–9.5%
10.0–16.8%
2.8%
12.0%
7.0%
16.0%
6.6%
23.0%
Capital includes equity attributable to the equity holders of the parent entity. Revaluation surplus which is included in capital is not subject to
capital management because of its nature.
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 monitoring. There were no changes in the objectives, policies and processes during 2010.
192 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
29. Financial risk management objectives and policies (continued)
Capital management (continued)
The Group manages its capital structure and makes adjustments to it by issue of new shares, dividend payments to shareholders, purchase of
treasury shares. The Group monitors the compliance of the amount of legal reserve with the statutory 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 $2,000 million.
30. non-cash transactions
Transactions that did not require the use of cash or cash equivalents were as follows in the years ended December 31:
(US$ million)
Liabilities for purchases of property, plant and equipment
Purchases of property, plant and equipment settled by an offset with accounts receivable
Liabilities for purchases of shares in subsidiaries and other entities
Issue of shares to settle the liability for the acquisition of the Ukrainian businesses (Note 4)
Loans provided in the form of payments by banks for the subsidiaries acquired by the
Group (Note 4)
Offset of income tax receivable/(payable) against other taxes
2010
$ 70
12
28
–
–
17
2009
$ 49
–
2
–
–
18
2008
$ 124
–
15
757
938
(52)
31. Commitments and Contingencies
operating environment of the group
The Group is one of the largest vertically integrated steel producers globally and the largest steel producer in Russia. The Group’s major
subsidiaries are located in Russia, Ukraine, the European Union, the USA, Canada and the Republic of South Africa. Russia and Ukraine are
considered to be emerging markets with higher economic and political risks.
In the wake of the global financial crisis, there are certain signs of general economic recovery. The stabilisation measures introduced by
governments to provide liquidity and support debt refinancing have led to stronger customer demand, increased production levels and improved
liquidity in the banking sector.
Nevertheless, in 2010, there was no material uplift in the ship-building, pipe-making, railway transportation, construction, oil and gas industries
which are the major customers of the Group and pricing remains volatile. The global economic climate is unstable and this may negatively affect
the Group’s results and financial position in a manner not currently determinable.
taxation
Russian and Ukrainian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently.
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, significant 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 accrued 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 end of the reporting period as those that can be subject to
different interpretations of the tax laws and other regulations and are not accrued in these financial statements could be up to approximately
$34 million.
Contractual Commitments
At December 31, 2010, the Group had contractual commitments for the purchase of production equipment and construction works for an
approximate amount of $290 million.
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 2011, the Group plans to spend approximately $106 million under these programmes.
193 AnnuAl RepoRt And Accounts 2010
Consolidated FinanCial statements
Years ended december 31, 2010, 2009 and 2008
31. Commitments and Contingencies (continued)
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 regulations, improvements in environmental
technologies, the quality of information available related to specific sites, the assessment 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.
In the period from 2011 to 2015, the Group is committed to spend approximately $326 million under the environmental programmes.
legal proceedings
The Group has been and continues to be the subject of legal proceedings, none of which has had, individually or in aggregate, a significant effect on
the Group’s operations or financial position. Possible liabilities, which were identified by the Group at the end of the reporting period as those that
can be subject to different interpretations of legislation and are not accrued in these financial statements could be up to approximately $29 million.
32. subsequent events
There were no significant events after the reporting date.
194 AnnuAl RepoRt And Accounts 2010
Parent ComPany FinanCial StatementS
for the year ended 31 December 2010
Contents
195 reSPonSibility Statement
oF the DireCtorS in reSPeCt
oF the annual aCCountS
oF evraz GrouP S.a.
196 inDePenDent auDitor'S
rePort
197 Parent ComPany FinanCial
StatementS
197 Balance Sheet
198 Profit and Loss Account
199 Notes to the Annual Accounts
IX
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195 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
responsiBility statement
oF the direCtors in respeCt
oF the annual aCCounts
oF eVraz group s.a.
We confirm that to the best of our knowledge the annual accounts of Evraz Group S.A., prepared in accordance with Luxembourg legal
and regulatory requirements relating to the preparation of the annual accounts, give a true and fair view of the financial position of Evraz Group
S.A. as of 31 December 2010, and of the results of its operations for 2010.
By order of the Board
Alexander frolov
Chief Executive Officer
Evraz Group S.A.
30 March 2011
196 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
Ernst & Young
Socieˆteˆ anonyme
7, rue Gabriel Lippmann
Parc d'Activite Sydrall 2
L-5365 Munsbach
B.P. 780
L-2017 Luxembourg
Tel: +352 42 124 1
Fax: +352 42 124 5555
www.ey.com/luxembourg
R.C.S. Luxembourg B 47 771
TVA LU 16063074
Independent auditor's report
To the Shareholders and Board of Directors of
Evraz Group S.A.
1, Alleˆe Scheffer
L-2520 LUXEMBOURG
Following our appointment by the General Meeting of the Shareholders dated 17 May 2010, we have audited the accompanying
annual accounts of Evraz Group S.A., which comprise the balance sheet as at 31 December 2010 and the profit and loss account
for the year then ended, and a summary of significant accounting policies and other explanatory information.
Board of Directors’ responsibility for the Annual Accounts
The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with
Luxembourg legal and regulatory requirements relating to the preparation and presentation of the annual accounts and for such
internal control as the Board of Directors determines is necessary to enable the preparation and presentation of annual accounts
that are free from material misstatement, whether due to fraud or error.
Responsibility of the ‘reˆviseur d’entreprises agreˆeˆ’
Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance
with International Standards on Auditing as adopted for Luxembourg by the ‘Commission de Surveillance du Secteur Financier’.
Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the annual accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The
procedures selected depend on the judgment of the ‘reˆviseur d’entreprises agreˆeˆ’, including the assessment of the risks of material
misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the ‘reˆviseur d’entreprises
agreˆeˆ’ considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts.
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 annual accounts give a true and fair view of the financial position of Evraz Group S.A. as of December 31, 2010,
and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements
relating to the preparation and presentation of the annual accounts.
Ernst & Young
Socieˆteˆ anonyme
Cabinet de reˆvision agreˆeˆ
Luxembourg, 30 March 2011
Thierry Bertrand
A member firm of Ernst & Young Global Limited
197 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
BalanCe sheet
(in thousands of eur)
AssETs
fixed assets
Intangible assets
financial assets
Shares in affiliated undertakings
Securities held as fixed assets
Loans to affiliated undertakings
Other loans
Current assets
Debtors
Amounts owed by affiliated undertakings becoming due and payable within one year
Other debtors
Cash at bank
Prepayments
ToTAL AssETs
EquITY And LIABILITIEs
Capital and reserves
Subscribed capital
Share premium
Legal reserve
Non-distributable reserve for own shares
(Loss)/profit brought forward
Loss for the year
Creditors
Convertible bonds
becoming due and payable within one year
becoming due and payable after more than one year
Non-convertible bonds
becoming due and payable within one year
becoming due and payable after more than one year
Amounts owed to credit institutions
becoming due and payable within one year
becoming due and payable after more than one year
Amounts owed to affiliated undertakings
becoming due and payable within one year
becoming due and payable after more than one year
Other creditors
becoming due and payable within one year
becoming due and payable after more than one year
deferred income
ToTAL EquITY And LIABILITIEs
Notes
2010
2009
3
4
4
5
6
5
6
8
8
7
7
9
9
10
10
11
11
2
95,578
118,402
5,442,810
5,282,959
17,816
967,983
329,146
19,228
907,968
329,146
6,757,755
6,539,301
113,925
1,165
115,090
5,778
4,604
53,785
89
53,874
16,727
5,766
6,978,805
6,734,070
291,914
291,914
1,079,487
1,079,487
24,501
329,146
(163,550)
(572,443)
24,501
329,146
288
(163,838)
989,055
1,561,498
7,706
7,147
486,454
451,201
26,364
24,453
1,677,743
1,556,157
26,507
710,971
751,821
1,467,843
1,827,202
710,971
9,004
13,835
447,561
–
35,397
10,352
5,496,757
4,751,932
492,993
420,640
6,978,805
6,734,070
The accompanying notes form an integral part of these consolidated financial statements.
198 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
proFit and loss aCCount
(in thousands of eur)
Charges
Value adjustment in respect of intangible fixed assets
Value adjustment in respect of current assets
Other operating charges
Value adjustment in respect of financial assets and of transferable securities held as current
assets
Interest payable and similar charges
– concerning affiliated undertakings
– exchange loss
– interest expense in respect of notes and bank loans
– other
Loss on disposal of investments
Other taxes
Income
Other interest receivable and similar income
– concerning affiliated undertakings
– exchange gain
– gain from extinguishment of debts
– other
Gain on sale of investments
Value adjustment in respect of financial assets and of transferable securities held as current
assets
Loss for the financial year
Notes
2010
2009
3
4,5
4
10
4
13
5
7
4
4
40,499
–
43,736
11,729
21,462
38,840
1,412
2,021
97,922
342,666
257,194
745
–
6,582
790,756
8,006
–
289,453
1,522
58,199
9,431
440,663
69,178
141,638
–
–
1,347
–
147,788
572,443
790,756
21,074
90,215
1,130
366
22,402
163,838
440,663
The accompanying notes form an integral part of these consolidated financial statements.
199 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
notes to the annual
aCCounts
for the year ended december 31, 2010
(all monetary amounts are expressed in thousands)
1. Corporate information
Evraz Group S.A. (‘Evraz Group’ or the ‘Company’) is a joint stock company registered under the laws of Luxembourg on December 31, 2004.
The registered address of Evraz Group is 1, Alleˆe 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 produces vanadium products and owns and operates certain mining assets. The Group is one of the largest steel producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of the Company.
In 2005, Evraz Group became listed on the London Stock Exchange.
going Concern
These financial statements have been prepared on a going concern basis that contemplates the realisation of assets and satisfaction of liabilities
and commitments in the normal course of business. The activities of the Company and its subsidiaries (the ‘Group’) have been adversely affected
by uncertainty and instability in international financial, currency and commodity markets resulting from the global economic crisis of 2008–2009.
The Company reported net loss of EUR 572,443 for the year ended December 31, 2010. The current liabilities were EUR 1,896,783 (including
loans due to the Company’s subsidiaries of EUR 1,827,202 with maturities in 2011) and exceeded current assets by EUR 1,781,693.
The current maturities are expected to be covered by free cash flows, dividends from subsidiaries and refinancing of current debts.
In November 2009, the Company reset certain financial covenants and obtained waivers from its lenders (Notes 3, 7, 9). At December 31, 2009
and 2010, the Company was in compliance with all of its financial covenants.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable
future.
operating environment of the group
The Group is one of the largest vertically integrated steel producers globally and the largest steel producer in Russia. The Group’s major
subsidiaries are located in Russia, Ukraine, the European Union, the USA, Canada and the Republic of South Africa. Russia and Ukraine are
considered to be emerging markets with higher economic and political risks.
In the wake of the global financial crisis, there are certain signs of general economic recovery. The stabilisation measures introduced by
governments to provide liquidity and support debt refinancing have led to stronger customer demand, increased production levels and improved
liquidity in the banking sector.
Nevertheless, in 2010, there was no material uplift in the ship-building, pipe-making, railway transportation, construction, oil and gas industries
which are the major customers of the Group’s subsidiaries and pricing remains volatile. The global economic climate is unstable and this may
negatively affect the Company’s results and financial position in a manner not currently determinable.
2. significant accounting policies
Basis of preparation
The Company maintains its books and records in EURO (‘EUR’) and the annual accounts have been prepared in thousands of EURO in accordance
with applicable legal requirements in Luxembourg and in conformity with the commercial law of August 10, 1915, as amended, including the
following significant accounting policies.
Certain reclassifications have been made in the prior year balance sheet to conform to the current year presentation.
Foreign Currency transactions
The presentation and measurement currency of the Company is euro. Transactions in foreign currencies are initially recorded in euro at the
rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange
ruling at the balance sheet date. Realised exchange gains and losses and unrealised exchange losses are recorded in the income statements.
Unrealised exchange gains are deferred. As of December 31, 2010, the deferred unrealised exchange gains amounted to EUR 487,387
(2009: EUR 418,523).
200 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
2. significant accounting policies (continued)
(all monetary amounts are expressed in thousands)
investments
Financial assets, including participation and loans granted to group-related companies and shareholders, are stated at acquisition cost.
Write-downs are recorded if, in the opinion of the management, there is any permanent impairment in value.
Dividend income is recognised as revenue when the shareholders’ right to receive the payment is established.
All purchases and sales of investments are recognised on the settlement date, which is the date when the investment is delivered to or by the
Company. All investments are initially recognised at cost.
accounts receivable
Accounts receivable are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for
doubtful receivables is made when collection of the full amount is no longer probable.
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.
provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and when 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 Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually certain.
revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably
measured.
3. intangible assets
In November 2005, Evraz Group S.A. issued guaranteed notes for the value of USD 750,000 at an issue price of 98.338 %, bearing interest at
8.25% (Note 7).
The amount of USD 12,465 (EUR 10,587) resulting from the difference between the issue price and the nominal value was capitalised and
amortised on a straight-line basis over the life of the notes.
Transaction costs in respect of the notes amounting to USD 5,046 (EUR 4,771) were also capitalised and amortised over the life of the notes.
In 2007 and 2006, the Company incurred loan arrangement costs of USD 63,315 (EUR 43,922) and USD 6,879 (EUR 5,402), respectively. These
costs were capitalised and amortised over the period of the borrowings.
In April 2008, the Company issued notes due 2013 amounting to USD 1,300,000 and notes due 2018 amounting to USD 700,000 (Note 7).
Transaction costs in respect of these notes amounting to USD 17,479 (EUR 11,084) were capitalised and amortised on a straight-line basis over
the life of the notes.
In July 2009, the Company issued unsecured convertible bonds due 2014 amounting to USD 650,000. Transaction costs in respect of these
bonds amounting to USD 9,865 (EUR 6,879) were capitalised and amortised over the life of the bonds.
In November and December 2009, the Company received the consent of its lenders and note-holders to amend the terms of certain financial
covenants (Note 7). In connection with the covenant reset, the Company incurred consent fees and legal costs of USD 112,375 (EUR 76,320).
These costs were capitalised and amortised over the period of the borrowings.
In November 2010, the Company received a new syndicated loan arranged by Deutsche bank (Note 9). Transaction costs in respect of this loan
amounting to USD 21,826 (EUR 16,200) were capitalised and amortised on a straight-line basis over the life of the loan.
201 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
(all monetary amounts are expressed in thousands)
4. shares in affiliated undertakings and securities held
as Fixed assets
shares in affiliated undertakings
Mastercroft Limited
Strategic Minerals Corporation
Vanston Limited
Evraz Vitkovice Steel
Palmrose Limited
Evraz Inc. NA Canada
ECS Holdings Europe B. V.
East Metals N.A. LLC
Evraz Overseas S.A.
securities held as fixed assets
Delong Holdings Limited
mastercroft limited
2010
2009
3,831,982
3,831,982
106,297
42,500
11
879,896
582,038
85
1
–
94,291
42,500
11
732,108
582,038
29
–
–
5,442,810
5,282,959
17,816
19,228
5,460,626
5,302,187
At December 31, 2010 and 2009, the Company held 100% of the shares in Mastercroft.
On June 23, 2009, Mastercroft issued 1,000 ordinary shares for USD 670,000 (EUR 479,324) to the Company. The amount payable for the
newly issued shares was fully offset by the transfer of the Highveld shares from the Company to Mastercroft in accordance with to the Share
Contribution Agreement signed on June 23, 2009.
On June 26, 2009, Mastercroft issued 1,000 ordinary shares for USD 2,465,000 to the Company. The amount of USD 781,149 (EUR 554,164)
was offset against the shares of Evraz Inc. NA transferred by the Company to Mastercroft according to the Share contribution and settlement
agreement signed on June 26, 2009. The amount of USD 1,683,851 (EUR 1,194,559) was offset against the loans receivable from Evraz Inc.
NA, which were transferred by the Company to Mastercroft Finance Limited (subsidiary of Mastercroft) in accordance with the Contribution and
assignment agreement signed on June 26, 2009 (Note 5).
On July 28, 2009, Mastercroft issued 1.000 ordinary shares for USD 380,000 (EUR 267,060) to the Company. In 2009, the Company paid for
these shares in cash.
At December 31, 2010 and 2009, the underlying equity of Mastercroft amounted to EUR 4,108,113 and EUR 3,706,755, respectively.
strategic minerals Corporation
At December 31, 2009, the Company owned 72.84% of ordinary shares of Strategic Minerals Corporation (‘Stratcor’), including 69.00% of voting
shares. The cost of investments amounted to USD 120,471 (EUR 94,291), including transaction costs of USD 1,383 and fair value of contingent
consideration amounting to USD 21,161.
In 2009, the Company paid USD 7,956 (EUR 5,821) to acquire a 5.92% ownership interest in Stratcor, which was shown as a prepayment in the
balance sheet at December 31, 2009. The ownership rights have been transferred to the Company in January 2010.
Under the share purchase agreement signed in 2006, the Company is obliged to pay to the seller the 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 for the earn-out and synergy payments were recognised at fair value, which was determined based on the expected amounts to be
paid, the timing of payments and applicable discount rate. In 2010, the Company fully repaid to the sellers earn-out liabilities in the amount of
USD 16,435 and re-assessed its future synergy payments, which led to an increase in the investments in Stratcor by EUR 6,185 (2009: decrease
by EUR 3,500).
At December 31, 2010, the Company owned 78.76% of Stratcor, the cost of these investments was equal to EUR 106,297.
At December 31, 2010 and 2009, the underlying equity of Stratcor amounted to USD 97,515 (EUR 72,979) and USD 103,697 (EUR 71,982),
respectively.
202 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
4. shares in affiliated undertakings and securities held as Fixed assets (continued)
(all monetary amounts are expressed in thousands)
Vanston limited
In 2006, the Company acquired 100% ownership interest in Vanston Limited from Mastercroft for EUR 42.500. Vanston Limited owns
Evraz Palini e Bertoli.
At December 31, 2010 and 2009, the underlying equity of Vanston amounted to EUR 50,887 and EUR 51,893, respectively.
evraz Vitkovice steel
Evraz Vitkovice Steel, a steel rolling mill located in the Czech Republic, is a wholly-owned subsidiary of the Company acquired in 2005.
At December 31, 2010 and 2009, the underlying equity of Evraz Vitkovice Steel amounted to EUR 118,989 and EUR 333,884, respectively.
palmrose limited
Palmrose Limited (‘Palmrose’) is a Cyprus-based holding company, which owns controlling interests in certain steel and mining businesses
located in Ukraine:
• Sukha Balka iron ore mining and processing complex;
• Dnepropetrovsk Iron and Steel Works;
• three coking plants (Bagleykoks, Dneprokoks, Dneprodzerzhinsk Coke Chemical Plant).
Lanebrook, the Company’s parent, acquired these production assets in 2007.
On April 14, 2008, the Company acquired a 51.4% share in Palmrose for a cash consideration of USD 1,110,000 (EUR 764,845). In June 2008,
that agreement was amended increasing the cash portion of the consideration payable to Lanebrook by USD 18,000.
On September 9, 2008, the Company issued 4,195,150 shares in exchange for a 48.6% interest in Palmrose. The fair value of the issued shares
determined by an independent appraiser amounted to EUR 714,080, which was allocated to share capital (EUR 8,390) and share premium
(EUR 705,690).
In 2008, the Company recognised an impairment loss in the amount of EUR 721,846 in respect of investments in Palmrose. In 2010 and 2009,
an impairment amounting to EUR 147,788 and EUR 19,227, respectively, was reversed.
In 2009, the purchase price for the acquisition of Palmrose was reduced by USD 65,000 (EUR 44,201). The amount was received from Lanebrook
Limited in cash. This change in the purchase price reduced the amount of investments in Palmrose.
At December 31, 2010 and 2009, the underlying equity of Palmrose amounted to EUR 1,576,047 and EUR 1,462,198, respectively.
evraz inc. na Canada
Evraz Inc. NA Canada is a leading North American producer of steel plate, as well as pipe for the oil and gas industry. The Company acquired a
100% interest in the subsidiary in 2008.
On February 27, 2009, Evraz Inc. NA Canada increased its share capital by 346,500,000 shares with par value of CAD 0.001 each. The Company
subscribed to these shares at an aggregate subscription price of CAD 346,500 (EUR 216,766). The payment of the subscription price was offset
against Amended and Restated Note #1 dated November 28, 2008 received by the Company from Evraz Inc. NA Canada (Note 5).
At December 31, 2010 and 2009, the underlying equity of Evraz Inc. NA Canada amounted to EUR 684,011 and EUR 542,651, respectively.
eCs holdings europe B.V.
On August 4, 2009, the Company incorporated a wholly-owned subsidiary in the Netherlands – ECS Holdings Europe B.V. Transaction costs
amounted to EUR 18.
In 2010 and 2009, the Company contributed EUR 56 and EUR 11, respectively, to the capital of ECS Holdings Europe B.V.
At December 31, 2010 and 2009, the underlying equity of ECS Holdings Europe B.V. amounted to EUR (3) and EUR (1), respectively.
east metals n.a. llC
On March 10, 2010, the Company incorporated a wholly-owned subsidiary in USA – East Metals N.A. LLC. The share capital of the subsidiary
amounted to USD 1 (EUR 1). At December 31, 2010, the share capital was unpaid.
At December 31, 2010, the underlying equity of East Metals N.A. LLC amounted to EUR (186).
203 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
4. shares in affiliated undertakings and securities held as Fixed assets (continued)
(all monetary amounts are expressed in thousands)
highveld steel and Vanadium limited
Evraz Highveld Steel and Vanadium Limited (‘Highveld’) is one of the largest steel producers in South Africa and a leading producer of vanadium
products. The Company acquired a controlling interest in Highveld in 2007.
On June 23, 2009, the Company contributed its ownership interest in Highveld (85.12%) to Mastercroft. The fair value of the contributed shares,
determined based on market quotations, amounted to USD 670,000 (EUR 479,324). The difference between the cost of investment in Highveld
and its fair value amounting to USD 81,350 (EUR 58,199) was recorded as a loss on disposal of investments.
evraz inc. na
Evraz Inc. NA, located in the United States and Canada, produces plates, pipes, rails and other long steel products. The Company acquired this
subsidiary in 2007.
In June 2009, the Company made a cash contribution to Evraz Inc. NA in the amount of USD 170,000 (EUR 121,459). On June 26, 2009,
the Company entered into a number of agreements with Mastercroft and its subsidiary, under which the shares of Evraz Inc. NA have been
contributed to the share capital of Mastercroft and the loans receivable from Evraz Inc. NA have been transferred to Mastercroft Finance Limited.
Gain on disposal of investments in Evraz Inc. NA amounting to USD 515 (EUR 366) was recognised in the profit and loss account for the year
ended December 31, 2009.
emmy n.a.
Emmy N.A. S.à.r.l. (Luxembourg) was established in 2007 for the purpose of acquisition of the steel businesses in Canada. On July 6, 2009, Emmy
N.A. S.à.r.l. was liquidated.
evraz overseas
Evraz Overseas S.A., a wholly owned subsidiary located in Switzerland, was established in 2007.
At December 31, 2009 and 2010, the investments in Evraz Overseas S.A. were considered as fully impaired and this loss was included in the
value adjustment in respect of financial assets.
From November 2010, Evraz Overseas S.A. is under liquidation procedures.
At December 31, 2010 and 2009, the underlying equity of Evraz Overseas amounted to EUR 495 and EUR (6,866), respectively.
delong holdings limited
Investments in Delong Holdings Limited represent approximately 10.01% ownership interest in the entity acquired in 2008 for EUR 102,226.
The investments are measured at market quotations. In 2009, the Company reversed part of the previously recognised impairment loss in the
amount of EUR 3,175 due to the increase in market prices for the shares of Delong. In 2010, the Company recognised an impairment loss in the
amount of EUR 1,412 due to a decrease in market prices for the shares of Delong.
5. loans to affiliated undertakings and other amounts
owed by affiliated undertakings
Becoming due and payable within one year
Vanston Limited
Evraz Highveld Steel and Vanadium Limited
Lanebrook Limited
Mastercroft Finance Limited
Becoming due and payable after more than one year
Vanston Limited
Lanebrook Limited
Evraz Inc. NA Canada
Type of receivables
2010
2009
loan
other receivables
other receivables
other receivables
loan
loan
loan
–
–
39,835
74,090
113,925
17,886
34,426
915,671
967,983
1,081,908
16,886
16
36,883
–
53,785
–
–
907,968
907,968
961,753
204 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
5. loans to affiliated undertakings and other amounts owed by affiliated undertakings
(continued)
(all monetary amounts are expressed in thousands)
lanebrook limited
On June 18, 2010, the Company entered into a loan agreement with Lanebrook Limited. According to the agreement the Company issued a
loan to Lanebrook Limited in the amount of USD 46,000 (EUR 34,426 as of the end of the year). The loan bears interest at the rate of 7.85% and
matures after 2 years. At the same time the Company entered into a Guarantee and Indemnity Agreement with Lanebrook Limited for the amount
of USD 7,222 (EUR 5,837 as of the date of transaction). The amount of guarantee was offset against interest on loan at the same date. The
guarantee amount is amortised over its maturity period.
mastercroft Finance limited
On November 15, 2010, the Company entered into an assignment agreement with Sberbank with respect to the loans received by Inprom Group
from the bank. The amount of the assignment was determined as of December 24, 2010 and amounted to EUR 151,976 (at the exchange rate as
of the date of the transaction). The consideration paid was RUR 3,021,654 (EUR 75,221).
On December 24, 2010, the Company entered into an assignment agreement with Mastercroft Finance Limited for these loans. The
consideration of USD 99,000 (EUR 74,090) was recognised by the Company as an amount receivable from Mastercroft Finance Limited.
The Company recognised net income of EUR 358 on these transactions.
In the year ended December 31, 2010 and 2009, the movement of loans issued to related parties was as follows:
loans denominated in usd
Year ended december 31, 2010
Interest rate
Maturity date
Balance at
December 31,
2009
Loans issued to
related parties
Interest income
Settlements
of the loans
Effect of
exchange rate
changes
Balance at
December 31,
2010
Evraz Inc. NA Canada
Libor+5.8% 10.12.2014
800,000
–
49,247
(49,247)
Lanebrook Limited
7.85%
22.06.2012
–
TRAnsLATIon InTo EuR
Year ended december 31, 2009
800,000
555,324
46,000
46,000
37,526
1,926
(1,926)
51,173
(51,173)
–
–
800,000
46,000
846,000
38,601
(38,817)
40,505
633,139
Interest rate
Maturity date
Balance at
December 31,
2008
Unamortised
debt issue
costs
Loans issued
to related
parties
Interest
income
Settlement
of the loans
Debt issue
costs
amortised
Effect of
exchange
rate changes
Balance at
December 31,
2009
–
–
–
–
–
–
–
–
–
–
– 800,000
EvrazHolding LLC
6.00%
14.07.2009
120
Emmy N.A.
10.00%
30.01.2009
507,542
–
–
–
–
3
–
(123)
(507,542)
East Metals S.A.
5.50%
15.12.2009
–
– 222,500
838
(223,338)
Evraz Inc. NA Canada
7.6225%/
6.03531% 10.12.2014
800,000
–
Evraz Inc. NA loan A
9.17%
26.06.2009
320,000
(1,937)
Evraz Inc. NA loan B
9.41%
26.06.2009
295,000
(1,852)
Evraz Inc. NA loan C
9.67%
26.06.2009
360,000
(945)
Evraz Inc. NA loan D
9.78%
26.06.2009
370,000
Evraz Inc. NA loan E
9.91%
26.06.2009
260,530
–
–
–
–
–
–
–
–
61,192
(61,192)
14,924
(334,924)
1,937
14,122
(309,122) 1,852
17,715
(377,715)
945
18,417
(388,417)
13,143
(273,673)
–
–
–
–
–
–
–
–
–
–
–
–
TRAnsLATIon InTo EuR
2,093,261 (3,000) 148,621 100,627 (1,784,657) 3,000
(2,528) 555,324
2,913,192
(4,734) 222,500 140,354 (2,476,046)
4,734
– 800,000
LoAns dEnomInATEd In EuRo
Year ended december 31, 2010
Vanston Limited
7.20%
31.10.2012
Interest rate
Maturity date
Balance at
December 31,
2009
16,886
16,886
Loans issued to
related parties
Interest income
Settlements of
the loans
Effect of
exchange rate
changes
Balance at
December 31,
2010
–
–
1,000
1,000
–
–
–
–
17,886
17,886
205 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
5. loans to affiliated undertakings and other amounts owed by affiliated undertakings
(continued)
loans denominated in usd (continued)
(all monetary amounts are expressed in thousands)
Year ended december 31, 2009
Vanston Limited
Vanston Limited
Vanston Limited
Vanston Limited
Emmy
Interest rate
Maturity date
7.20%
7.20%
7.20%
7.20%
8.75%
08.07.2009
08.07.2009
16.07.2009
31.12.2010
03.06.2009
Balance at
December 31,
2008
65
784
2,008
27,695
–
30,552
Loans issued to
related parties
Interest income
Settlements of
the loans
Effect of
exchange rate
changes
Balance at
December 31,
2009
–
–
–
–
19
19
2
–
–
(67)
(784)
(2,008)
1,466
(12,265)
–
(19)
1,468
(15,143)
–
–
–
(10)
–
(10)
–
–
–
16,886
–
16,886
loans denominated in Canadian dollars
Year ended december 31, 2010
Interest rate
Maturity date
Balance at
December 31,
2009
Loans issued to
related parties
Interest income
Settlements of
the loans
Effect of
exchange rate
changes
Balance at
December 31,
2010
Evraz Inc. NA Canada
8.08% 12.06.2018
533,480
TRAnsLATIon InTo EuR
Year ended december 31, 2009
533,480
352,644
–
–
–
40,378
(151,575)
422,283
40,378
(151,575)
–
422,283
29,577
(112,162)
46,899
316,958
Interest rate
Maturity date
Balance at
December 31,
2008
Loans issued to
related parties
Interest income
Settlements of
the loans
Effect of
exchange rate
changes
Balance at
December 31,
2009
Evraz Inc. NA Canada
8.08% 12.06.2018
1,014,902
TRAnsLATIon InTo EuR
1,014,902
597,071
–
–
–
52,241
(533,662)
533,481
52,241
(533,662)
–
533,481
32,959
(332,929)
55,543
352,644
In the opinion of Directors, the above loans do not present any permanent impairment as of December 31, 2010.
6. Capital and reserves
subscribed Capital
Authorised
Ordinary shares of EUR 0.002 each
Issued and fully paid
Ordinary shares of EUR 0.002 each
2010
2009
257,204,326
257,204,326
145,957,121
145,957,121
Shareholders of the Company are entitled to standard rights provided under the laws of Luxembourg to shareholders of stock companies (‘socieˆteˆ
anonyme’). These rights comprise the right to vote at the shareholders meetings and the right to receive dividends.
sCRIP dIvIdEnds
On January 30, 2009, the Extraordinary General Meeting approved the modification of the method of payment of the 2008 interim dividends:
euro equivalent of the outstanding dividends of USD 0.00225 per share could be either exchanged for new shares of the Company or paid in
cash to the shareholders who voted against or abstained from voting. The voluntary partial scrip dividend alternative was voted for in respect of
97,553,473 shares, representing 79.62% of the Company’s share capital, entitling the holders to subscribe to 9,755,347 new shares issued at
a price of USD 0.0225 per share. The new shares are ranked pari passu with the existing ordinary shares of the Company. The Company’s major
shareholder, Lanebrook Limited, subscribed to 9,193,477 shares. The value of the issued shares amounted to EUR 171,267 (at the exchange
rate as of January 30, 2009), which was allocated to share capital (EUR 19,511) and share premium (EUR 151,756).
InCREAsE of AuThoRIsEd shARE CAPITAL
On July 31, 2009, the Company increased its authorised share capital by 100,000,000 shares with par value of EUR 0.002 each. In addition, in
connection with the issue of convertible bonds, the shareholders resolved to extend the authority of the Board of Directors to issue new shares
for another five years as well as the right of the Company to acquire up to 10% of its own shares.
206 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
6. Capital and reserves (continued)
subscribed Capital (continued)
(all monetary amounts are expressed in thousands)
EquITY offERInG
In 2009, the Company completed the offering of global depository receipts (the ‘Equity Offering’). On July 13, 2009, the Company issued the
Global Depository Receipts (‘GDRs’) listed on the London Stock Exchange, representing ordinary shares of the Company for the total amount of
USD 300,000. 6,060,608 new shares were issued at an issue price of USD 0.01650 per GDR (USD 0.0495 per share). The value of the issued
shares amounted to EUR 214,669 (at the exchange rate as of July 13, 2009) and was allocated to share capital (EUR 12,121) and share premium
(EUR 202,548).
The Company has granted to the Goldman Sachs and Morgan Stanley (‘Joint Book runners’) an over-allotment option to subscribe to up to
909,090 additional GDRs, represented by 303,030 additional new shares, corresponding to additional gross proceeds of USD 15,000. This
option was exercised in full on July 27, 2009. The value of the issued shares amounted to EUR 10,512 (at the exchange rate as of July 27, 2009),
which was allocated to share capital (EUR 606) and share premium (EUR 9,906).
shAREs LEndInG
In 2009, in order to facilitate the issuance of the convertible bonds, Morgan Stanley offered to certain institutional investors an opportunity to
borrow ordinary shares of the Company, represented by GDRs, during the term of the bonds by means of a loan of GDRs beneficially owned by
Lanebrook (the ‘Borrowed GDRs’).
On August 4, 2009, the Board of Directors approved the issue of the new ordinary shares to Lanebrook in the amount equal to the number of shares
underlying the borrowed GDRs. The Group effected a novation of the stock lending arrangements, whereby the Company was substituted for Lanebrook
as a lender of the borrowed GDRs. As a result, on August 12, 2009, 7,333,333 new shares were issued to Lanebrook at the price of USD 0.0212 per
GDR or USD 0.0636 per share in exchange for the right to receive 7,333,333 shares lended under the shares lending agreement. These shares were
recognised as other financial assets in the balance sheet as of December 31, 2010 and 2009. The value of the issued shares amounted to EUR
329,146 (at the exchange rate as of August 12, 2009), which was allocated to share capital (EUR 14,667) and share premium (EUR 314,479).
Transaction costs in respect of the capital increase in the amount of EUR 3,568 were recorded in other operating charges for the year ended
December 31, 2009.
non-dIsTRIBuTABLE REsERvEs
In 2009, the Company recognised a non-distributable reserve for the contributed rights under the shares lending agreement amounting
to EUR 329,146.
legal reserve
According to the Luxembourg Law, the Company is required to create a legal reserve of 10% of share capital per the Luxembourg 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.
In 2009, EUR 839 was allocated to legal reserve. No allocation to legal reserve was made in 2010.
dividends
No dividends were declared in 2009 and 2010.
7. non-convertible Bonds
notes due 2015
On November 10, 2005, the Company issued guaranteed notes in the amount of USD 750,000 at an issue price of 98.338%, bearing interest
of 8.25% per annum and maturing on November 10, 2015. These notes are unconditionally and irrevocably guaranteed without limitation for an
amount by Mastercroft.
The notes were subscribed for an amount of USD 737,535 (EUR 623,497), but they will be redeemed at their principal amount of USD 750,000.
The difference between the issue price and the nominal value of USD 12,465 (EUR 10,587) was capitalised and is amortised over the maturity
period of the notes.
Interest on the notes is payable semi-annually in arrears on May 10 and November 10 of each year commencing May 10, 2006. As of December
31, 2010 and 2009, the accrued interest amounted to USD 6,793 (EUR 5,084) and USD 6,793 (EUR 4,715), respectively.
In 2009, the Company repurchased the notes due 2015 with the nominal amount of USD 148,100 for a cash consideration of USD 90,028. As a
result, the Company recognised gain on extinguishment of debts in the amount of USD 58,072 (EUR 45,378).
207 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
7. non-convertible Bonds (continued)
(all monetary amounts are expressed in thousands)
notes due 2013 and 2018
On April 24, 2008, the Company issued notes in the amount of USD 1,050,000 maturing on April 24, 2013 and bearing interest of 8.875%, and
notes in the amount of USD 550,000 maturing on April 24, 2018 and bearing interest of 9.5%. The notes were issued at a price of 100%.
On May 27, 2008, the Company issued additional tranches of the notes due 2013 and notes due 2018 amounting to USD 250,000 and USD
150,000, respectively, at an issue price of 101.15% plus interest accrued from and including April 24, 2008 to May 26, 2008. The premium was
recognised in deferred income and is amortised over the maturity period of the notes.
Interest on the notes is payable semi-annually in arrears on April 24 and October 24 of each year commencing October 24, 2008. As of December
31, 2010 and 2009, the accrued interest amounted to USD 28,434 (EUR 21,280) and USD 28,434 (EUR 19,738), respectively.
In 2009, the Company repurchased notes due 2013 with the nominal amount of USD 89,100 (EUR 68,133) for a cash consideration of USD
52,160 (EUR 39,681) and notes due 2018 with the nominal amount of USD 51,000 (EUR 38,702) for a cash consideration of USD 29,284 (EUR
22,136). As a result, the Company recognised a gain on extinguishment of debts in the amount of USD 58,656 (EUR 44,837).
Covenants reset
Some of the loan agreements and terms and conditions of the notes provide for certain covenants in respect of the Company and its subsidiaries.
The covenants impose restrictions in respect of certain transactions and financial ratios, including restrictions in respect of indebtedness and
profitability.
In November 2009, the lenders under certain bank facilities approved the requested amendments to the agreements, which included a reset of
the financial covenants. The total principal amount of these borrowings at December 31, 2009 was USD 2,178,860. In addition, the covenants
have been reset in respect of certain loans of the entities under control of the Company.
As a result, the financial covenant ratios tested on the Group's consolidated numbers were loosened, with no testing for the year 2009; all
financial covenant ratios that were tested on the consolidated numbers of Mastercroft Limited were replaced with the new ratios tested on the
Group's consolidated numbers; new restrictions on capital expenditure, acquisitions and loans to third parties were established; a number of
exemptions were introduced to the debt incurrence covenants, where applicable, allowing the Group to refinance its current debt maturities in the
ordinary course.
In December 2009, the Group received the consent of the holders of its notes due in 2013, 2015 and 2018 totaling USD 2,241,800 to amend
the terms of certain covenants in the notes. The financial covenant ratios of the notes were subsequently amended in a manner similar to the
amendments to the bank facilities.
In connection with the covenants reset the Company incurred transaction costs comprising consent fees and legal fees amounting to USD
112,375, which will be amortised during the period of the borrowings. At December 31, 2009, the unpaid transaction costs were USD 29,256.
This amount was fully paid in 2010.
8. Convertible Bonds
In July 2009, the Company issued unsecured convertible bonds for the total amount of USD 650,000 at a price of 100%. They bear interest of
7.25% per annum payable on a quarterly basis and mature on July 13, 2014.
The conversion can be exercised at the option of the bondholders on any date during the period from September 11, 2009 till July 6, 2014. The
bonds will be convertible into GDRs at an initial conversion price of USD 0.0212 per GDR. The conversion price represents a 28% premium to the
equity offering placement price of USD 0.0165 per GDR, which is the reference price for the convertible bonds. The Company can early redeem
the bonds at their principal amount plus accrued interest if 15% or less of the bonds remain outstanding.
As of December 31, 2010 and 2009, the accrued interest amounted to USD 10,296 (EUR 7,706) and USD 10,296 (EUR 7,147), respectively.
208 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
(all monetary amounts are expressed in thousands)
9. amounts owed to Credit institutions
Year ended december 31, 2010
Interest rate
Maturity date
Balance at
December 31,
2009
Loans recieved
Interest expense
Settlement
of the loans
Effect of
exchange rate
changes
Balance at
December 31,
2010
Natixis
6.681%+margin 06.06.2011
96,906
Deutsche Bank
Libor+margin
23.11.2015
2,087,205
Vhesheconombank
Libor+5%
26.05.2010
1,013,528
TRAnsLATIon InTo EuR
Year ended december 31, 2009
3,197,639
2,219,658
–
–
–
–
–
5,735
(70,314)
64,108 (1,198,220)
25,456 (1,038,984)
95,299 (2,307,518)
–
–
–
–
32,327
953,093
–
985,420
71,886 (1,796,391)
242,326
737,479
Interest rate
Maturity date
Balance at
December 31,
2008
Loans recieved
Interest expense
Natixis
6.681%+margin 06.06.2011
161,400
Deutsche Bank
Libor+margin
23.11.2012
2,899,419
Vhesheconombank
Libor+5%
26.05.2010
1,006,047
TRAnsLATIon InTo EuR
4,066,866
2,922,229
–
–
805,255
805,255
579,682
Settlement
of the loans
(73,137)
(883,077)
(897,352)
8,643
70,863
99,578
179,084 (1,853,566)
Effect of
exchange rate
changes
Balance at
December 31,
2009
–
–
–
96,906
2,087,205
1,013,528
3,197,639
128,394 (1,302,285)
(108,362)
2,219,658
During 2010, the margin on loan from Natixis has been changed from 2.55% to 1.55% and the margin on loan from Deutsche bank has been
changed from 1.8% to 3.8% and then reduced to 2.8%.
In November 2010, the Company entered into a new structured credit facility agreement for a syndicated loan of USD 950.000 under which
Deutsche Bank Amsterdam Branch acted as an agent for all lenders. The conditions of the agreement are the same as for the previous one,
except the repayment dates. The new loan bears interest of LIBOR plus 2,8% per annum payable quarterly. The loan is repayable in quarterly
installments from February 23, 2012 to November 23, 2015.
10. amounts owed to affiliated undertakings
Type of receivables
2010
2009
Becoming due and payable within one year
East Metals S.A.
Mastercroft Finance Limited
KGOK
NTMK
ZSMK
Evrazholding Finance
Sibmetinvest
Evraz Inc. NA Canada
Mastercroft Finance Limited
Other related parties
Becoming due and payable after more than one year
NTMK
ZSMK
NKMK
loan
loan
loan
loan
loan
loan
loan
other payables
other payables
other payables
loan
loan
loan
134,142
305,801
–
301,725
659,056
569,416
42,776
53,478
369
35,919
30,321
28,082
3,151
56,992
44,708
–
–
–
10
8,817
1,827,202
447,561
224,517
374,195
112,259
710,971
–
–
–
–
2,538,173
447,561
209 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
10. amounts owed to affiliated undertakings (continued)
(all monetary amounts are expressed in thousands)
In the year ended December 31, 2010 and 2009, the movement in loans received from related parties, all of which were denominated
in US dollars, was as follows:
Year ended december 31, 2010
Interest rate
Maturity date
Balance at
December 31,
2009
Loans recieved
from related
parties
Interest expense
Repayment
of the loans
Effect of
exchange rate
changes
Balance at
December 31,
2010
31.12.2010
40,456
31.12.2011
440,537
Mastercroft Finance
Limited
East Metals S.A.
KGOK
KGOK
KGOK
KGOK
KGOK
NTMK
NTMK
NTMK
NTMK
NTMK
NTMK
ZSMK
ZSMK
ZSMK
ZSMK
ZSMK
ZSMK
NKMK
EvrazHolding Finance
Sibmetinvest
7.35%
6.00%
6.00%
7.80%
6.00%
6.50%
6.00%
6.00%
7.80%
7.80%
6.00%
6.50%
6.00%
6.00%
7.80%
7.80%
6.00%
6.50%
6.00%
7.80%
6.00%
6.00%
31.12.2011
31.12.2011
31.07.2011
31.07.2011
30.11.2011
31.12.2011
31.12.2011
23.07.2015
31.07.2011
31.07.2011
30.11.2011
31.12.2011
31.12.2011
23.07.2015
31.07.2011
31.07.2011
30.11.2011
23.07.2015
30.11.2011
30.11.2011
37,000
41,000
4,600
72,899
140,000
116,900
56,000
196,700
183,958
300,000
100,000
312,700
23,000
219,500
182,576
500,000
100,000
236,115
20,000
150,000
57,000
3,978
(81,434)
18,203
(320,500)
511
3,438
2,894
1,228
156
14,734
8,282
14,104
1,731
3,413
11
14,236
7,854
23,507
1,780
2,355
33
7,052
157
–
–
–
–
–
(46,001)
(14,104)
–
–
–
–
(88,001)
(23,507)
–
–
–
(7,052)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
179,240
9,650
76,337
142,894
118,128
56,156
293,536
146,239
300,000
101,731
316,113
23,011
298,142
102,429
500,000
101,780
238,470
20,033
150,000
57,157
4,539
–
–
–
–
82,102
–
–
–
–
–
64,406
–
–
–
–
–
–
–
–
632,040
71,300
3,121,248
157
129,814
–
(580,599)
–
–
71,457
3,302,503
TRAnsLATIon InTo EuR
438,734
2,410,096
97,922
(440,310)
(34,877)
2,471,565
Year ended december 31, 2009
Mastercroft Finance
Limited
Mastercroft Finance
Limited
East Metals S.A.
East Metals S.A.
East Metals S.A.
KGOK
NTMK
ZSMK
Evraz Vitkovice Steel
Interest rate
Maturity date
Balance at
December 31,
2008
Loans recieved
from related
parties
Interest expense
Repayment
of the loans
Effect of
exchange rate
changes
Balance at
December 31,
2009
7.00%
19.10.2009
59,804
124,595
3,268
(187,667)
7.35%
6.00%
6.00%
6.00%
6.00%
6.00%
6.00%
7.00%
31.12.2010
–
43,300
19.10.2009
124,795
124,850
20.10.2009
31.12.2010
15.12.2010
15.12.2010
31.12.2010
–
–
–
–
–
03.02.2009
48,874
296,820
439,000
4,522
81,800
64,170
–
156
2,529
2,807
1,537
17
302
236
315
(3,000)
(252,174)
(299,627)
–
–
–
–
(49,189)
233,473
1,179,057
11,167
(791,657)
–
–
–
–
–
–
–
–
–
–
–
40,456
–
–
440,537
4,539
82,102
64,406
–
632,040
TRAnsLATIon InTo EuR
167,761
820,623
8,006
(565,939)
8,283
438,734
210 AnnuAl RepoRt And Accounts 2010
parent CompanY FinanCial statements
for the Year ended 31 december 2010
(all monetary amounts are expressed in thousands)
11. other Creditors
Other creditors comprise of the following:
Becoming due and payable within one year
Accrued payroll and related taxes
Taxes payable
Earn out and synergy payments (Note 4)
Other payables
Becoming due and payable after more than one year
Earn out and synergy payments (Note 4)
2010
2009
–
706
4,257
4,041
9,004
13,835
13,835
22,839
121
79
11,408
23,789
35,397
10,352
10,352
45,749
12. income from participating interests
In 2010 and 2009, subsidiaries of the Company did not declare and paid any dividends.
13. taxation
The Company is subject to all taxes applicable to Luxembourg commercial companies.
In 2010, the Company reassessed VAT returns and made a reversal of the tax in the amount of EUR 1,135 that was accrued in 2009.
14. guarantees
At December 31, 2010, the Company had the following contingent liabilities with respect to the guarantees issued:
Name of affiliated entity which debt was
guaranteed by the Company
Subject of the guarantee
Principal and accrued interest at
December 31, 2010 (thousands of EUR)
Maturity
Sibmetinvest
EvrazHolding Finance
EvrazHolding Finance
Evraz Vitkovice Steel
Evraz Vitkovice Steel
Evraz Vitkovice Steel
TC EvrazHolding
NTMK
NTMK
NTMK
NTMK
NTMK
ZSMK
ZSMK
ZSMK
NKMK
NKMK
NKMK*
bonds
bonds
bonds
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
credit line
* The credit line is not utilised at December 31, 2010, the limit of the guarantee amounts to EUR 55,180.
15. subsequent events
There were no significant events after the reporting date.
491,120
368,340
368,340
13,799
3,309
14,074
44,903
37,420
34,651
111,435
22,452
23,618
37,420
111,286
26,194
7,484
5,890
October 10, 2019
March 13, 2020
October 26, 2015
November 30, 2011
December 31, 2011
not defined
June 24, 2014
July 29, 2013
June 22, 2014
June 29, 2014
June 27, 2012
December 31, 2018
July 29, 2013
June 29, 2014
June 27, 2012
June 27, 2012
February 28, 2023
– September 30, 2020
211 AnnuAl RepoRt And Accounts 2010
aBBreViations and aCronyms
aGm
Annual General Meeting
boF
Basic oxygen furnace
Cad
The Canadian Dollar
Ceo
Chief Executive Officer
Cis
The Commonwealth of Independent States
CzK
The Czech Koruna
m or mln
Million
mt
Million tonnes
oCtG
Oil Country Tubular Goods
p.a.
Per annum, annually
roW
Rest of the world
rub
The Russian Rouble
ebitda
Earnings Before Interest, Taxes, Depreciation and
Amortisation
smed
Single-Minute Exchange of Die
t
Tonne. In this document, unless stated otherwise,
all references to ‘tonnes’ are to metric tonnes. One
metric tonne is equal to one thousand kilograms,
or 2,204.6 pounds
uK
United Kingdom of Great Britain and Northern Ireland
usa
The United States of America
uah
The Ukrainian Hryvnia
usd, us$ or $
The US Dollar
V
Vanadium
Vat
Value added tax
Veb
Russia’s State Corporation Bank for Development and
Foreign Economic Affairs ‘Vnesheconombank’
V2o5
Vanadium pentoxide
zar
The South African Rand
erm
Enterprise Risk Management
erW
Electric Resistance Welded
eu
European Union
eur or €
The Euro
FeV
Ferro-vanadium
Gdp
Gross Domestic Product
Gdr
Global Depositary Receipts
ias
International Accounting Standard
iFrs
International Financial Reporting Standards
kt
Thousand tonnes
ktpa
Thousand tonnes per annum
kWh
Kilowatt-hour
libor
The London Interbank Offered Rate
ld
Large diameter pipe
lse
London Stock Exchange
212 AnnuAl RepoRt And Accounts 2010
glossary oF seleCted terms
angle
Angle-shaped steel section for construction
api-grade slab
American Petroleum Institute certified (API quality) slab
beam
A structural element. Beams are characterised by their
profile (the shape of their cross-section). One of the
most common types of steel beam is the I-beam, also
known as H-beam, or W-beam (wide-flange beam), or
a ‘universal beam/column’. Beams are widely used in
the construction industry and are available in various
standard sizes, e.g. 40-k beam, 60Sh beam, 70Sh beam
as mentioned in this report
40-K shaped blanks
Semi-finished product used to produce 40-k
billet
A usually square, semi-finished steel product obtained by
continuous casting or rolling of blooms. Sections, rails,
wire rod and other rolled products are made from billets
blast furnace
The blast furnace is the classic production unit to reduce
iron ore to molten iron, known as 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, coal or other carbon containing materials are
sometimes injected with this hot air
bloom
A usually square, semi-finished steel product obtained by
continuous casting or rolling of ingots. Blooms are used
to make billets and in the manufacture of structural steel
products
brownfield project
A development or exploration project in the vicinity of an
existing operation
Cast iron
Please refer to ‘Pig iron’
Channel
U-shaped section for construction
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
further to recover valuable chemicals. The resulting
material (coke) has a strong porous structure which
makes it ideal for use in a blast furnace
Coke (oven) battery
A group of coke ovens operating as a unit and connected
by common walls
Concentrate
A product resulting from ore enrichment, with a high grade
of extracted mineral
Construction products
Include beams, channels, angles, rebars, wire rods, wire
and other goods
Consumption
The physical use of steel by end users
Converter
A type of furnace that uses pure oxygen in the process of
producing steel from cast iron or dry mix
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 deoxidation and desulfurisation, and add strength.
Examples: ferrochrome, ferromanganese, ferrosilicon and
ferrovanadium.
Flat products or Flat-rolled steel products
Include commodity plate, specialty plate and other
products in flat shape such as sheet, strip and tin plate
Gzh coal
Coal graded as gas fat coal
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. Only extremely
pure (rich) iron-oxygen compounds are used for
steelmaking. Because 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
long products
Include bars, rods and structural products that are ‘long’
rather than ‘flat’ and are produced from blooms or billets
open-hearth furnace
A vessel used to produce steel, which has been largely
superseded by the substantially more efficient basic
oxygen furnace (BOF)
other steel products
Include rounds, grinding balls, mine uprights, strips etc.
213 AnnuAl RepoRt And Accounts 2010
oCtG pipe
Oilfield Casing and Tubing Goods or Oil Country Tubular
Goods – pipes used in the oil industry
slab
A common type of semi-finished steel product which can
be further rolled into sheet and plate products
slag
Slag is a byproduct generated when non-ferrous
substances in iron ore, limestone and coke are separated
from the hot metal in metallurgical production. Slag is
used in cement and fertiliser production as well as for
base course material in road construction
tubular products
Include large diameter line pipes, ERW pipes and casings,
seamless pipes and other tubular products
Vanadium
A grey metal that is normally used as an alloying agent
for iron and steel. It is also used to strengthen titanium-
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
pellets
An enriched form of iron ore shaped into small balls or
pellets. Pellets are used as raw material in the steel
making process
pig iron
The solidified iron produced from a blast furnace used for
steel production. In liquid form, pig iron is known as hot
metal
plate
A long thin square shaped construction element made
from slabs
railway products
Include rails, rail fasteners, wheels, tyres and other goods
for the railway sector
rebar
Reinforcing bar, a commodity grade steel used to
strengthen concrete in highway and building construction.
Rebar A500SP is a type of reinforcing bar that allows
for a reduction in the metallic component of reinforced
concrete, thereby significantly lowering construction costs
scrap
Iron containing recyclable materials (mainly industrial
or household waste) that is generally remelted and
processed into new steel
semi-finished steel products
The initial product forms in the steel making process
including slabs, blooms, billets and pipe blanks that are
further processed into more finished products such as
beams, bars, sheets, tubing, etc.
shale gas
Shale gas is an unconventional natural gas that exists
in certain shale formations. Shale possesses low
permeability, and the shale gas boom in recent years
reflects the utilisation of modern technology including
horizontal drilling, multi stage fracturing and micro
seismic monitoring
sheet pile
A long structural section with interlocking connections
single-minute exchange of die (smed)
A production method used to fasten the manufacturing
process and reduce waste
sinter
An iron rich clinker formed by heating iron ore fines
and coke in a sinter line. The materials, in pellet form,
combine efficiently in the blast furnace and allow for more
consistent and controllable iron manuracture.
214 AnnuAl RepoRt And Accounts 2010
interesting FaCts aBout eVraz
Ò ntmK (the urals)
The only open air ‘steel manufacturing’ museum in
Russia is situated in Nizhny Tagil, on the site of the old
Demidovsky iron plant, where first records of pig iron
production date back to Christmas Day 1725. Almost half
of the production was for export, primarily to the United
Kingdom.
NTMK’s universal beam mill is the only unit in Russia and
the CIS that produces large beams and column sections
with lengths that range from 150 to 1,000 millimetres.
Documents relating to the work of a group of innovative
industrialists at NTMK to develop progressive
manufacturing solutions, were published in Forbes
Magazine in 2008.
Ò KGoK (the urals)
The original meaning of Kachkanar, as in the Kachkanar
Mountain that gave birth to the Kachkanarsky Ore
Mining and Processing Plant (now EVRAZ KGOK) is
something of a mystery. The Tatar translation is ‘Hidden’
or ‘Disappearing’ mountain while the Turco equivalent
is 'kesh-kener’ or ‘double-humped camel'. Just for good
measure the Ukrainian version is 'kachka' whereby the
Kachkanar Mountain transmogrifies into Duck Mountain.
EVRAZ Kachkanarsky Ore Mining and Processing
Plant pioneered the enrichment of poor in iron content
titanomagnetite ores.
Ò VGoK (the urals)
In 1836 miners working 80 metres below ground at
the Vysokogorsky ore deposit’s Mednorudyansky field
discovered one of the largest malachite formations in
the world. The boulder was 17 metres long and weighed
380,000 tonnes. To put this in perspective the creation
of the unique Malachite Hall at Saint Petesburg's famous
State Hermitage Museum required just 2,000 tonnes of
malachite.
Clerks of the Russian Imperator Peter the Great were
unable to scale the Vysokaya Mountain (mother of the
Vysokogorsky ore deposit) because their iron heeled
shoes got stuck in the mountain’s surface–in those days
the iron content of the ores mined exceeded 60%.
EVRAZ Vysokogorsky Ore Mining and Processing Plant,
one of the oldest ore mining plants in the world, is
celebrating its 300th Anniversary in 2011.
Ò YuzhKuzbassuGol (siberia)
Coal mined by Yuzhkuzbassugol is consumed in
numerous parts of the world including: Ukraine, Romania,
Austria, Poland, Slovenia, Slovakia, Lithuania, Turkey,
Bulgaria, Finland, Germany, Italy, the UK, China, Japan
and Korea.
The Osinnikovskaya coal mine, an offshoot of
Yuzhkuzbassugol (EVRAZ's coal mining subsidiary) is
790 metres deep. This equates to the average depth of Lake
Baikal, the world’s deepest lake situated in East Siberia.
Over a period of 41 years (1969-2010) Yuzhkuzbassugol’s
mines have produced 917.8 million tonnes of coal.
Transportation of this amount of coal would require
15 million freight cars
Ò nKmK (siberia)
Over a period of 79 years (as of March 2011) NKMK
produced 432,448 kilometres of rail. This is further than
the moon’s distance from the Earth (384,400 kilometres)
and is equivalent to encircling the Earth 24 times.
Over a period of 79 years (as of March 2011) NKMK
produced 55.3 million sections of R-65 type rail, the
weight of which is nine times greater than the Great
Pyramid of Cheops. A total of 420,000 railway platforms
would need to be laid end to end to facilitate the transfer
of this number of rails.
NKMK’s annual output of 700,000 tonnes of rail is
equivalent to the weight of the Taipei complex in Taiwan,
China: one of the highest skyscrapers in the world.
Ò zsmK (siberia)
Over a period of 46 years West Siberian Heat and Power
Plant (‘Zapsib Power Plant’ – an energy generating branch
of EVRAZ ZSMK) has produced enough kWh of electricty
to supply the requirements of Italy’s entire population
for one year and those of the citizens of Moscow for five
years.
Rolled products of ZSMK (currently EVRAZ ZSMK)
were used in the construction of the following notable
buildings/projects: the Cathedral of Christ the Savior
(Moscow); the State Kremlin Palace (Moscow); the
Commemorative complex at the Poklonnaya Gora area
(Moscow); the Olympic Village (Moscow); the cycle track
in the Krylatsky area (Moscow); the Moscow Metro; 60%
of Moscow’s residential buildings; the Krasnoyarsky and
Sayano-Shushensky Hydro Power Plants (Russia); the
Baikal-Amur Highway (Russia); the casino complex which
opened in Macau, China, in 2004 and the new Hong Kong
International Airport.
Ò dmz (uKraine)
The famous Gogotsky lifting apparatus (electric tool used
to convey raw material to blast furnace) was invented at
DMZ Petrovskogo (currently EVRAZ DMZ Petrovskogo) by
Nikolay Gogotsky, the plant’s engineer.
In 1926 DMZ Petrovskogo (currently EVRAZ DMZ
Petrovskogo) commissioned an open-hearth furnace with
100 tonnes of capacity: the largest in the world at that
time.
The sound of the EVRAZ DMZ Petrovskogo plant hooter
can be heard within a radius of 10 kilometres.
Souvenir hangers of Misha the Bear, the symbol of the
1980 Moscow Olympic Games, were produced by DMZ
Petrovskogo (currently EVRAZ- DMZ Petrovskogo) in its
consumer goods workshop.
215 AnnuAl RepoRt And Accounts 2010
information in respect of the Company
EVRAZ Group S.A. is the parent company
of the EVRAZ group of companies. All
references to ‘EVRAZ’, the ‘Company’, the
‘Group’, ‘we’ or ‘us’ relate to EVRAZ Group
S.A. and its consolidated subsidiaries.
The registered address of EVRAZ Group S.A.
is 1 Allee Scheffer L-2520, Luxembourg,
tel. +352 24 14 33 1. The Company is
registered with the Luxembourg Register of
Commerce and Companies under Number
B105615. London Stock Exchange symbol:
‘EVR’.
EvrazHolding LLC is a centralised
management company overseeing the
management of EVRAZ’s assets.
eVraz is a Component of the Following
recognised market indices:
evrazholding in russia:
15 Dolgorukovskaya str., bld. 4-5,
Moscow 127006
+7 495 234 4631
www.evraz.com
Dow Jones Emerging Markets Basic
Materials Titans 30 Index
FTSE Russia IOB Index (15 constituents)
The DAXglobal Russia+Index (Bloomberg
ticker: DXRPUS)
Russian Industrial Leaders Index,
30 components, (RUXX), calculated by Dow
Jones Indexes
Further information
gdr programme
The Bank of New York Mellon
Depositary Receipts Division
101 Barclay Street 22nd floor
New York, NY 10286 USA
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
Socieˆte Anoneˆme
7, rue Gabriel Lippmann
Parc d’Activiteˆ Syrdall 2
L-5365 Munsbach
B.P. 780
L-2017 Luxembourg
+352 42 124 1
+352 42 124 5555
www.ey.com/luxembourg
R.C.S. Luxembourg B 47 771
TVA LU 16063074
availability of annual report
EVRAZ Group’s Annual Report for 2010
and those for previous years can be
downloaded from the
investor/reports
www.evraz.com/
To obtain a copy of the Company’s Annual
Report, free of charge, or to submit any
queries, please contact:
Investor Relations:
+7 495 232 1370,
ir@evraz.com
Cautionary statements
The EVRAZ Group S.A. Annual Report
and Accounts for 2010 contains certain
‘forward looking statements’ which include
all statements other than the statements
of historical facts that relate to Evraz’s
plans, financial position, objectives,
goals, strategies, future operations and
performance together with the assumptions
underlying such matters. The Company
generally uses words such as ‘estimates’,
‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘may’,
‘will’, ‘should’ and other similar expressions
to identify forward looking statements.
EVRAZ Group has based these forward
looking statements on the current views of
its management with regard to future events
and performance. These views reflect
management’s best judgement but involve
uncertainties and are subject to certain
known and unknown risks together with
other important factors outside the
Company’s control, the occurrence of
which could cause actual results to differ
materially from those expressed in EVRAZ’s
forward looking statements.
Competitive position
Statements referring to EVRAZ’s
competitive position reflect the Company’s
beliefs and, in some cases, rely on a range
of sources, including investment analysts’
reports, independent market studies
and the Company’s internal estimates of
market share based on publicly available
information regarding the financial results
and performance of various market
participants.
rounding
Certain figures included in this document
have been subject to rounding adjustments.
Accordingly, figures shown for the same
category presented in different tables may
vary slightly and figures shown as totals
in certain tables may not be an arithmetic
aggregation of the figures that precede
them.
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