EVRAZ plc | 2013 ANNUAL REPORT AND ACCOUNTS
STRENGTH
EVRAZ plc is a global, vertically
integrated, steel, mining and
vanadium business with operations
in the Russian Federation, the USA,
Canada, the Czech Republic, Italy,
Ukraine, South Africa and
Kazakhstan. The Company is listed
on the London Stock Exchange.
OVERVIEW 02 – 07
02 Who We Are
04 2013 Highlights
06 Map of EVRAZ Operations
STRATEGIC REPORT
08 – 41
BUSINESS UNITS’ REVIEW
42 – 71
10 Chief Executive Offi cer’s Review
14 EVRAZ’s Business Model
16 Strategic Context in 2013 – Markets and Trends
20 Strategic Objective
22 Key Performance Indicators
24 Principal Risks and Uncertainties
28 Financial Review
35 Corporate Social Responsibility
45 Steel: Russia
50 Iron Ore: Russia
54 Coal: Russia
59 Steel: North America
63 Steel: Europe
64 Steel: Ukraine
66 Iron Ore: Ukraine
67 Vanadium
70 Other Businesses
Links to pages in
the Annual Report
Mining
Steel
Vanadium
The mining segment plays an important role in
securing supply of raw steelmaking materials –
coking coal and iron ore – to major steel plants
of EVRAZ. Post the acquisition of Raspadskaya
in 2013, EVRAZ signifi cantly increased its
investment and resource to coking coal and
became the leading coking coal producer
in Russia with strong growth prospects.
Key steelmaking facilities are located in Russia,
North America, Europe and South Africa.
The Company is the leader in the Russian
long steel product and rail market, as well as
playing a prominent role in the North American
long steel, rail and tubular product markets.
EVRAZ is among the largest producers of
vanadium globally and the only large-scale
producer of vanadium-rich iron ore in Russia.
GOVERNANCE
72 – 111
FINANCIAL STATEMENTS
112– 209
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74 Letter from Chairman
76 Board of Directors
78 Vice Presidents of EVRAZ plc
79 Corporate Governance Report
93 Remuneration Report
105 Directors’ Report
109 Directors’ Responsibility Statements
114 Independent Auditors’ Report to
the Members of EVRAZ plc
201 Independent Auditors’ Report
to the Members of EVRAZ plc
116 Consolidated Statement
of Operations
117 Consolidated Statement
of Comprehensive Income
118 Consolidated Statement
of Financial Position
119 Consolidated Statement
of Cash Flows
121 Consolidated Statement
of Changes in Equity
123 Notes to the Consolidated
Financial Statements
202 Separate Statement of
Comprehensive Income
203 Separate Statement
of Financial Position
204 Separate Statement
of Cash Flows
205 Separate Statement
of Changes in Equity
206 Notes to the Separate Financial
Statements
ADDITIONAL INFORMATION 210 – 219
210 EVRAZ’s Corporate Structure
211 Data on Mineral Resources
216 Terms and Abbreviations
219 Contact Details
EVRAZ plc Annual Report and Accounts 2013
01
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WHO
WE ARE
EVRAZ today
A major global vertically integrated steel
and mining company
What we do
Manufacturing and sale of steel and
steel products
An industrial enterprise that spans four
continents and employs more than
105,000 people
The market leader in Russian and CIS
construction and railway products
The number 1 producer of rails and large
diameter pipes in North America
One of the leading producers in the global
vanadium market
A constituent of FTSE 250 Index and the
only steel stock in UK FTSE All-Share Index;
part of MSCI UK and MSCI World Indices
Coking coal mining, processing and sale
Iron ore mining and enrichment
Manufacturing and sale of vanadium products
Energy, trading operations and logistics
42
Read more about
this topic on page 42
Our values
Like all companies our primary focus is to enhance long-term shareholder value. Underpinning this is a
commitment to excellence across all aspects of our operations. This includes, as priorities, developing
and supporting our people, continuous improvement and technological enhancement, dealing openly
and constructively with customers, suppliers, our local communities and other stakeholders, and a
remorseless focus on health, safety and good environmental practice.
Because of downward pressure on sales prices it has been a challenging time; but the directors and
management believe that the strength of our underlying values will be central to the Company’s
long term success.
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EVRAZ plc Annual Report and Accounts 2013
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2013 Key Figures
15.5m tonnes
Sales of steel products to third parties
(+1% vs. 2012)
US$1,821m
EBITDA* (-10% vs. 2012)
*Please see defi nition on page 22
US$902m
Capital expenditures (-28% vs. 2012)
US$6,534m
Net debt (+2% vs. 2012)
8.3b tonnes
Proven and probable reserves of iron ore
US$458m
Free cash fl ow (-41% vs. 2012)
1.9b tonnes
Proven and probable reserves of coking ore
US$61/tonne
Cash cost of iron ore products at 58% Fe
(-12% vs. 2012)
16.1m tonnes
Crude steel output (+1% vs. 2012)
US$64/tonne
Cash cost of coking coal concentrate
(-12% vs. 2012)
US$348/tonne
Cash cost of slab (-7% vs. 2012)
EVRAZ plc Annual Report and Accounts 2013
03
2013
HIGHLIGHTS
Operating results
EVRAZ produced 16.1 million tonnes (+1% vs. 2012) of crude steel and sold
15.5 million tonnes (+1%) of steel products
Production of raw coking coal increased to 18.9 million tonnes (+22%) with both coal
assets Yuzhkuzbassugol and the Raspadskaya coal company contributing signifi cantly to
the growth
Overall production of saleable iron ore products decreased to 20.4 million tonnes (-2%) on
the back of lower output by the Russian operations largely driven by the disposal of high
cost operation EVRAZ VGOK
The vanadium division produced 21,077 tonnes (+0.1%) of vanadium slag and
sold 23,287 tonnes (+10%) of vanadium products
Steel products output, kt
14,195
11,042
14,673
10,830
3,153
3,843
2012
2013
Finished products
Semi-finished products
Financial results
EVRAZ revenues were US$14,411 million (-2%). Decline in steel and steel products prices
led to a US$798 million decrease and in prices for mining products to a US$182 million
decrease in consolidated revenue
The Company reported consolidated EBITDA of US$1,821 million (-10%)
Net loss was US$572 million compared to US$425 million net loss in 2012 mostly due to
impairment of assets (US$446 million) (+8%) and foreign exchange loss (US$258 million) (+6%)
Operating cash fl ow was US$1,900 million (-11%), while free cash fl ow reached US$458
million (-41%)
Consolidated revenue by segment, US$ million
966
665
16,400
3,784
14,717
14,726
2,650
13,543
1,046
520
928
550
14,411
3,120
12,541
Net debt was US$6,534 million (+2%) due to the acquisition of Raspadskaya with net debt
of US$400 million
-3,732
-3,033
-2,728
EVRAZ’s* issuer credit ratings (S&P B+, Stable; Moody’s Ba3, Stable; Fitch’s BB, Stable)
2011
2012
2013
CAPEX of US$902 million (-28%) resulting from the investments’ optimisation programme
The directors recommend a dividend of 6 cents per share to be consistent with their
intention of distributing, where appropriate, a proportion of the margin on disposals as
dividends, and as an indication of confi dence in the Company’s position. The US$90.4
million represents the approximate cash portion of the proceeds from the sale of EVRAZ
Vitkovice Steel, leaving US$196.6 million for the reduction of debt
* All ratings refer to Evraz Group S.A., except for Fitch’s, which also refers to EVRAZ plc
Corporate and M&A developments
Completion of acquisition of an indirect controlling interest in OJSC Raspadskaya bringing
effective interest to 81.95% for US$964 million in equity and cash
Acquisition of the 51% stake in Timir joint venture iron ore greenfi eld for a US$159 million
cash consideration
Disposal of lossmaking assets in iron ore and coal mining – EVRAZ VGOK, Abakan and
Teya mines of Evrazruda and the Gramoteinskaya steam coal mine for cash consideration
of c.US$20 million
Disposal of EVRAZ Vitkovice Steel based on the enterprise value of US$287 million
04
EVRAZ plc Annual Report and Accounts 2013
Steel
Mining
Vanadium
Other operations
Unallocated & Eliminations
US$964m
Completion of acquisition of
an indirect controlling interest
in OJSC Raspadskaya
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Iron ore production, kt
Raw coking coal production*, kt
Vanadium production, t of V*
20,753
20,444
18,934
11,110
18,434
14,381
17,917
13,975
15,508
8,506
7,002
7,824
2012
2013
2012
2013
2,723
1,330
2012
2,294
1,648
2013
Yuzhkuzbassugol
Raspadskaya
* 2012 data for Raspadskaya is on a pro forma basis, as
Raspadskaya is consolidated in the results of EVRAZ from
16 January 2013
Oxides, vanadium aluminium and chemicals
Ferrovanadium
Nitrovan®
* Calculated in pure vanadium equivalent.
Consolidated EBITDA by segment, US$ million
Capital expenditures, US$ million
Net debt, US$ million
2,909
1,628
197
22
1,273
-211
2011
Steel
Mining
Vanadium
2,027
189
625
1,338
110
19
1,821
646
1,329
-19
-106
2012
-283
2013
Other operations
Unallocated & Eliminations
1,281
1,261
6,771
6,376
6,534
902
2011
2012
2013
2011
2012
2013
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US$159m
Acquisition of the 51% stake in Timir
joint venture iron ore greenfi eld
US$20m
Disposal of EVRAZ VGOK, Abakan and Teya
Mines, Gramoteinskaya steam coal mine
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EVRAZ plc Annual Report and Accounts 2013
05
MAP
OF EVRAZ
OPERATIONS
EBITDA by region* US$m
1,796
148
71
31
3
Russia
North
America
Ukraine
Europe
South Africa
*Consolidated EVRAZ plc EBITDA also includes unallocated EBITDA
of US$228 million
At a glance
• The main vertically-integrated steelmaking
plants are located in Russia complemented
by smaller steel mills and rolling facilities in
North America, Europe, and South Africa.
• Coal mining assets are based in Russia
• Iron ore mining operations are located in
Russia, Ukraine and South Africa
• Vanadium assets are scattered across the
globe and include Russia, United States,
Europe and South Africa
• EVRAZ employs more than 105,000 people
2
3
1
4
Moscow
EVRAZ KGOK
EVRAZ Vanady Tula
TC EVRAZHolding
EVRAZ Bagliykoks
EVRAZ DMZ Petrovskogo
EVRAZ Sukha Balka
EVRAZ NTMK
EVRAZ ZSMK
Evrazruda
Raspadskaya
Mezhegeyugol
Yuzhkuzbassugol
1
EVRAZ NMTP
Iron ore
Iron ore
products
Coking coal
Coking coal
products
Slab, billet
Construction
products
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EVRAZ plc Annual Report and Accounts 2013
Revenues by region, %
Output of finished steel products by region, %
Employees by region, %
10%
14%
3%
8%
22%
5%
5%
7%
43%
25%
58%
1%
4% 3%
92%
Russia
Americas
Asia
Europe
CIS
Africa & RoW
Russia
North America
Europe
Ukraine
South Africa
Russia & CIS
North America
Africa
Europe
EVRAZ Calgary
EVRAZ Red Deer
EVRAZ Camrose
EVRAZ Regina
EVRAZ Portland
EVRAZ Pueblo
EVRAZ Stratcor
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EVRAZ Nikom
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East Metals
EVRAZ Palini e Bertoli
EVRAZ Highveld Steel and Vanadium
EVRAZ Vametco
Railway
products
Tubular
products
Flat-rolled
products
Vanadium
products
Logistics
Trading
Company
EVRAZ plc Annual Report and Accounts 2013
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STRATEGIC REPORT
08
EVRAZ plc Annual Report and Accounts 2013
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In this section:
10 Chief Executive Offi cer’s Review
14 EVRAZ’s Business Model
16 Strategic Context in 2013 – Markets and Trends
20 Strategic Objective
22 Key Performance Indicators
24 Principal Risks and Uncertainties
28 Financial Review
35 Corporate Social Responsibility
EVRAZ’S strategy in action
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In this section the Company explains the objective and the strategy it is following to achieve the
objective. The business model is set out on the following pages. The explanations on how
EVRAZ measures progress using key performance indicators are provided, the principal risks
EVRAZ faces are described, alongside with what is done to mitigate these risks. We discuss the
fi nancial performance of the Company and describe EVRAZ’s approach and progress in social
responsibilities. This Strategic Report aims to inform shareholders of the Company and help
them to assess the extent to which the Directors performed their duty to promote the success
of the Company.
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EVRAZ plc Annual Report and Accounts 2013
09
CHIEF EXECUTIVE
OFFICER’S REVIEW
Alexander Frolov
Dear Shareholders,
Through the sound fundamentals of our business
and our vision we endeavour to deliver
sustainable ongoing growth and value.
However, 2013 was another challenging year
for the global steel and coal mining industries,
characterised by strong cyclical headwinds,
which EVRAZ was not immune to. Although we
managed to increase external steel sales by 1%
to 15.5 million tonnes and substantially grew
the output of coking coal by 22% to 18.9 million
tonnes, our EBITDA was US$1,821 million
in 2013, 10% less than in 2012. Due to
the relatively high fi nancial leverage of the
Company, shareholder value also came
under pressure during the course of 2013.
Whereas many factors are beyond our
control, such as the cyclicality of the broad
commodity market, EVRAZ possesses certain
fundamental value drivers that we believe will
defi ne the Company’s future performance and
ultimately create value for our shareholders.
Overview of Health, Safety and
Environmental performance
The safety of our employees remained the
key priority in 2013. Although the number of
fatalities decreased compared to 2012, the
fact that 18 employees lost their lives at work
is deeply regrettable. All of the incidents have
been meticulously investigated and analysed in
order to mitigate against recurrence and identify
other workplace risks. We remain committed
to our strategic goal of zero fatality incidents.
We have been focusing on sustained training
to underline the importance of adherence
to our improved operating standards as we
endeavour to progress towards a zero-harm
environment. We have also adopted a proactive
approach to the promotion of more disciplined
behaviour at the workplace, accompanied
by continual engagement, on the part of
workers and managers, in appropriate training
courses. In line with this, we have engaged
a signifi cant number of mid-level managers
from various business areas to impart their
appreciation of the importance of safety
awareness across all key production sites.
10
EVRAZ plc Annual Report and Accounts 2013
EVRAZ plc Annual Report and Accounts 2013
EEVREVRVRAZAZ A plcplcplcl AnAnnuanual Rl Repoeeport rt andand AcAccoucountsnts 20201313
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Balance sheet deleverage
strategy, cost cutting and
capex revision
Management’s response to the current
market situation has encompassed a
thorough review of EVRAZ’s balance sheet,
strategic options and business portfolio.
In terms of the fi nancial strategy, our priority
was to address the debt leverage by focusing
on the generation of positive free cash fl ow,
which reached US$458 million in 2013.
The ratio of net debt to EBITDA amounted to
3.6x, which we consider as being high. The
current target, through organic deleveraging
and disposals, is to reduce the net debt to
EBITDA ratio to below 3.0x by 2016 year-end.
Important contributors to the free cash fl ow in
2013 were the positive effects of the operating
effi ciency and cost cutting programmes which
we initiated during the year. The plan provided
for staff optimisation, including a headcount
reduction and the implementation of more
effi cient work shifts; reduced maintenance
downtime at our steel mills and the effi cient
repositioning of longwalls in coking coal mines;
enhanced extraction yields and reduced
conversion costs – all of which yielded total
savings of approximately US$303 million.
In 2014, we will extend our operating costs’
reduction programme to save US$350-
400 million and, post a comprehensive
review of general and administrative
costs, we are aiming to reduce costs
by an additional US$100 million on an
annualised basis from 2015 compared
to 2013 level, including a reduction of
US$50 million to be achieved in 2014.
In addition, we signifi cantly revised our
investment plans and doubled the Internal
Rate of Return threshold with regard to the
suspension of projects below 40% compared
with 20% we used to have previously.
As a result, capex in 2013 was reduced
by approximately US$400 million from
the originally budgeted US$1.3 billion to
US$902 million. Deferred projects included
the construction of the Yuzhny rolling mill
and expenditures on certain higher cost
coal mines. In 2014, we expect to achieve
a further reduction in capital spending and
end up with less than US$900 million.
Disposals and closure of high
cost and other assets
In the current market reality, certain aspects
of our steel and mining asset base have
become economically ineffi cient and structurally
high cost. During 2013 management refi ned
and commenced implementation of an action
programme focused on the divestment or
closure of specifi c high cost and/or loss
making assets. Key developments included
the shutdown of the Irba mine, the sale of
the Abakan and Teya mines at Evrazruda, the
disposal of EVRAZ VGOK, preparations for the
shutdown of the Abashevskaya coal mine, the
closure of the plate rolling mill at EVRAZ ZSMK
and the suspension of EVRAZ Claymont Steel.
EVRAZ possesses certain
fundamental value drivers
that will defi ne the Company’s
future performance and
ultimately create value for
our shareholders.
In addition we temporarily suspended EVRAZ
Palini e Bertoli, our Italian plate rolling mill, in
order to release signifi cant working capital.
We have continued to negotiate with an
expanded list of potential purchasers
of EVRAZ Highveld Steel and Vanadium
in South Africa and we will update the
market on developments in due course.
On 3 April 2014, we successfully completed
the sale of EVRAZ Vitkovice Steel, our Czech
subsidiary, based on the enterprise value of
US$287 million, including US$89 million for
equity. The sale refl ected management’s belief
that strategic options for the development of
the operation within EVRAZ were limited.
Value drivers
We believe that our value drivers are
our fundamental low cost positions with
access to proprietary raw materials, which
enables us to secure the required quantities
and quality of iron ore and coking coal
at costs which are below the market’s
conservative estimates of long run pricing.
Iron ore
Our core iron ore business, EVRAZ KGOK,
has historically been an important contributor
to the Company’s free cash fl ow with cash
costs for iron ore products (58% Fe) of US$46
per tonne before credits from a vanadium
by-product. The mining volumes of EVRAZ
KGOK fully cover the requirements of EVRAZ
NTMK. It is anticipated that the low cost
position of EVRAZ KGOK will be sustained
throughout the current operations and during
the development of the new Sobstvenno-
Kachkanarskoye iron ore deposit, located in
close proximity to the current open pits, with an
estimated mine life of more than 100 years.
In addition, the successful implementation of
cost savings and operational improvements at
all of the Company’s iron ore mining assets,
together with the sale and shutdown of high
cost operations, resulted in a reduction of
blended cash costs (58% Fe) from US$69/
tonne in 2012 to US$61/tonne in 2013 with
potential further savings in 2014 and beyond.
EVRAZ has also entered the Timir iron ore
joint venture arrangement focused on the
development of iron ore deposits in Southern
Yakutia. The rationale behind our acquisition
of a 51% interest in the project is the prospect
of securing adequately priced supplies of
iron ore for EVRAZ ZSMK, our major Russian
steel mill situated in Western Siberia, post
the depletion of Evrazruda’s reserves in
5-7 years. Timir’s substantial iron ore resources
and proximity to the existing infrastructure
provide for the effi cient development of
the project as a low cost operation.
Coking coal
With regard to coking coal the Company
took a major step forward in 2013 with the
acquisition of Raspadskaya, a transaction
designed to harden the competitive
advantage of being the market leader in
the Russian coking coal market; primary
attractions include the long life of the mineral
resources and a broad customer base.
Raspadskaya, even at its current relatively
low levels of raw coal production, is one of
Russia’s lowest cost coking coal companies,
with an average cash cost of concentrate
of $54.9/t in 2013. The Raspadskaya mine
possesses exceptional assets of high quality
EVRAZ plc Annual Report and Accounts 2013
11
CHIEF EXECUTIVE
OFFICER'S REVIEW
Continued
semi-hard coking coal with proven and probable
reserves extending to upwards of 100 years;
production, however, has yet to return to the
levels achieved prior to the tragic accident
in 2010. Our investment to date has been
largely focused on mine restoration and
the implementation of measures designed
to ensure safe working conditions. The
underground mine is now operating with two
longwalls and the production plan envisages
the commissioning of two additional longwalls
in 2014. Overall, Raspadskaya expects to
increase its output of raw coking coal by
up to 40% to 11 million tonnes in 2014.
We commissioned the new coking coal mine
Yerunakovskaya VIII in February 2013 ahead
of schedule and on budget with nameplate
capacity of 3 million tonnes of semi-hard
coking coal at mined raw coal cash costs of
less than US$40/t – one of the lowest among
CIS coal mines. The mine, with an estimated
life span of approximately 63 years, was fully
ramped up with effect from February 2014.
Looking to the future and given the current
tough coking coal market, our mine portfolio
optimisation programme will result in the growth
of capacity at low cost mines which will replace
the high cost operations, thereby enabling
a further decrease in blended cash costs.
We have undertaken to execute only the fi rst
stage of our greenfi eld Mezhegey project
involving a limited cash commitment.
However, Mezhegey is one of the key
drivers of our long-term plan to develop
EVRAZ’s coking coal base and possesses
the potential to become a reliable, quality
coal, export-oriented operation.
The processing operations of EVRAZ NTMK
benefi t from its ability to utilise the proprietary
technology and vanadium rich iron ore
produced by EVRAZ KGOK located nearby.
Steel
In the steel segment we enjoy the benefi t
of owning high quality steel assets with
strong market positions in multiple
geographies and product lines.
As the market leader in the Russian
construction long product market and the
leading manufacturer of rails in Russia and
North America we are intent on continuing
to improve our product mix through selective
investments. For example, the successful
launch of the rail mill at EVRAZ ZSMK in 2013
following a major modernisation programme
allows us to produce premium head hardened
rails, including 100 metre rails suitable for
high speed railways. In order to strengthen
our global leadership in rail production, we are
also progressing a rail mill project in EVRAZ
North America which will allow us to improve
rail quality, increase the mill’s capacity and
expand technical customer support and
product development. The modernisation
programme is proceeding as planned with
project completion expected in mid-2014.
EVRAZ NTMK sustainably improved its
profi tability in 2013 as a result of the
implementation of Pulverised Coal Injection
(PCI) technology which led to reductions in
the consumption of natural gas and coke of
42% and 22% respectively, accompanied by
an increase in pig iron production capacity of
100,000 tonnes per annum. Based on this
positive experience we have been adopting PCI
technology at our second steelmaking plant in
Russia, EVRAZ ZSMK, despite some delays.
The fundamental advantage enjoyed by
EVRAZ North America is the geographical
location of the facilities in the western part
of the USA and Canada, regions that are
light in steel production but well exposed
to demand from the oil and gas industry
and premium rail infrastructure customers.
EVRAZ’s focus on research and development
strengthens the portfolio of high value-
added rail and tubular products, thereby
safeguarding our dominant market positions.
Vanadium
The processing operations of EVRAZ
NTMK benefi t from its ability to utilise the
proprietary technology and vanadium rich
iron ore produced by EVRAZ KGOK located
nearby. Due to the nature of EVRAZ’s iron
ore assets and its ownership of vanadium
processing facilities we will continue to be a
major player in the global vanadium market.
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EVRAZ plc Annual Report and Accounts 2013
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Dividends and dividend policy
The directors recommend a dividend of 6 cents
per share to be consistent with their intention
of distributing, where appropriate, a proportion
of the margin on disposals as dividends, and
as an indication of confi dence in the Company’s
position. The US$90.4 million represents the
approximate cash portion of the proceeds
from the sale of EVRAZ Vitkovice Steel, leaving
US$196.6 million for the reduction of debt.
Outlook
2014 has started mildly positively in most
regional steel markets – long steel volumes
in Russia are picking up fuelled by the start
of the construction season, prices for railway
products are stable, while the severe winter
in North America is pushing prices higher.
There have been also growth in prices for our
semi-fi nished products in Asian markets.
Going forward, the dividend policy has been
revised to support the fi nancial strategy
of deleveraging and envisages that the
regular dividends will be paid only when
the net leverage (net debt/EBITDA) target
of below 3.0x is achieved. The Board
reserves the right to propose special
dividends in the event of asset disposals.
Update on Ukrainian situation
The geopolitical developments around Ukraine
could have an impact on our operations,
as we have assets both in Ukraine and
Russia. However, to date our operations
have not been adversely affected. We
will update the market as appropriate.
However, certain risks remain, in particular
the growth of seaborne supply of steelmaking
raw materials over the medium term and
geopolitical risks. Management’s response
to potential continued volatility in markets
consists of comprehensive cost cutting
programmes, deleveraging and the disciplined
development of growth options in order to be
well prepared for the next upturn of the cycle.
Overall, taking into account market conditions
and management’s initiatives, the Board is
comfortable with expectations for the year.
Alexander Frolov
Chief Executive Offi cer
EVRAZ plc
8 April 2014
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EVRAZ plc Annual Report and Accounts 2013
13
EVRAZ’S
BUSINESS MODEL
Mining &
Processing
Steelmaking
Mine
Processing
plant
Blast
furnace (BF)
Basic oxygen
furnace (BOF)
Electric arc
furnace (EAF)
Continuous
casting machine
Pig iron
Crude steel
Slab, billet
Iron ore
Coking
coal
Iron ore
products
Coking coal
products
Scrap
(third party)
Vanadium slag
3. Steelmaking
The Company produces steel from own raw
materials – iron ore and coking coal, as well
as from third party scrap (primarily in North
America and partially at EVRAZ ZSMK). EVRAZ
owns low-cost full-cycle integrated iron and
steelmaking plants in Russia, Ukraine and
South Africa, as well as plants operating
electric arc furnaces in North America and at
EVRAZ ZSMK. Proximity to iron ore and coal
mines allow for low cost production of high
quality steel. In addition to secure the cost
leadership advantage EVRAZ NTMK
implemented in 2013 a project on PCI
technology allowing for the sustainable
reduction of cash costs in steelmaking.
For more details please refer to pages 45, 59,
63 and 64.
Cash costs of slab production in 2013 were
US$348/tonne.
Cash costs of billet production in 2013 were
US$406/tonne.
45
For key highlights of the year please
refer to pages 45, 59, 63 and 64
1. Mining iron ore
EVRAZ’s iron ore facilities are integrated with
key steelmaking operations with the two
businesses being aligned in terms of:
a) geographical location close to one another
(EVRAZ NTMK steel mill and EVRAZ KGOK
iron ore mining in the Urals; EVRAZ ZSMK
steel mill and Evrazruda iron ore mines in
Siberia);
b) proprietary technologies: EVRAZ NTMK
produces crude steel from vanadium-rich
iron ore of KGOK using the proprietary
duplex method of steelmaking and
vanadium slag extraction.
In addition, EVRAZ KGOK is a large scale open
pit mine, enabling it to be sustainably a low
cost producer. For more information on EVRAZ
KGOK performance please refer to page 51.
2. Mining coking coal
EVRAZ owns two coking coal subsidiaries –
Yuzhkuzbassugol and Raspadskaya, and has a
portfolio of diversifi ed premium hard (Zh + GZh)
and semi-hard (GZh) coking coal grades that
are in demand both in the domestic and global
markets. EVRAZ consumes a large portion of
the mined coking coal at its core steelmaking
plants in CIS and the remainder is sold
domestically or exported to Asia and Europe.
After the acquisition of Raspadskaya coal
mining company in January 2013, the market
share of EVRAZ in the Russian and Ukraine
domestic market signifi cantly increased and
reached 25%, while the coking coal business
is becoming an important independent line of
business activity.
Self-suffi ciency of EVRAZ in coking coal is 80%.
Self-suffi ciency of EVRAZ in iron ore is 68%.
Self-coverage of EVRAZ in coking coal is 171%.
Self-coverage of EVRAZ in iron ore is 96%.
Cash costs in 2013 were US$64/tonne.
Cash costs in 2013 were US$61/tonne.
50
For key highlights of the year please
refer to pages 50 and 66
14
EVRAZ plc Annual Report and Accounts 2013
54
For key highlights of the year please
refer to pages 54
Processing
EVRAZ owns iron ore and coal processing/coke
making facilities to prepare raw materials for
use in steel production.
50
For key highlights of the year please
refer to pages 50 and 54
EVRAZ’s business model originates from processing proprietary
steelmaking raw materials, such as iron ore and coking coal, and
goes all the way to production of high quality steel products consumed
mainly by large scale infrastructure players.
EVRAZ is a complex business and it creates value at each step of the integrated value chain. The commitment to economically
effi cient vertical integration allows guaranteeing supplies, cost control and quality of raw materials to ensure low cost positions
and competitiveness of saleable products. EVRAZ believes that the business model has proved its sustainability.
Rolling & Vanadium
Processing
Sales &
Logistics
Re-rolling
facilities
Vanadium
processing facilities
Construction
products
Railway
products
Tubular
products
Flat-rolled
products
Ferrovanadium,
specialty vanadium
products
Wholesale Trading
Company
Proprietary
retail network
Logistics
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4. Rolling
EVRAZ is a leading Russian producer
of high quality steel fi nished products,
including long steel products, such as
angles, rebars and H-beams, used in
construction. EVRAZ channels is also the
#1 producer of rails globally with rail
production located in Russia and North
America. The Company is also well
positioned from the geographical
perspective both in Russia – EVRAZ NTMK
(close to key regional markets) and in North
America providing for the high market share
in tubular products and rails in the western
part of Canada and the USA.
44
For key highlights of the year please
refer to pages 44
5. Sales and logistics
The Company sells its products in local and
international markets based on an in-depth
understanding of customers’ needs and the
opportunity to rapidly adjust production
volumes to market trends. The access to
proprietary logistics infrastructure in the
Far East, Russia – Nakhodka Sea Port
secures the stability of deliveries to key
export destinations, including Asia and
North America.
6. Extracting additional value from
specialty products – Vanadium
Due to the composition of EVRAZ’s iron
ore reserves in Russia and South Africa
the Company is able to extract vanadium
from by-products at its steelmaking plants
at low cost.
67
For key highlights of the year please
refer to pages 67
70
For key highlights of the year please
refer to pages 70
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EVRAZ plc Annual Report and Accounts 2013
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STRATEGIC CONTEXT IN 2013
MARKETS AND TRENDS
EVRAZ is exposed to global steel and mining
industry trends as well as to the following
key regional and product markets – Russia
(construction long steel market, railway product
market, coking coal market), North America
(construction long steel market, rail, fl at rolled
and tubular markets), Asia and Europe.
Key global and regional trends
in steel market
Challenging economic conditions, such
as economic stagnation or slow growth in
developed economies, combined with global
steelmaking overcapacity and expectations
of slowing consumption growth in China were
the major factors affecting the performance
of the global steel sector in 2013. This
adverse market environment was refl ected
in steel prices which fell in 2013.
Global crude steel production saw moderate
growth of 3.1% in 2013 compared to 2012,
primarily driven by strong production levels
in China which resulted in 6.6% increase
in Chinese output. Despite the global
increase in production, global capacity
utilisation rates still remain below 80% and
declined by 1.0% compared to 2012. Global
fi nished steel consumption saw modest
growth of 3.6% compared to 2012 on the
back of 6.1% increase in the consumption
of fi nished steel products in China.
Russian steel demand is primarily driven by the
construction and infrastructure sectors and,
therefore remains highly sensitive to economic
cycles. According to the latest Rosstat data,
Russian GDP growth slowed considerably
to 1.3% in 2013 compared to 3.4% in
2012. As a result, crude steel production
declined by approximately 1 million tonnes
or 1.3% compared to 2012, representing
the fi rst reduction in output since 2009.
Demand for fi nished long products in Russia
increased by 2.5% year on year according to
Metall Expert. Despite the visible increase in
Russian rebar consumption from the previous
year (+10%, reaching 8.6 million tonnes),
there was a notable decline in price levels
(-10% year on year) in 2013. This was due
to weaker fundamentals in the international
marketplace and, as a result, higher
competition from Ukrainian and Belorussian
imports into Russia. Additionally, new rebar
capacities were launched in Russia in H2
2013, which led to oversupply and, thus,
further downward pressure on prices.
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EVRAZ plc Annual Report and Accounts 2013
Global crude steel production and finished steel consumption growth y-o-y
%
6
5
4
3
2
1
0
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Crude steel production
Finished steel consumption
Source: Worldsteel
Steel products prices
US$/tonne
900
800
700
600
500
400
300
200
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Slabs, Russia, FOB Far East
Plate, USA, domestic, ExW
Billets, FOB Black Sea
Scrap, Russia, CPT
Rebars, Moscow, Russia
Scrap, AMM Chicago Index
Source: Metall Courier, Metall Expert
The Russian steel market outlook remains
uncertain as the slowdown in investment
activity and manufacturing continues and GDP
growth is forecast to remain below the global
average in 2014.
For more information on EVRAZ’s sales of steel
products in Russian market please refer to
page 46.
US crude steel production decreased by 2% in
2013 compared to 2012, with consumption
of fi nished steel products declining by 0.6%.
The pricing environment marginally improved
with hot rolled coil price growing by 4.2%.
Flat products experienced pricing pressure
from imports and domestic suppliers of
commodity grades for most of the year. High
levels of competition also impacted the heat
treated and specialty grades market; this
pressure is likely to be sustained in 2014 with
new heat treated capacity coming on line.
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140
120
100
80
Q1 12
Q2 12
Q3 12
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
China CFR (spot, 62% Fe)
Source: Bloomberg
Iron ore export and import* breakdown by country, %
Total export
Total import
1%
1%
3%
5%
18%
26%
Australia
Brazil
South Africa
9%
5%
9%
11%
46%
North America
India
EU-27
Rest of the World
China
Japan
EU-27
* Total export, total import = 1,251 mt
Source: Credit Suisse Research
66%
South Korea
Rest of the World
Oil country tubular goods (OCTG) demand
shifted into alloy and premium connections
from carbon grades as a result of increased
horizontal drilling of longer wells accompanied
by the need for high corrosion resistance
materials.
Iron ore prices
US$/tonne
180
Intense competition in the North American
OCTG market from imports has caused pricing
declines and the commoditisation of products.
At the time of publication of this report the
US Department of Commerce has been
considering introduction of anti-dumping
measures against producers from certain
countries (Vietnam, Thailand, India, etc.).
The fi nal determinations by the Department
of Commerce in respect of the countries
involved in the anti-dumping case are due on
7 July 2014.
US steel demand is expected to grow in 2014,
on the back of the improving economy and
activity levels in the automotive, energy and
construction sectors.
For more information on EVRAZ’s sales of steel
products in North American market please refer
to page 59.
European crude steel production increased
by 1.5% in 2013 compared to 2012, whereas
consumption of fi nished steel products declined
by 0.2%. The environment in Europe remained
challenging in 2013 with activity in the
important construction and automotive sectors
falling resulting in an oversupply of steel.
Nevertheless, leading indicators have begun
to show signs of recovery. The European
steel market is expected to see a gradual
improvement in market environment in
2014, supported by a moderate increase
in real consumption and balanced
stock levels at the start of the year.
Iron ore market
Global iron ore supply grew by 6% year on
year in 2013. Australia was the largest
contributor to growth adding more than 90
million tonnes of new supply and recording a
17% year on year increase compared to 2012.
BHP Billiton, Rio Tinto and FMG accounted for
c.80% of total volume growth in Australia.
H1 2013 was characterised by strong volume
expansion and subdued demand fundamentals
with the benchmark price for China CFR iron
ore fi nes (62% Fe) falling by 20% to US$110/t.
In H2 2013 the re-acceleration of China’s
steel production as a result of government
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EVRAZ plc Annual Report and Accounts 2013
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MARKETS
AND TRENDS
Continued
stimulus over the summer months spurred
an increase in construction and infrastructure
activity which accounted for the majority of
underlying demand for steel. This China-
driven improvement in demand fundamentals
led to a trend reversing with prices peaking
briefl y above US$140/t in August 2013. The
benchmark China CFR spot price closed at
US$134/t as at 31 December 2013, marginally
below the average for the year of US$135/t.
Coking coal export and import* breakdown by country, %
Total export
Total import
6%
5%
7%
23%
25%
Looking ahead, iron ore supply growth will
continue to play an important role in setting
the market balance globally in 2014.
30%
52%
4%
12%
24%
12%
Australia
North America
Russia
Mongolia
Rest of the World
Japan, S. Korea & Taiwan
China
EU-27
India
Brazil
Rest of the World
Vanadium market
Global vanadium demand in 2013 was
estimated at 75.6 thousand tonnes with
90% consumed by the steel industry.
Vanadium supply in 2013 was estimated
at 75.2 thousand tonnes with China
supplying nearly half of the amount.
The benchmark Europe CIF Ferrovanadium
price declined by 9% over the course of the
year to US$26/kg as at 31 December 2013.
The average price was US$28/kg in 2013,
an 11% increase compared to 2012.
For more information on EVRAZ’s sales of
vanadium products please refer to page 67.
* Total export, total import = 314 mt
Source: Credit Suisse Research
China accounted for 24% of seaborne coal
imports in 2013 and remained the key driver of
demand growth globally, with imports increasing
38% in year on year terms to total 74 million
tonnes. Japan, South Korea, Taiwan and India
registered moderate growth at 3% year on year.
OECD demand remained largely fl at over the
period, refl ecting muted signs of recovery in
steel/pig iron production in Europe and the US.
Continued supply-side pressure on prices
became apparent during the period, with
the benchmark FOB Queensland HCC spot
falling by nearly 15% over the course of
the year to US$136/t as at 31 December
2013. Spot price averaged US$151/t in
2013, a 22% decline compared to 2012.
In the mid to long term EVRAZ expects the
global coking coal market to stay relatively
balanced with the upside in coal prices
coming from the cost curve support.
For more information on EVRAZ’s sales
of coking coal please refer to page 56.
Prices for iron ore products in Russia refl ected
trends in the international markets.
For more information on EVRAZ’s iron ore sales
please refer to page 53.
Coking coal market
In 2013, the global seaborne coking coal
market remained relatively balanced with strong
growth in Chinese imports offsetting supply-
side expansion. The high price environment of
the last 2-3 years with contract settlements
in excess of US$250-300/t has created
both cyclical and structural headwinds which
the market is facing today. From a cyclical
standpoint, high prices have incentivised a
wave of large scale capacity additions from
key exporting regions (e.g. Australia) and new
countries (Mongolia, Mozambique). From a
structural standpoint, major steelmakers were
incentivised to research new technologies to
limit consumption of coking coal by replacing
it with cheaper coal grades, such as PCI coal.
All major coking coal exporting countries
(except Mongolia) added capacity in 2013.
Total global coking coal exports increased
by 8% in 2013, with the seaborne trade
exceeding 310 million tonnes. Australia,
which accounts for more than half of global
seaborne exports, and Russia added 12%
and 24% to their exports, respectively.
18
EVRAZ plc Annual Report and Accounts 2013
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Coking coal spot prices
US$/tonne
250
200
150
100
Jan 12
Apr 12
Jul 12
Oct 12
Jan 13
Apr 13
Jul 13
Oct 13
Jan 14
Queensland FOB (spot, HCC)
Source: Bloomberg
Spot prices for vanadium
US$/tonne
35
30
25
20
Jan 12
Apr 12
Jul 12
Oct 12
Jan 13
Apr 13
Jul 13
Oct 13
Jan 14
CIF Europe FeV (70-80%)
Source: Bloomberg
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EVRAZ plc Annual Report and Accounts 2013
19
STRATEGIC
OBJECTIVE
The strategic objective of EVRAZ is to create
long term value for shareholders through the
effi cient production of coking coal, iron ore
and steel products.
The Company aims to be a low cost producer
of raw materials, while in steelmaking it seeks
a large scale production base of standard
products increasingly extended by higher
value products.
Value Drivers
These are the primary factors which strongly
infl uence value creation and enable EVRAZ to
generate positive long term returns over the
economic cycle:
1. Large, long life reserves and low cost key
iron ore assets which remain attractive even
at conservative long term prices
2. Signifi cant reserves of hard and semi-hard
coking coal being mined in the low half of the
cost curve and being in sustained demand in
the Russian and export markets
3. Globally competitive and effi cient Russian
steelmaking operations
4. Leading market positions and full product
range in the Russian construction long steel
supported by the prominent distribution
network
5. Global leadership in the rail market with
dominant positions in Russia and the
United States
6. Strong footprint in North America aligned to
the region’s oil & gas and railway industries.
Key strategic priorities
The strategic priorities are targeting unlocking
the potential of value drivers.
Iron ore
The strategic priorities in iron ore include the
cost management at EVRAZ KGOK to abate the
infl ationary pressures inherent to the mining
industry and to preserve its low cost position
through a number of operational improvement
programmes. Meanwhile, the long-term viability
of the operation shall be driven by the
development of the Sobstvenno-Kachkanarskoe
deposit that is located in the immediate
proximity to the existing open pits and which
has proven and probable reserves of 6.9 billion
tonnes of iron ore bringing the life of mine to
over 100 years. The estimated capital
expenditure of the fi rst stage of the project is
US$150 million to be spent until 2018.
In 2013 the mines of Evrazruda were undergoing
an important restructuring programme – while
one high cost mine was closed, the Company
sold another two mines, a processing plant
and related infrastructure for a nominal
consideration. As a result, in the medium term
Evrazruda will be able to supply iron ore to
EVRAZ ZSMK at costs below anticipated
market prices.
Timir iron ore partnership with the mineral
reserve base of 911 million tonnes of iron
ore at Taezhnoe deposit under the Russian
classifi cation is envisaged to replace the
depleting reserves of Evrazruda in the long
run and become an anchor supplier to EVRAZ
ZSMK. The plans for Timir include the
development by open pit of the Taezhnoye
deposit located close to the existing
infrastructure – a railroad, power grid and
a paved road, having an estimated capacity
of 3 million tonnes of pre-enriched iron ore
concentrate per annum. The Company
envisages the delivery of the iron ore to the
existing Abagur processing facility with currently
estimated cash costs of US$35 per tonne
on ex-works basis. The estimated capital
expenditure of the fi rst stage of the project
is US$180 million to be spent until 2017.
Coking coal
The acquisition of the controlling interest in
the Raspadskaya coal company completed in
January 2013 for US$964 million settled in
cash and new equity of EVRAZ marks an
important step in the coal strategy of the
Company. The Company believes that the
acquisition of Raspadskaya was made at low
point of the commodity cycle while
understanding how to create shareholder value
even at the lowest coking coal forward pricing
curve, as c.24% of the volumes of Raspadskaya
are consumed intragroup forming the anchor
demand. To secure the benefi ts of this
exceptional investment EVRAZ is focused on
returning Raspadskaya’s operations to full
annual capacity of 10-11 million tonnes with
estimated capex of US$11 per tonne. EVRAZ
also benefi ts from the broad customer base of
Raspadskaya and has been consolidating its
sales and marketing experience, in particular
with a view of expanding EVRAZ’s position in
export coal markets. As production and sales
volumes increase, Raspadskaya’s rouble-
denominated cost of production are expected to
decrease, helping secure Raspadskaya’s and
EVRAZ’s low cost position in the coking coal
business in the future. In 2014 and 2015,
as the Company will have to bear the costs
of delivering on the commitment to enhance
production and establishing a more prominent
place in export markets, in particular in
Asian-Pacifi c region, EVRAZ expects, at the
current near term horizon forward curve pricing,
Raspadskaya to be marginally free cash fl ow
negative or breakeven. The management is
confi dent, however, that in the medium to
long term Raspadskaya will be a signifi cant
value driver.
At the legacy coking coal operations, the
Company is focused on growing output at the
new and promising mines, such as the
Yerunakovskaya VIII and closing structurally
unprofi table mines, e.g. the Abashevskaya
mine. While the overall coking coal output at
Yuzhkuzbassugol is to remain broadly fl at going
forward, the Company intends to benefi t from an
improved cost position.
Given the current tough coking coal market,
EVRAZ decided to proceed only with the fi rst
stage of the Mezhegey project, with estimated
investment capex of US$207 million to be spent
in 2012–2015.
Steel
EVRAZ benefi ts from a globally competitive,
low cost Russian steelmaking business which
remains attractive even at conservative long
term prices. EVRAZ NTMK steel mill has a high
value added product mix, with exposure both to
the Russian construction market (e.g. premium
beam production), railway market (e.g.
locomotive railway wheels) and export high
quality slab market (e.g. API certifi ed slab
capacity), while EVRAZ ZSMK is the
easternmost integrated steel mill in Russia with
capacity to produce high value added products
(premium rails). The strong positions of the
Company in the Russian construction market
are underpinned by a proprietary leading
domestic steel distribution network.
Following the 2013 launch of the modernised
rail mill at EVRAZ ZSMK production capacity has
increased to 950,000 tonnes of premium rails
such as the 100 metre head hardened rails for
the high speed trains of Russian Railways and
the new Asian and American markets. The new
rails have been certifi ed by the Russian
authorities which paves the way for the
beginning of commercial sales not only in
Russia, but also to customers in the CIS.
The fi rst batches of head hardened rails have
already been delivered to the Russian Railways.
20
EVRAZ plc Annual Report and Accounts 2013
EVRAZ NTMK sustainably improved its
profi tability in 2013 as a result of successful
implementation of the PCI technology followed
by the reduction of steelmaking costs by US$7
per tonne. Based on this positive experience
the Company is adopting the PCI technology
at the second steelmaking plant in Russia,
EVRAZ ZSMK, despite some delays. The
commissioning is expected in the second half
of 2014.
The Company is approaching the commissioning
of the Vostochny rolling mill in Kazakhstan which
is expected to produce up to 200,000 tonnes of
rebars in 2014 and reach its nameplate
capacity of 450,000 tonnes per annum of
products serving strong demand in Central
Asian markets. Among the advantages of the
new rolling mill is its technological link with
EVRAZ ZSMK which will supply billets to be
re-rolled at the Vostochny mill.
EVRAZ also has a strong footprint in North
America aligned to the region’s oil & gas and
railway industries. In North America the
Company is focusing on the productivity
enhancement programmes that aim to protect
and expand market positions in the western
part of the USA and Canada. The key projects
include the organic growth at the EVRAZ Pueblo
rail mill by 10% to 526,000 tonnes of rails per
annum; an expansion of premium threading and
yield improvement initiatives.
Vanadium
EVRAZ will continue focusing on strengthening
of its leading positions on the global vanadium
market being underpinned by the vast mineral
resource base and ability to extract vanadium
as a by-product from steel operations at
low costs.
Summary of disposals,
shutdowns and suspensions
In 2013, as part of a wider plan on cost cutting
EVRAZ elaborated the action plan for assets
that have become economically ineffi cient and
structurally loss making in the current market
environment. The key target of the action plan
was to eliminate losses from these operations.
The Company disposed certain assets,
including EVRAZ VGOK; Abakan and Teya mines
with related infrastructure and processing plant;
Tsentralnaya TETs, etc. for either a nominal or
small cash consideration. At the same time
some of the assets were suspended (EVRAZ
Claymont Steel) or closed such as Irba iron ore
mine, the plate rolling mill at EVRAZ ZSMK and
currently in-progress shutdown of the
Abashevskaya coal mine.
EVRAZ Palini e Bertoli mill was temporarily
suspended with a view to releasing c.
US$60 million working capital in an
environment of squeezed spreads between
fi nished fl at rolled steel products and semis
in the European market. In the future, the
Company will consider the restarting of
operations subject to market conditions.
Following an extensive analysis of strategic
options in the end of 2012 EVRAZ decided to
sell EVRAZ Vitkovice Steel as there are limited
strategic growth options for this asset within
the group. In April 2014 the Company
Do you have a plan of
divestments?
We have a strong and balanced portfolio of
core operations that has been established
over the years as far as our key assets are
concerned. So, we are very careful in our
disposals. According to the optimisation plan
we completed divestment of EVRAZ Vitkovice
Steel, Evrazruda’s Abakan and Teya iron ore
mines, Mundybashsky processing plant and
related infrastructure, Yuzhkuzbassugol’s
Yubileynaya, Kazankovskaya and
Gramoteinskaya coal mines, EVRAZ VGOK iron
ore plant heat and power generating facility,
Tsentralnaya TETs. So I think that our main
target at the moment is to dispose of EVRAZ
Highveld Steel and Vanadium.
Alexander Kuznetsov
Vice President, Strategic Development and
Operational Planning
What is the reason and
approach for the asset
optimisation?
The economic and market environment both
globally and in our key markets has changed
dramatically over the course of 2012 and
2013. The shift in long term trends calls for
optimisation of our asset base to improve our
cash fl ow generation. At fi rst we identifi ed
assets which under current environment
generate losses or have no growth prospects
for EVRAZ, then we analysed whether we can
realise a turnaround plan for such an asset. If
the answer was positive and estimated returns
were meeting our requirements we considered
the plan, if no we put the asset on sale. If sale
was not successful we shut down the asset.
successfully closed the sale for consideration
of US$89 million adjustable for the actual level
of the working capital. In addition the buyers
have assumed US$198 million of EVRAZ
Vitkovice Steel’s debt liabilities, including the
repayment of US$128 million of EVRAZ’s
inter-company debt.
• LTIFR and environmental non-compliance
represent the degree of success of HSE
policy.
The Business Model on pages 14 – 15
highlights where each of the value drivers fi ts
into the business.
Links
The KPIs of the Company on page 22 show
how the Company has performed against the
strategic objective and priorities:
• cash costs of production and inventory
turnover are indicative of effi ciency of the
operations;
• EBITDA and sales volumes are refl ecting the
growth projects;
The Chief Executive Offi cer’s Review on pages
10 – 13 provides details of progress with these
objectives, describes how the Company has
positioned itself during the year.
The Strategic Context on pages 16 – 19 helps
to position these objectives in the current
global economic environment.
Summary of disposals, shutdowns and suspensions
Disposal
Shutdown
Suspension
EVRAZ VGOK iron ore plant
Evrazruda’s Irba iron ore mine EVRAZ Palini e Bertoli
Evrazruda’s Abakan and Teya
iron ore mines, Mundybashsky
processing plant and related
infrastructure
Yuzhkuzbassugol’s Yubileynaya
and Kazankovskaya coal
mines
Tsentralnaya TETs
EVRAZ Vitkovice Steel
Plate rolling mill at EVRAZ
ZSMK
EVRAZ Claymont Steel
Yuzhkuzbassugol’s
Abashevskaya coal mine
EVRAZ plc Annual Report and Accounts 2013
21
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KEY PERFORMANCE
INDICATORS
EVRAZ measures the overall progress using eight key
performance indicators.
LTIFR (per million hours)
1.86
2.23
1.95*
2011
2012
2013
1.95
-12.6%
The Lost Time Injury Frequency Rate (LTIFR) represents the number
of Lost Time Injuries (LTI’s) that occurred over a period time per
1,000,000 hours worked in that period. Fatalities are excluded from
LTIFR and amounted to 18 casualties in 2013 vs. 25 in 2012.
Management remains committed to the zero fatality target.
The measurement of performance enables the Company to identify
and manage issues.
Steel Sales Volumes (million tonnes)
15.5
15.3
15.5
2011
2012
2013
EBITDA (US$ million)
2,909
2,027
1,821
2011
2012
2013
Inventory Turnover (days)
63
67
61
2011
2012
2013
Detailed information of HSE performance is provided in the Corporate
Social Responsibility report on pages 35 – 41.
* LTIFR excludes fatalities. It will be the new standard from 2014 forward not to include
fatalities in the LTI/FR numbers according to the World Steel Association practices.
15.5
+1.3%
EVRAZ measures total steel sales in millions of tonnes, combining
all types of steel products which are produced around the world.
Steel sales are the most signifi cant contributor to the Company’s
consolidated revenue. The sales volumes of steel products depend
on both market conditions and operational factors.
Detailed information on key factors that affected the Company’s sales
volumes is provided in the Business Review section on pages 44 – 71.
1,821
-10.2%
EBITDA represents profi t from operations plus depreciation, depletion
and amortisation, impairment of assets, loss (gain) on disposal
of property, plant and equipment and foreign exchange loss (gain).
EBITDA refl ects fundamental earnings potential, it measures the cash
earnings that can be used to pay interest, repay the principal, fi nance
capital expenditures and dividends.
Detailed information on the fi nancial performance is provided in the
Financial Review section on pages 28 – 34.
61
-9.0%
Inventory turnover is the average number of days required to manufacture
and sell inventory.
Inventory turnover is calculated by dividing average quarterly inventory
balances for the reported year by the cost of goods sold and multiplied
by 365.
Inventory turnover indicates the effi ciency of the production planning
process and the sales and marketing management.
22
EVRAZ plc Annual Report and Accounts 2013
Average Cash Cost of Russian Steel Facilities for Slabs and Billets (US$/tonne)
411
446
416
375
406
348
2011
2012
2013
Slabs
Billets
-7.2%
Slabs
-2.4%
Billets
Defi ned as the production cost less depreciation and the result is
divided by production volumes of saleable steel semi-products.
Raw materials from EVRAZ’s mining segment are accounted for on an
at-cost-basis.
EVRAZ considers cost leadership as key to its competitive advantage.
The introduction of the PCI technology at EVRAZ NTMK (described on
pages 46) contributed to the reduction of cash costs of the Russian
steel mills in 2013.
Average Cash Cost of Russian Iron Ore Products (Fe 58%) (US$/tonne)
71
69
61
2011
2012
2013
61
-11.6%
Defi ned as the cost of revenues and SG&A expenses less depreciation
and other non-cash items, the result is divided by sales volumes.
Adjustments are made for iron ore products containing various grades
of Fe (pellets, sinter, iron ore concentrate) to refl ect an average Fe
content of 58%. Cash costs are on an EXW basis.
The Company uses cash cost as a measure, because EVRAZ considers
cost leadership as key to its competitive advantage.
The asset optimisation programme in iron ore, including the disposal
of EVRAZ VGOK, Abakan and Teya mines of Evrazruda and the shutdown
of Irba mine (described on pages 51 – 53) contributed to the reduction of
cash costs of the Russian iron ore business in 2013.
Average Cash Cost of Coking Coal Concentrate (US$/tonne)
79
73
64
2011
2012
2013
64
-12.3%
Defi ned as the production cost less depreciation, the result is divided
by production volumes.
The Company uses cash cost as a measure, because EVRAZ considers
cost leadership as key to its competitive advantage.
The consolidation of the Raspadskaya coal company, growth of coal
production both at Yuzhkuzbassugol and the Raspadskaya coal company
(described on pages 56 – 58) contributed to the reduction of cash costs
of the coking coal business in 2013.
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Environmental Non-compliance (US$ million)
10.2
6.2
6.6
2011
2012
2013
6.6
-35.3%
The Company records all environmental incidents at operations to
measure compliance with environmental standards covering: water
discharges, air emissions, waste, and general work activity.
This KPI sets out the total sum of accrued environmental levies (taxes)
for the impact caused in excess of established standards and
penalties/claims accepted for payment.
EVRAZ is committed to minimising its impacts upon the environment
and has a target of achieving zero environmental incidents.
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EVRAZ plc Annual Report and Accounts 2013
23
PRINCIPAL RISKS AND
UNCERTAINTIES
Like all businesses, EVRAZ is affected by, and must manage, risks and
uncertainties that can impact its ability to deliver its strategy. While the
risks can be numerous, the principal risks faced by the Group as identifi ed
by the Board are described below along with the corresponding mitigating
actions and changes in the risk level during the year.
To date the Group has not been signifi cantly impacted by recent geopolitical developments
relating to Ukraine. There is a risk, however, that, if these events were to escalate, there could
be an impact on EVRAZ’s operations in the country (EVRAZ generated 7% of consolidated
revenue from its Ukrainian business). In addition, EVRAZ may be affected by government
sanctions if they are broadened from the current level.
Risk Management System
BOARD
C o r porate level
TIVE RIS K
MITEE
U
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E
X
E
M
O
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A U D I T COMMITEE
d o wn approach
p
o
T
IDENTIFICATION
EVALUATION
MONITORING
MITIGATION
h
S
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T
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T
B
a
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ottom up a p p r
REGIONAL RISK C O M M I
Regional and s i t e
l e v e l
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D
N
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A
L
Reviews the effectiveness of
risk management and internal
controls systems. Supports
the Board in monitoring risk
exposure against risk appetite.
Supports the Audit Committee
in reviewing the effectiveness
of the risk management and
internal controls systems.
Support the Executive Risk Committee
in reviewing and monitoring
effectiveness of risk management.
Promoting risk awareness
and safety culture.
24
EVRAZ plc Annual Report and Accounts 2013
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Risks
Risk
Risk description
Global economic
factors, industry
conditions and cost
effectiveness
Health, safety and
environmental
(HSE) issues
EVRAZ Steel, Mining and Vanadium operations are highly
dependent and sensitive to the global macroeconomic
environment, economic and industry conditions, eg global
supply/demand balance for steel and particularly for iron
ore and coking coal which has the potential to signifi cantly
affect both product prices and volumes across domestic
and export markets. As EVRAZ’s operations have a high
level of fi xed costs, global economic and industry
conditions can impact the Company’s operational
performance and liquidity.
Safety and environmental risks are inherent to the
Company’s principal business activities of steelmaking and
mining. Further, EVRAZ operations are subject to a wide
range of HSE laws, regulations and standards, the breach
of any of which may result in fi nes, penalties or other
sanctions. Such actions could have a material adverse
effect on the Company’s business, fi nancial condition and
business prospects.
Dependency on
certain key markets
The Company’s profi tability is highly dependent on limited
geographical markets, i.e. 43% of EVRAZ revenues are
derived from Russia, and 22% from North America and also
dependent on the mix between semi-fi nished and fi nished
steel products.
Capital projects and
expenditure
EVRAZ’s maintenance and development capital
expenditure, in addition to capital expenditure focused on
improving the Company’s cost effectiveness, is aligned to
the Company’s and external market expectations for each
particular project and to maximise levels of investment
returns.
Economic issues outside those factored into the
Company’s business plans including regulatory approvals,
may negatively impact the Company’s anticipated free cash
fl ow and cause certain elements of the planned capital
expenditure to be re-phased, deferred or abandoned with
consequential impact on the Company’s planned future
performance.
Trend of the risk 2012–2013
and Mitigations
Risk direction: (cid:83)
EVRAZ has a focused investment policy aimed at reducing
and managing the cost base with the objective of being
among the sector’s lowest cost producers.
For further information please refer to the Strategic market
context section of the Strategic report on pages 16 – 19.
Risk direction: (cid:87)(cid:88)
HSE issues have direct oversight at Board level and HSE
procedures and material issues are given top priority at all
internal management level meetings. Management KPIs
include a material factor for safety performance. EVRAZ
has instigated a programme to improve the management
of safety risks across all business units with the objective
of embedding a new safety, harm-free culture at all
management and operational levels. Safety training has
been reviewed and strengthened and an operational safety
assessment is undertaken for all new projects.
For further information please refer to the Corporate Social
Responsibility report on pages 35 – 41.
Risk direction: (cid:87)(cid:88)
The strategic risks and opportunities within these regions
are regularly reviewed, including consideration of the
quality and nature of the Company’s product portfolio,
relative cost effectiveness and the sustainability of
industry sector market positioning together with effective
in-house (EVRAZ Metall Inprom) and external distribution
networks.
For further information please refer to the respective
sections of the Business Review on pages 44 – 71.
Risk direction: (cid:87)(cid:88)
Project delivery is closely monitored against project plans
resulting in high level action to manage project investment
both for timely delivery and for planned project expenditure.
In the course of 2013 the Company revisited key
assumptions of the main investment projects and
performed scenario analysis, which resulted in the
suspension and/or postponement of certain projects.
For further information please refer to the Strategic
Report on pages 11 and 21.
EVRAZ plc Annual Report and Accounts 2013
25
PRINCIPAL RISKS
AND UNCERTAINTIES
Continued
Risks
Risk
Risk description
Human Resources
(HR)
The principal HR risk is the quality and availability of critical
operational and business skills of EVRAZ management and
employees, particularly in certain regions and for particular
business units, eg mining professionals including
engineers, mining experts and project managers.
Associated risks involve selection, recruitment, training
and retention of employees and qualifi ed executives.
There is also a risk of employee union action. Union
relations are largely stable, although the Company had
a short-lived labour action at its vanadium operations in
South Africa in 2013, and an extended period of
negotiations with certain labour unions in Russia.
As a result of HR risks, the Company’s growth plans might
be jeopardised.
Trend of the risk 2012–2013
and Mitigations
Risk direction: (cid:87)(cid:88)
Succession planning is a key feature of EVRAZ’s human
resources management. EVRAZ seeks to meet its
leadership and skill needs through retention of its
employees, internal promotion, structured professional
internal mentoring and external development programmes.
For further information please refer to the Corporate
Social Responsibility report on pages 35 – 41.
Potential Actions by
Governments
EVRAZ operates in a number of countries and there is a
risk that governments or government agencies could adopt
new laws and regulations, or otherwise impact the
Company’s operations.
New laws, regulations or other requirements could have the
effect of limiting the Company’s ability to obtain fi nancing
in international markets, or selling its products.
Risk direction: (cid:83)
Although these risks are mostly not within the Company’s
control, EVRAZ and its executive teams are members of
various national industry bodies and, as a result,
contribute to the thinking of such bodies and, when
appropriate, participate in relevant discussions with
political and regulatory authorities.
Business Interruption
Prolonged outages or production delays, especially in coal
mining, could have a material adverse effect on the
Company’s operating performance, production, fi nancial
condition and future prospects. In addition, long term
business interruption may result in loss of customers,
competitive advantage being compromised and damage
to the Company’s reputation
Risk direction: (cid:83)
The Company has defi ned and established business
continuity plans, procedures and protocols which are
subject to regular review and audit of their appropriateness
and effectiveness. The Company carries certain business
interruption insurance, except for particular mining events.
Business interruptions in mining mainly relate to production
safety. Measures to mitigate these risks include methane
monitoring and degassing systems, timely mining
equipment maintenance, employee safety training.
In 2013 EVRAZ had to suspend mining works at the
Raspadskaya underground mine in May-July due to
increased levels of carbon monoxide. A set of safety
measures was undertaken in order to alleviate the causes
of hazards.
For further information please refer to the Coal section
of the Business Review on pages 54 – 58.
26
EVRAZ plc Annual Report and Accounts 2013
Risks
Risk
Treasury
Taxation
Risk description
EVRAZ, as with many other large and multi-national
corporates, faces various treasury risks including liquidity,
credit access, currency fl uctuations, and interest rate and
tax compliance risks.
EVRAZ operates in various jurisdictions, and changes to
national tax laws, including those which could be adopted
based on recommendations by international organisations
(eg OECD’s BEPS project etc) are not within management’s
control.
Russian tax legislation is developing and undergoes
frequent changes; tax law enforcement is subject to
varying interpretations. Management’s interpretation of
such legislation may be challenged by the relevant regional
and federal authorities, which could adversely affect the
fi nancial position of EVRAZ’s Russian subsidiaries, despite
any planning efforts.
Trend of the risk 2012–2013
and Mitigations
Risk direction: (cid:87)(cid:88)
EVRAZ employs skilled specialists to manage and mitigate
such risks and the management of such risks is embedded
in internal controls. Oversight of the key risks is reported
within the monthly Board reports and by the review of
compliance of such internal controls by a management
independent internal audit function, which reports to the
Audit Committee on a monthly basis.
In 2013 EVRAZ undertook certain actions in order to
extend the debt maturity profi le and lower short term
external funding needs, i.e. through issuing
US$1,000 million Eurobonds due in 2020, as well as.
proactively managing the remaining portion of debt subject
to maintenance covenants. The EVRAZ Treasury
management team and the directors regularly and
pro-actively review all funding requirements and exposures.
For further information please refer to the Financial Review
on pages 28 – 34.
Risk direction: (cid:83)
EVRAZ has a taxation control function which monitors
planned changes to tax laws, analyses their impact on
EVRAZ’s operations and reports them to the Company’s
management on a quarterly basis. Management’s possible
actions to address tax challenges include making
provisions (if applicable) in the fi nancial statements;
implementing if necessary, changes to the Company’s
organisational structure and adjustments to cash fl ow
structure.
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EVRAZ plc Annual Report and Accounts 2013
27
FINANCIAL
REVIEW
Giacomo Baizini
“ Management’s focus on the cost optimisation,
disposal and closure of structurally unprofi table
assets and free cash fl ow generation to achieve
the debt reduction started to bear the fruits in
2013. Despite challenging market environment,
we managed to decrease the cost of revenue,
achieve solid positive free cash fl ow and
demonstrate healthy debt management results.”
28
EVRAZ plc Annual Report and Accounts 2013
Overview
As a result of the challenging conditions in the
market for steel and steelmaking raw materials,
the Company recorded a net loss of
US$572 million for 2013, compared to a net
loss of US$425 million in 2012. Falling prices
in 2013 caused revenue to decline by 2.1% to
US$14,411 million; consequently EBITDA
decreased by 10% to US$1,821 million.
Free cash fl ow for the period was positive at
US$458 million, however net debt increased
by 2.5% to $6,534 million, as a result of the
consolidation of Raspadskaya’s debt. As of
today we have no debt with maintenance
covenants that require testing prior to
30 June 2014. For details please refer to
page 34.
As of 31 December 2013, the Company’s
cash and short-term deposits amounted to
US$1,611 million, compared to short-term debt
of US$1,893 million1. The Company has already
started to work on refi nancing the major
maturities due in the second half of 2014.
Corporate developments
In January 2013, we completed the acquisition
of a controlling interest in the Raspadskaya coal
company for US$964 million, a transaction
which was primarily fi nanced by equity
accompanied by a US$202 million cash
component payable in equal quarterly
instalments ending on 15 January 2014.
In addition, in April 2013 we acquired a 51%
stake in Timir, a joint-venture with Alrosa (the
shareholder agreement gives joint control),
created for the development of major iron
ore deposits in Yakutia, Russia, for
RUB4,950 million (ca. US$159 million) payable
in quarterly instalments until 15 July 2014.
In 2013, in line with our mining asset
optimisation programme, we disposed of
EVRAZ VGOK iron ore and processing plant
for a US$20 million cash consideration; of a
number of Evrazruda’s iron ore assets and
utilities companies for a total cash
consideration of approximately US$306,000;
and of the Gramoteinskaya thermal coal mine
for a RUB10,000 cash consideration.
1 Hereinafter debt and cash balances include the amounts
held at operations that were classifi ed as assets/liabilities
held for sale, which were separately presented in the
statement of fi nancial position as of 31 December 2013,
and include US$35 million of cash and cash equivalents
and US$78 million of debt (including US$76 million of
short-term debt).
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Relative
Change
(7.4)%
17.7%
5.8%
2013
2012
Change
12,541
13,543
(1,002)
3,120
2,650
550
928
520
1,046
470
30
(118)
(11.3)%
(2,728)
(3,033)
305
(10.1)%
14,411
14,726
(315)
(2.1)%
2013
6,136
3,242
2,062
1,385
1,175
404
7
2012
6,191
3,571
2,115
1,450
996
397
6
Change
(55)
(329)
(53)
(65)
179
7
1
14,411
14,726
(315)
Relative
Change
(0.9)%
(9.2)%
(2.5)%
(4.5)%
18.0%
1.8%
16.7%
(2.1)%
2013
1,329
646
19
110
(226)
(57)
2012
1,338
625
(19)
189
(199)
93
Change
(9)
21
38
(79)
(27)
Relative
Change
(0.7%)
3.4%
(200.0%)
(41.8%)
13.6%
(150)
(161.3%)
1,821
2,027
(206)
(10.2%)
EVRAZ plc Annual Report and Accounts 2013
29
As part of a strategic realignment of our asset
base, the Group was proceeding with disposals
of EVRAZ Highveld Steel and Vanadium and the
EVRAZ Vitkovice Steel operations initiated at
the end of 2012. Accordingly these assets
continued to be accounted for as assets held
for sale at the end of the year. The Company
completed the sale of EVRAZ Vitkovice Steel
on 3 April 2014 for a consideration of
US$89 million adjustable for the actual level
of the working capital. In addition the buyers
assumed US$198 million of debt liabilities,
including the repayment of US$128 million of
EVRAZ’s inter-company debt. The sale of EVRAZ
Highveld Steel and Vanadium is expected to be
completed in 2014.
Revenues
(US$ million)
Segment
Steel
Mining
Vanadium
Other operations
Eliminations
Total
Revenue by region
(US$ million)
Region
Russia
Americas
Asia
Europe
CIS
Africa
Rest of the world
Total
EBITDA
(US$ million)
Segment
Steel
Mining
Vanadium
Other operations
Unallocated
Eliminations
Total
In addition, in 2013 the Company suspended
operations at EVRAZ Claymont Steel and
EVRAZ Palini e Bertoli, which had a certain
impact on our fi nancial results.
Statement of operations
Group revenues for 2013 decreased by 2.1%
to US$14,411 million, with revenues from
the Group’s steel segment amounting to
US$12,541 million or 87% of total Group‘s
revenue.
Steel sales volumes slightly increased to
15.5 million tones compared to 15.3 million
tonnes in 2012. The decline in revenues was
largely due to a decrease in prices, in line with
the general negative trend in steel pricing.
Average Steel segment revenue per tonne
decreased by 8.6% in 2013 compared to 2012
refl ecting weak market environment.
Steel revenues were also impacted by changes
in the Group’s product mix during 2013 due to
the suspension of operations of EVRAZ
Claymont Steel and EVRAZ Palini e Bertoli and
closure of EVRAZ ZSMK plate rolling mill. While
sales volumes of fl at-rolled steel products
declined, a part of semi-fi nished production
was switched from internal consumption to
external sales.
Mining revenues increased by 17.7% to
US$3,120 million in the period, compared to
US$2,650 million in 2012. The growth in
revenues was primarily the result of the
consolidation of Raspadskaya.
Steel segment EBITDA in 2013 is slightly lower
than in 2012 as a result of declining prices for
all steel products all over the world, partly
offset by lower raw material prices.
FINANCIAL
REVIEW
Continued
Cost of revenues, expenses and results
(US$ million)
Item
Cost of revenue
Gross profi t
Selling and distribution costs
General and administrative expenses
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income and expenses, net
Profi t from operations
Interest expense, net
Gain/(loss) on fi nancial assets and liabilities, net
Gain on disposal group classifi ed as held for sale, net
Other non-operating gains/(losses), net
Loss before tax
Income tax benefi t/(expense)
Net loss
2013
2012
Change
(11,468)
(11,803)
2,943
2,923
(1,183)
(1,211)
(877)
(446)
(258)
(160)
19
(676)
(43)
(25)
112
(613)
41
(572)
(839)
(413)
(41)
(161)
258
(631)
164
18
(5)
(196)
(229)
(425)
Relative
Change
(2.8%)
0.7%
(2.3%)
4.5%
8.0%
335
20
28
(38)
(33)
(217)
529.3%
1
(0.6%)
(239)
(92.6%)
(45)
7.1%
(207)
(126.2%)
(43)
117
(238.9%)
n/a
(417)
212.8%
270
(147)
n/a
34.6%
Mining EBITDA was positively impacted by
additional coking coal sales volumes,
contributed by the consolidation of
Raspadskaya. This factor was partly offset by
falling prices for coal and iron ore products.
The increase in Vanadium EBITDA largely
refl ected the recovery in prices of vanadium
in alloys and chemicals.
The decrease in the Other operations segment
EBITDA is mainly attributable to the disposal of
our transportation subsidiary EvrazTrans at the
end of 2012.
Eliminations mostly refl ect unrealised profi ts
or losses of the mining segment in transactions
with the subsidiaries relating to the Steel
segment. In 2012, the amounts were positive
due to high levels of intersegment inventory at
the end of 2011 which were realised during the
year. In 2013, there was an increase in the
balances of steel products which included
higher margins of mining subsidiaries, and this
led to a deduction from the sum total of all
segments EBITDA to arrive at the realised
consolidated EBITDA.
The Group’s cost of revenue decreased by 2.8%
to US$11,468 million in 2013 compared with
US$11,803 million in 2012. This was mostly
due to a 12% fall in raw material costs and a
30
EVRAZ plc Annual Report and Accounts 2013
16% reduction in depreciation charges which,
in turn, were partially offset by higher staff
costs and services purchased.
The consolidation of Raspadskaya in 2013
added US$463 million to cost of revenues,
while decreasing the expense on coking coal
by US$93 million.
The cost of raw materials, the largest single
cost item, decreased by US$487 million in
2013 driven mostly by lower coking coal and
scrap costs which fell by US$388 million and
US$237 million respectively. This decrease was
partially offset by an increase in iron ore costs
by US$106 million mainly due to lower
intragroup sales resulting from the EVRAZ
VGOK disposal in September 2013 and closure
of the Irba mine at Evrazruda. The reduction in
coking coal costs in 2013 was attributable to
reduction in the price of purchased coking coal,
consolidation of Raspadskaya (US$93 million)
and lower volumes of coking coal purchased
from the market following the disposal of the
Ukrainian coking plant DKHZ in 2012
(US$84 million). A decrease in scrap costs was
primarily due to lower volumes of purchases
from third parties in North America, in addition
to lower prices in Russia and North America.
EVRAZ has also implemented operational
improvement plans that resulted in optimisation
of yields at the Russian steel mills.
The costs for semi-fi nished products fell by
6% primarily due to lower prices and lower
consumption of pig iron by EVRAZ Vitkovice
Steel as a result of lower production volumes.
Auxiliary material costs increased by 4%,
or US$44 million, due to the consolidation
of Raspadskaya, which accounted for
US$115 million of additional costs, which
was offset primarily by the effect from cost
optimisation programmes.
Expenditure on services increased by 11%,
or US$70 million, primarily as a result of the
consolidation of Raspadskaya which added
US$38 million and higher volumes of coal
processed at third party coal washing facilities
which increased costs by US$33 million.
The cost of goods for resale increased by
4%, or by US$26 million. The increase of
US$36 million is due to the purchase by EVRAZ
Metal Inprom, the Company’s retail trading arm,
of more third party products to meet customer
demand.
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Breakdown of the cost of revenue
(US$ million)
Item
Revenue
Cost of revenue
Raw materials, incl.
Iron ore
Coking coal
Scrap
Other raw materials
Semi-fi nished products
Auxiliary materials
Services
Goods for resale
Transportation
Staff costs
Depreciation
Electricity
Natural gas
Other costs
2013
14,411
11,468
3,539
787
640
1,333
779
456
1,027
736
678
836
% of
revenue
80%
25%
6%
4%
9%
6%
3%
7%
5%
5%
6%
1,940
13%
919
633
405
299
6%
4%
3%
3%
2012*
14,726
11,803
4,026
681
1,028
1,570
747
485
983
666
652
787
1,743
1,100
574
416
371
% of
revenue
80%
27%
5%
7%
11%
4%
3%
7%
5%
4%
5%
12%
7%
4%
3%
3%
Change
(315)
(335)
(487)
106
(388)
(237)
32
(29)
44
70
26
49
197
(181)
59
(11)
(72)
Relative
change
(2)%
(3%)
(12%)
16%
(38%)
(15%)
4%
(6%)
4%
11%
4%
6%
11%
(16%)
10%
(3%)
(19%)
Transportation costs increased by 6%, or by
US$49 million, due to the consolidation of
Raspadskaya which added US$45 million
in costs.
Staff costs increased by 11%, or by
US$197 million, due to the consolidation of
Raspadskaya, which was responsible for
US$133 million of the rise, and higher wages
at the Group’s ongoing operations, which rose
in accordance with collective bargaining
agreements. The increase in staff costs was
partially offset by the personnel optimisation
programme.
Total depreciation, depletion and amortisation
in cost of goods sold amounted to
US$919 million in 2013 compared to
US$1,100 million in 2012. The depletion
charge was signifi cantly reduced in 2013
compared to 2012, from US$467 million to
US$194 million despite a US$32 million charge
due to the Raspadskaya acquisition in January
2013. The decrease in the depletion expense
was caused by the revision and detailing of
mining plans as part of the independent JORC
valuations performed during the year. The
overall mining plans for ore bodies with
extraction plans going beyond 40-100 years
were disaggregated into separate components
of proved and probable reserves that are
excluded from the calculation of the depletion
charge until actual production begins. This
resulted in a better matching of the current
depletion charge with the estimated costs of
extraction. The decrease was partially offset by
consolidation of Raspadskaya (US$109 million).
Electricity costs increased by 10%, or by
US$59 million, due to higher electricity prices
across all regions and higher consumption of
electricity by Russian operations, partially
compensated by implementation of operational
improvements. Natural gas expenditure, on the
contrary, decreased by 3%, or by US$11 million
due to operational improvements resulting in
reduced consumption of gas by the Russian
and Ukrainian operations, including lower
consumption at EVRAZ NTMK following the
implementation of the PCI technology.
Other costs include taxes, change in WIP
and fi nished goods, and minor items of energy
costs.
The decrease in other costs in 2013 by 19% is
mostly driven by increase in stock of WIP and
fi nished goods.
Selling and distribution expenses were 2.3%
lower than in 2012 mainly due to suspension
of amortisation of intangibles for assets
classifi ed as held for sale and the lower
volumes of long distance sales that were
partially offset by Raspadskaya consolidation.
General and administrative expenses were
4.5% higher than in 2012 mainly due to
Raspadskaya consolidation (which accounted
for 6.6% of total general and administrative
expenses for 2013) that was partially offset by
disposal of EVRAZ VGOK in October 2013 and
reduction of expenses at Evrazruda and EVRAZ
Highveld Steel and Vanadium as a result of
signifi cant cost saving initiatives.
* There are some differences in fi gures for 2012 published in the previous annual report due to adjustments in pension liability accruals and minor corrections of intersegment
eliminations before cost items.
EVRAZ plc Annual Report and Accounts 2013
31
FINANCIAL
REVIEW
Continued
Impairment loss of US$446 million consisted
mostly of a US$326 million impairment of
assets of EVRAZ Claymont Steel suspended
due to soft demand in the market and
US$96 million relating to several mines
of Yuzhkuzbassugol, where the production
plans were revised, and other mines of
Yuzhkuzbassugol (Kusheyakovskaya,
Abashevskaya and Gramoteinskaya)
standing idle.
Foreign exchange losses increased from
a US$41 million loss in 2012 to a
US$258 million loss in 2013. This, in large
part, is due to the currency fl uctuations in
respect of intra-group debts between
subsidiaries with different functional
currencies. Since there is no IFRS concept
of a Group’s functional currency, gains/(losses)
of one subsidiary recognised in the Statement
of Operations are not offset with the exchange
differences of another subsidiary with a
different functional currency and thus these
amounts cannot be eliminated on a
consolidated level.
to Raspadskaya ($94 million) and
MediaHolding Provincia ($5 million loss) held
before the business combinations.
Interest expenses incurred by the Group
have fallen steadily over the last two years
as a result of the refi nancing of debt at lower
interest rates on a comparative basis.
The increase in interest expenses from
US$654 million in 2012 to US$699 million
in 2013 is mostly caused by the consolidation
of Raspadskaya (US$42 million).
In accordance with IFRS 3 “Business
Combinations” with regard to a business
combination achieved in stages, the acquirer
shall remeasure its previously held equity
interest in the acquiree at its acquisition-date
fair value and recognise the resulting gain or
loss in the income statement. In 2013 the
Group recorded a US$89 million gain on
derecognition of the equity interest related
Losses on fi nancial assets and liabilities
amounted to US$43 million and comprised
mostly unrealised losses of US$106 million
and realised gains of $51 million on the
change in the fair value of derivatives –
currency and interest rate swaps for the
rouble-denominated bonds.
The Company had an income tax benefi t of
only US$41 million, notwithstanding a loss
before tax of US$613 million. This was mostly
due to losses at certain subsidiaries that could
not be offset against profi ts of other
subsidiaries, as well as the fact that some
expenses are not deductible for tax purposes.
Cash fl ow
(US$ million)
Item
Cash fl ows from operating activities before change in working capital
Changes in working capital
Net cash fl ows from operating activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Other investing activities
2013
1,535
365
1,900
677
(902)
(39)
2012
1,733
410
2,143
Change
(198)
(45)
(243)
(656)
1,333
(1,261)
373
359
(412)
Relative
change
(11.4)%
(11.0)
(11.3)%
n/m
(28.5)%
n/m
Net cash fl ows from/(used in) investing activities
(264)
(1,544)
1,280
(82.9)%
Net cash fl ows from/(used in) fi nancing activities
(1,367)
(42)
(1,325)
3,154.8%
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
(48)
221
32
589
(80)
n/m
(368)
(62.5)%
32
EVRAZ plc Annual Report and Accounts 2013
Cash fl ows from operating activities before
changes in working capital fell by 11.4% in
2013 to US$1,535 million refl ecting lower
product prices compared to 2012.
In 2013, US$365 million were released from
working capital refl ecting lower prices of the
Company’s products, better inventory
management and debts collection efforts.
Free cash fl ow for the period was a positive
US$458 million.
Capex and key projects
In 2013, we reduced our total capital
expenditure to US$902 million compared to
US$1,261 million in 2012 as a result of a
comprehensive review of the Company’s
investment programme. In 2013, we fi nalised
the modernisation of the rail mill at EVRAZ
ZSMK, commissioned the Yerunakovskaya VIII
coking coal mine and saw our PCI project at
EVRAZ NTMK become fully operational. We also
made good progress with the Mezhegey Phase I
and the Vostochny rolling mill projects, while the
Yuzhny rolling mill project was put on hold in
light of the current market environment.
Financing and liquidity
We started 2013 with total debt of
US$8,440 million. This number does not
include the debt of Raspadskaya of
US$558 million which was consolidated from
16 January 2013. Due to favourable capital
markets conditions in the fi rst half of 2013
we issued a 7-year US$1 billion Eurobond with
a record-low coupon of 6.50%. The proceeds
were used to refi nance rouble bonds of
approximately US$399 million and prepay the
outstanding balance of US$759 million of the
US$950 million syndicated pre-export facility,
whose original fi nal maturity was in November
2015. Later in the year, we also used some
excess liquidity coming from the Eurobond
and operating cash fl ows to repay a number
of shorter term facilities, including a
US$150 million bank loan at Raspadskaya.
As a result of these actions, total debt
decreased by US$274 million to
US$8,166 million as at 31 December 2013,
while our net debt increased by US$158 million
to US$6,534 million at 31 December 2013
compared to US$6,376 million as at 31
December 2012. Interest expense accrued
in respect of loans, bonds and notes was
US$617 million for 2013, compared to
US$588 million for 2012.
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2013
1,821
(37)
1,784
365
(249)
1,900
(501)
(902)
(30)
1
(10)
458
Calculation of free cash fl ow
(US$ million)
Item
EBITDA
Non-cash items
EBITDA (excluding non-cash items)
Changes in working capital
Income tax paid
Net Cash fl ows from operating activities
Interest and similar payments
Capital expenditure
Purchases of subsidiaries (net of cash acquired) and interests in associates/
joint ventures
Proceeds from sale of disposal groups classifi ed as held for sale, net of
transaction costs
Other cash fl ows from investing activities
Free Cash Flow
Capital expenditure for 2013
(US$ million)
Construction of Yerunakovskaya VIII
mine
Mezhegey (Phase I)
EVRAZ ZSMK rail mill modernisation
PCI at EVRAZ ZSMK
66 Ramp-up completed in Q1 2014.
Production of 3 million tonnes of raw
coking coal per annum
54 First batches of coal mined. Ramp-up to be
completed by 2016. Capacity of 1.5 mtpa
46 Ramp-up largely completed. Obtained
certifi cation for head hardened rails.
Rail mill capacity increased to 950 ktpa
43 Reduction of coke and natural gas
consumption in blast furnaces. To be
launched in Q3 2014
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Vostochny Rolling Mill (Kazakhstan)
42 Hot tests commenced in Q1 2014.
Production capacity of 450 ktpa of long
steel products
Other development projects
Maintenance
Total
192
459
902
EVRAZ plc Annual Report and Accounts 2013
33
IAS 19 “Employee Benefi ts”, which was revised
in 2011 and became effective for annual
periods beginning on or after 1 January 2013,
introduced full recognition of defi ned benefi t
obligations in the statement of fi nancial
position whereas under the previous standard
we accounted for a part of the obligation
relating to unrealised actuarial gains/losses
under the corridor approach. The revised
standard also changed the accounting for
certain components of defi ned benefi t
obligations. The comparatives for the annual
results have been restated to refl ect this
revision to the standard and for further details
see Note 2 of the consolidated fi nancial
statements.
Dividends
The directors recommend a dividend of 6 cents
per share to be consistent with their intention
of distributing, where appropriate, a proportion
of the margin on disposals as dividends, and
as an indication of confi dence in the Company’s
position. The US$90.4 million represents the
approximate cash portion of the proceeds from
the sale of EVRAZ Vitkovice Steel, leaving
US$196.6 million for the reduction of debt.
Going forward, the dividend policy has been
revised to support the fi nancial strategy of
deleveraging and envisages that the regular
dividends will be paid only when the net
leverage (net debt/EBITDA) target of below
3.0x is achieved. The Board reserves the
right to propose special dividends in the
event of asset disposals.
Giacomo Baizini
Chief Financial Offi cer
EVRAZ plc
8 April 2014
FINANCIAL
REVIEW
Continued
Following the syndicated loan repayment,
the remaining debt having maintenance
fi nancial covenants comprises only a few
bilateral facilities totalling approximately
US$260 million. In view of the continuing
uncertainty, in June 2013 we agreed with the
lenders to suspend fi nancial covenants testing
as at 30 June 2013 and as at 31 December
2013. These covenants include only two key
ratios calculated on the basis of Evraz Group
S.A.’s consolidated fi nancials: a maximum net
leverage and a minimum EBITDA interest cover.
The ratios will be tested again starting from
30 June 2014 with the levels of 3.5x and 3.0x
respectively.
The risk of breaching fi nancial covenants based
on the consolidated fi gures as at 30 June 2014
and as at 31 December 2014 remains in place.
However, management believes that, if
necessary, it will be possible to agree with
the lending banks and export credit agencies
(ECAs) either to further suspend the testing of
the fi nancial covenants, or to amend the levels
so that the risk of breach is removed. These
negotiations may be held in parallel to
negotiations on a potential new pre-export
fi nancing. Our Eurobond covenants currently
do not limit our ability to refi nance EVRAZ’s
consolidated indebtedness.
Our cash and deposits on 31 December 2013
amounted to US$1,611 million and our
short-term debt on December 2013 stood
at US$1,893 million.
Restatement of 2012 Financial
Statements
As reported in presenting our semi-annual
accounts we identifi ed a classifi cation error in
the 2012 annual fi nancial statements which
related to foreign exchange movements
attributable to certain subsidiaries disposed
of in 2012. These foreign exchange losses
had not been recycled from the equity reserve
back through the statement of operations, as
required by the relevant accounting standard.
The error represents a one-off non-cash item,
does not affect 2012 EBITDA, CAPEX, free cash
fl ow, or net assets of the Company, and does
not have an impact on the measurement of any
of the group’s covenants. For more details,
please refer to Note 2 of the Financial
statements.
34
EVRAZ plc Annual Report and Accounts 2013
CORPORATE SOCIAL
RESPONSIBILITY
EVRAZ key air emissions dynamics, kt
EVRAZ greenhouse gas (GHG) emissions, mt CO2e
125
122
119
8.05
45.82
4.83
30.85
3.11
13.99
0.09
0.16
2011
2012
2013
Evraz total
Steel
segment
Mining
segment
Vanadium
segment
The above graph illustrates the reduction in the total
amount of the key air emissions nitrogen oxides (NOx),
sulphur oxides (SOx), dust and volatile organic
compounds rebased to 2011.
Direct emissions (Scope 1)
Indirect energy emissions (Scope 2)
0.02
0.81
Other
Lost time injury frequency rate
(LTIFR, per 1 million hours) and fatalities
Number of employees
Social expenses, US$ million
2.23
25
1.95*
18
1.86
13
111,725
110,997
105,128
61
51
50
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2011
2012
2013
2011
2012
2013
2011
2012
2013
LTIFR
Fatalities
*LTIFR excludes fatalities. It will be the new standard
from 2014 forward not to include fatalities in the
LTIFR numbers according to the World Steel
Association practices.
Employees by business, %
Employees by region, %
1%
4%
3%
1%
3%
4%
35%
57%
92%
Steel
Mining
Vanadium
Other
Unallocated
Russia & CIS
North America
Africa
Europe
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EVRAZ plc Annual Report and Accounts 2013
35
CORPORATE SOCIAL
RESPONSIBILITY
Continued
EVRAZ approach
EVRAZ takes its social responsibilities
seriously, addressing and monitoring all
aspects of corporate social responsibility
(CSR) that are relevant to the business.
This section of the report provides an
overview of EVRAZ policies and performance
in 2013 in key areas of CSR including human
rights, health and safety, environmental
performance, human capital management
and community engagement as well as
an outline of how the Company intends to
improve its performance in the years ahead.
Additional relevant disclosures are contained
in the Strategic Report (Principal Risks and
Uncertainties section on pages 24 – 27).
Strategy and governance
EVRAZ’s directors and management share
the opinion that a company cannot – in the
long-term – operate in isolation from the
wider community in which it operates. The
Company’s broader stakeholder base is
making increasing demands that EVRAZ
be held accountable for the social and
environmental impacts of its operations.
The Company is committed to improving HSE
performance through the implementation
of enhanced business processes, as well
as management and control systems.
Strategic direction in the areas of health,
safety and environment comes from the
Board of Directors, which has established
a dedicated Health, Safety and Environment
(HSE) Committee to lead the Board’s
thinking on health and safety issues, as well
as taking responsibility for environmental,
safety and local community matters. Details
of the terms of reference and activities of
the Committee are set out in the Corporate
Governance Report on pages 88 – 89.
The HSE function at the corporate and site
level is coordinated by the Vice President of
HSE Michael Shuble who regularly reports to
the Board Committee on material HSE issues
and attends certain meetings of the Board of
Directors. At site level, each plant manager
takes overall responsibility for HSE compliance,
reporting to both the site management
and corporate-level HSE management.
The safety, health and environmental policy
implemented at the Group-wide level aims
at meeting or exceeding all applicable
national legislation and increasing the level
of industrial safety and labour protection as
well as reducing the Group’s environmental
footprint across the operations.
Human rights
EVRAZ implements the OECD Guidelines for
Multinational Enterprises to ensure a uniform
approach to business standards across the
Company’s global operations. The company’s
commitments are based on internationally
recognised standards and respect for
all human rights, including civil, political,
economic, social, and cultural rights. In
particular, EVRAZ fully endorses the provisions
of the Universal Declaration of Human Rights
and strives at all times to uphold them.
EVRAZ seeks to develop and maintain a work
environment that is free from discrimination
and ensures equal rights, where every
employee has the opportunity to contribute to
the Company’s overall results, and to realise
his/her abilities and potential.
2013 progress
In 2012 after determining the key challenges and focus areas, EVRAZ set fi ve year targets (2012-2017) for its sustainability performance. This table
sets out progress towards these goals in 2013.
Area of focus
Challenges
Targets
Progress to date
Health and Safety
Impact of operations on the health
and physical condition of EVRAZ
employees
• consistent reduction in lost time
injury frequency rate (LTIFR)
• avoidance of any fatal incidents
LTIFR 1.95 (2012: 2.23)
18 fatalities (2012: 25)
across the Group
Environment1
Impact of operations on the
environment (air, water, waste)
• 5% reduction in air emissions2
• 15% decrease in fresh water
3.6% reduction since 2011
consumption
18.4% reduction since 2011
Human Capital
Development of employees to
secure the long-term stability
of the business
• 100% of non-mining waste
recycled or used3
• 100% of middle management
covered by development
programme
• creation of a pool of successors
for middle and top management
Community Relations
Effective management of relations
with local communities, which affect
the Company’s reputation and
ongoing licence to operate
• contribution to the local
development of communities
in which EVRAZ operates,
through education, training
and employment of the
local population
105.7%3 in 2013 (2012: 103.9%,
2011: 109.6%)
Achieved 100% coverage of
personal development plans (PDP)
122 employees selected as high
potential (HiPo) with 12% promoted
to new roles within EVRAZ
EVRAZ continued supporting
community initiatives with
US$50 million of social expenses
spent worldwide
1 Environmental targets are based on 2011 performance levels.
2
3 The rate between amount of waste recycled or used vs. annual waste generation, not including mining waste. It can exceed 100% due to recycling of prior periods’ waste.
Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and volatile organic compounds only.
36
EVRAZ plc Annual Report and Accounts 2013
This aspiration is refl ected in the Company’s
internal codes and principles, including our
Business Conduct Policy “The EVRAZ Way”,
downloadable from the corporate website
www.evraz.com/governance/documents/
to working surfaces will remain a focus
at all facilities. There will remain a zero
tolerance policy towards alcohol and drug
intoxication and increased accountability
when safety violations are identifi ed.
For additional details on employee
engagement and social and community
programmes please refer to pages 40 – 41.
In line with its strategic objectives,
relevant non-fi nancial metrics (LTIFR
and Environmental non-compliance) are
incorporated into the Company’s KPIs to
measure and manage its performance. For
EVRAZ KPIs please refer to pages 22 – 23.
Health and safety performance
In 2013 we saw an improvement in our
health and safety performance. Regrettably
the Company recorded 18 employee and
6 contractor fatalities, however this was
a decrease from the 32 (25 employees
and 7 contractors) experienced in 2012.
Additional details are provided in the
Chief Executive Offi cer’s Review (page
10) and Letter from Chairman (page 74).
The Company has a target to achieve
zero fatalities and serious injuries.
In 2013, LTIFR showed a quarter on quarter
improving trend with a fi nal year end
decrease of 19% in comparison with the
previous year, and in line with our stated
goal of achieving a long-term downward
trend in Lost Time Injury Frequency Rate.
In 2014, the Company aims to reduce
LTIFR by 20% in comparison with 2013.
Safety analysis demonstrates that two
categories of lost time injuries (LTI) – slips,
trips and falls and injuries resulting from
contact with or being struck by moving,
rotating parts of equipment or mechanisms
– together represent around 60% of all LTI
recorded in 2013. Ongoing progress in
the area of walkways and improvements
The Company plans to implement an
energy isolation programme LOTO (Lockout,
Tryout) at all EVRAZ facilities in 2014.
LOTO is a systematic approach to establish
a zero energy state to all equipment
before any type of work is completed
especially during maintenance or repair.
Environmental performance
Steelmaking and mining sites use substantial
amounts of energy and water and operations
can signifi cantly affect water quality, air quality,
waste and land use. EVRAZ’s environmental
strategy is to seek to minimise the negative
impact of its operations and use natural
resources effi ciently, seeking optimal
solutions for industrial waste management.
EVRAZ is on track to meet the fi ve-year
environmental targets adopted in 2012:
• 5% reduction in air emissions;
• 15% decrease in fresh water consumption;
and
• 100% of non-mining waste recycled or used.
In 2013 EVRAZ spent approximately
US$38 million on measures to ensure
environmental compliance and US$17 million
on projects to improve its environmental
performance. In the period from 2013 to
2017, the Group is committed to spending
more than US$260 million on environmental
programmes across its operations.
Environmental levies and fi nes for
non-compliance across the Group
decreased by 35% from US$10.2 million
in 2012 to US$6.6 million in 2013.
There were no signifi cant environmental
incidents at EVRAZ assets during 2013.
EVRAZ is committed to continuing to strengthen
its environmental management system and
increasing the number of operations compliant
with ISO 14001. EVRAZ currently has 13 ISO
14001 certifi ed sites, including the largest
facilities: EVRAZ NTMK, EVRAZ ZSMK,
EVRAZ DMZ Petrovskogo, EVRAZ Highveld,
EVRAZ Vítkovice and EVRAZ Palini e Bertoli.
EVRAZ supports the human health and the
environment goals of REACH, a European
Union regulation concerning the Registration,
Evaluation, Authorisation & restriction of
Chemicals4. In June 2013 EVRAZ facilities
passed the second stage of product
registration according to REACH Regulation
requirements. As a result EVRAZ is able to
continue sales of a number of products to
the customers in the European Economic
Area. EVRAZ’s goal is to ensure continued
compliance with REACH requirements in
order to eliminate possible risks to supplying
customers in the European Economic Area.
Air emissions
The reduction of air emissions is one of
EVRAZ’s main environmental objectives.
Emissions are primarily comprised of
nitrogen oxides (NOx), sulphur oxides (SOx),
dust and volatile organic compounds.
The Company has made signifi cant
progress in reducing air emissions through
investments in modern technologies and
withdrawal of obsolete equipment.
In 2013 EVRAZ NTMK reduced key air
emissions by approximately 1.9 thousand
tonnes mostly due to the introduction of
Pulverised Coal Injection (PCI) technology.
Additionally, EVRAZ Highveld updated its
monitoring system to provide more precise data
and to improve operational control; this resulted
in a reduction of almost one thousand tonnes
of air emissions versus its 2012 performance.
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4 REACH – Regulation (EC) N° 1907/2006 of the European Parliament and of the Council according to which as of June 1, 2007 all chemical substances, mixtures and substances
in articles (in some cases) produced in or imported to European Economic Area (EEA) territory above 1 tonne per year are subject to mandatory procedures such as registration,
evaluation, authorisation and restriction of chemicals. If chemicals are not registered in accordance with REACH the products are not allowed to be manufactured in or imported
into the EEA.
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37
CORPORATE SOCIAL
RESPONSIBILITY
Continued
Furthermore, the sale of EVRAZ VGOK and
Tsentralnaya heat and power station in
Novokuznetsk in 2013 led to a reduction
of almost 3.7 thousand tonnes of
emissions, which was partially offset by
an increase of 1.6 thousand tonne of air
emissions as a result of the integration
of the Raspadskaya Coal Company.
Overall, air emissions from operations
have declined by 4.4% since
2011 and by 2.4% in 2013.
Greenhouse gas emissions
EVRAZ recognises the importance of abating
climate change and supports the global
effort to reduce greenhouse gas emissions
into the atmosphere. In 2013, following
the requirements of the Companies Act
2006 (Strategic and Directors’ Report)
Regulations 2013 EVRAZ undertook
to assess full greenhouse gas (GHG)
emissions from facilities under its control.
The assessment covered direct (Scope 1)
emissions of all six “Kyoto” GHGs5 and indirect
(Scope 2) emissions from the use of electricity
and heat. The inventory approach6 was based
on the 2006 IPCC Guidelines for National
Greenhouse Gas Inventories (IPCC 2006)
and WRI/WBCSD GHG Protocol Corporate
Accounting and Reporting Standard. The
Company provides data in tonnes of carbon
dioxide (CO2) equivalent (tCO2e) calculated
using IPCC 2006 global warming potentials.
GHG emissions data was collected for the
fi rst time in 2013 to establish this year as a
baseline. The steel segment is responsible
for more than half of gross greenhouse
gas emissions from operations, while
almost two thirds of full emissions from
the mining segment are due to fugitive
methane leakage, caused by methane
ventilation from underground mines and
post-mining emissions from coal.
GHG emissions per net revenue, kg CO2e/US$
5.2
3.73
2.8
0.5
EVRAZ
Steel
segment
Mining
segment
Vanadium
segment
0.9
Other
EVRAZ GHG Emissions in 2013,
MtCO2e
Total GHG emissions
Split:
Direct (Scope 1)
Consisting of:
CO2
CH4
N2O
PFC+HFC
SF6
Indirect (Scope 2)
2013
53.87
45.82
34.41
11.33
0.08
0.0002
–
8.05
EVRAZ reports an intensity ratio relating its
annual GHG emissions to its activities —total
Scope 1 and 2 emissions per consolidated
revenue for the Company as a whole and
each operating segment (see graphs).
Additionally, specifi c emissions in the steel
segment per tonne of steel products are
compared to average specifi c emissions of
WorldSteel association members for 2012.
Higher specifi c GHG emissions in the EVRAZ
steel segment may be due to the key role
that integrated iron and steel works (that
inherently emit more GHGs than rolling mills)
play in EVRAZ steel production output.
Water consumption and water discharge
The objective of the Company is to use
water resources effi ciently and to prevent
any negative impacts on water quality
through environmental incidents.
In 2013 almost 80% of EVRAZ total
water intake was from surface sources,
including rivers, lakes and reservoirs.
Total fresh water consumption in 2013 was
368 million cubic metres,12.7% less than in
2012 (422 million cubic metres) and 18.4%
less than in 2011. Water discharge decreased
by 29 million cubic meters during 2012-2013.
In 2012, EVRAZ adopted a new water
management strategy for EVRAZ ZSMK
and Yuzhkuzbassugol which has already
signifi cantly improved the water management
performance of these operations.
At EVRAZ ZSMK a new local water rotation
cycle with a sludge dewatering installation
that re-uses dewatered sludge in production
as a raw material was introduced and this
reduced fresh water consumption by 4.7 million
cubic metres. In total, the water management
programme reduced water consumption
by 11.5 million cubic metres in 2013.
In 2014, Yuzhkuzbassugol plans to complete
a water treatment installation at Uslkovskaya
mine which allows more treated mine
water into the production process instead
of fresh water pumped from the river.
5 Carbon dioxide – CO2, methane – CH4, nitrous oxide – N2O, hydrofl uorocarbons and perfl uorocarbons – HFC+PFC, and sulphur hexafl uoride – SF6.
6 The inventory of emissions includes all entities the Group controls. Entities that were disposed of during the year were included for the period they were part of the Group.
Only entities that were deemed immaterial for consolidated emissions based on their operational indicators were omitted. Direct CO2 emissions from operations were
calculated using the carbon balance method for carbon fl ows within production facilities, including fuel use. Emissions of other GHGs were calculated based on measured
volumes, inventory changes or IPCC 2006 factors and models (including that for post-mining coal methane emissions) where direct measurement data were not available.
Indirect emissions were estimated using emission factors specifi cally developed for the country or region, if available, or otherwise factors provided by UK Defra.
38
EVRAZ plc Annual Report and Accounts 2013
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Specific (Scope 1 and 2) GHG emissions
in steel segment, tCO2e per t of product
2.25
1.70
EVRAZ
steel segment
World steel
average 2012
The sale of the Tsentralnaya heat and power
station in Novokuznetsk with old cooling
technology also resulted in a reduction of
30 million cubic metres fresh water intake.
Water pumped from mines (mine dewatering
process) is not included in the fresh water
consumption target although pumped
water is in part used for technology needs.
In 2013, 37 million cubic meters of mine
water were pumped out in comparison
with 47 million cubic meters in 2012.
Waste management
Mining and steelmaking operations produce
signifi cant amounts of waste including waste
rock, spent ore and tailings (waste from
processing ore and concentrates). EVRAZ aims
to reduce the amount of waste it produces,
to reuse natural resources where possible
and to dispose of waste in a manner that
minimises the environmental impact whilst
maximising operational and fi nancial effi ciency.
In line with the Company’s strategy to reduce
waste storage volumes and enhance waste
disposal, EVRAZ sites regularly reviews
opportunities for waste recycling and reuse.
For example, EVRAZ Vanady Tula increased its
waste recycling rate from 100% in 2011 up to
219% in 2013 due to recycling of prior periods’
waste. EVRAZ steel mills generated 8.8 million
tons of metallurgical waste (slag, sludge,
scale) in 2013 while 10.7 million tonnes were
recycled and reused. In total, in 2013 EVRAZ
recycled or reused 106%7 of non-mining waste
and by-products compared to 104% in 2012.
7 The rate between amount of waste recycled or used
vs. annual waste generation, not including mining
waste.
EVRAZ’s strategy for dealing with non-
hazardous mining wastes, such as depleted
rock, tailings and overburden is to use
them where possible for land rehabilitation
and the construction of dams or roads. In
2013, 14% or 21 million tonnes of such
waste material were reused compared
to 28% or 27 million tonnes in 2012.
All non-recyclable waste is stored in
facilities which are designed to prevent
any harmful substances contained in the
waste escaping into the environment.
Human capital
EVRAZ recognises the importance of working
with people and for people. Great efforts are
invested in ensuring EVRAZ is a sustainable
Company that can support its growth strategy
through its human capital management.
Goals and initiatives of EVRAZ’s HR strategy
are aimed at developing employee skills and
improving production safety levels through
training and performance management.
In 2013 the Company employed more than
105,000 people. The 5% decrease (from
approximately 111,000 in 2012) was mainly
caused by the initiated headcount reductions
after shutting down and/or disposing of
uneconomic facilities in the reporting period
to improve productivity. Thus the headcount
reduction at Evrazruda amounted to about
3,000 employees and he disposal of VGOK led
to the loss of approximately 4,600 employees.
Additionally following the acquisition of
Raspadskaya in January 2013 certain
functions were unifi ed and merged including
headcount processes with about 8,230
employees of Raspadskaya incorporated in
the structure of EVRAZ and some headcount
reductions at Yuzhkuzbassugol. The number of
compulsory redundancies across all operations
totalled about 6,500 employees in 2013.
Performance management
To encourage good performance and ensure
there is a clear link between corporate and
individual objectives, performance management
systems are implemented across the Company.
Business tasks and development targets of
the performance management process include
Key performance indicators (KPI) of certain
business units aligned with the Company’s
strategic principles and personal development
plans. Further initiatives to motivate
employees and provide career development
perspectives are based on the results of
these performance management plans.
Talent management
EVRAZ places a great deal of emphasis on
developing high potential employees, as set
out in our fi ve year target. In 2013 EVRAZ
continued developing two closely related
programmes - HiPo and EVRAZ New Leaders
focused on preparing employees for future
leadership roles in the Company and developing
talented employees worldwide to become
future operational and technical leaders.
122 employees were selected for the HiPo
pool in 2013. 12% of them have already been
promoted to new roles within the Company. All
HiPos developed personal development plans
and were actively involved in Company’s LEAN
and HSE initiatives. Additionally, in 2013, 59
EVRAZ employees from the USA, Canada,
South Africa, Czech Republic, Switzerland,
Ukraine and Russia participated in the EVRAZ
New Leaders Programme hosted by the
Skolkovo Moscow School of Management.
The programme’s objectives are to shape a
future international management team who
could potentially hold leading positions at
the Company’s enterprises, to encourage the
development of general management skills
and engineering competency, and to establish
projects directed at the improvement of
EVRAZ’s production system. This programme
fi nished in September 2013 with 35% of
participants having received new assignments
by the end of 2013. A new EVRAZ New Leaders
programme with an engineering and technical
specialisation started in March 2014.
Talent management issues are supervised
by the Talent Committee comprising key
EVRAZ executives, all of whom are actively
involved in and personally responsible for,
tutoring and overseeing a given pool of HiPos.
In 2013 Talent Committees were introduced
at all sites. This instrument helps engage
management into the process of identifying and
developing successors to the key positions.
Educational programmes
EVRAZ capitalises on its technical employees’
expertise by involving them in the development
of educational materials and training courses.
Thus EVRAZ ensures experts and trainees are
prepared for handling business issues. In 2013
12 Schools of Chief Specialists took place
aimed at developing and preparing successors
for technical experts and 3 technical forums
aimed at solving real production issues
in our business divisions. TIPS (Theory of
Inventive Problem Solving) methods were
actively implemented in all such initiatives.
EVRAZ plc Annual Report and Accounts 2013
39
CORPORATE SOCIAL
RESPONSIBILITY
Continued
Diversity of employees, senior management and directors, %
Company
Senior management
Board
12%
10%
28%
Men
Women
72%
88%
90%
* As at 31 December 2013, 75,800 (72%) of EVRAZ workforce were men and 29,328 (28%) women. Of these, 57 are considered senior management (50 men and 7 women).
EVRAZ’s current female representation amongst the Board’s membership is 10% with one woman on the Company’s board of directors.
In order to improve safety levels for our
employees in line with our stated targets,
health and safety related training was extended
to all employees in various forms, from formal
training initiatives to regular health and safety
briefi ngs taking place at the Company.
In 2014 EVRAZ plans to include all employees
in standard HSE educational programmes.
Diversity
The Company believes that diversity plays
an important role in a successful business.
EVRAZ remains committed to providing equal
rights to its employees regardless of their
race, nationality, gender or sexual orientation,
and the Company recognises the importance
of diversity when recruiting employees. Full
consideration is given to applications from
people with disabilities, having regard to
their particular aptitude and abilities. EVRAZ
values all types of diversity, but focuses on
gender balance at all levels of the business
with a view of improving the percentage of
women in senior management each year to
help the Company ensure a more balanced
range of skills and management styles.
Cooperation with labour unions
EVRAZ respects its employees’ rights and aims
to build a constructive and positive relationship
with the labour unions which represent them.
All EVRAZ sites operate through the collective
bargaining agreement model. The Company
has generally high levels of unionisation at
operations (about 75%), although this can vary
signifi cantly across operations and countries.
Regular discussions and formal and
informal meetings of the management
and the unions are conducted at all
EVRAZ facilities in Russia and globally.
Internal communications
EVRAZ is committed to keeping its employees
informed of major corporate developments
to the highest possible extent, and ensuring
they understand and are aligned with the
business strategy. EVRAZ has a well-
developed internal communications system
aimed at engaging employees in dialogue and
making it easier to track their feedback. The
Company uses a variety of print and online
communication channels. In addition, an
anonymous whistle-blowing system allows
employees to confi dentially raise questions
about any possible issue they face using a
number of tools, including internal surveys,
suggestion boxes and a special anonymous
hotline. In 2013 the hotline received about
1,800 inquiries, which were addressed by the
Company’s management in a timely manner.
Social and community
programmes
EVRAZ takes its social responsibilities
seriously. Making a contribution to local
communities by supporting various community
initiatives in the countries and regions where
it operates is an integral part of how EVRAZ
conducts its business, and sets its priorities.
EVRAZ’s social expenses worldwide
were US$50 million in 2013.
Most assistance is channelled through
charitable foundations set up by the
Company and managed by local supervisory
boards. EVRAZ’s charity funds operate in
Russia (Siberia and the Urals). The projects
are subdivided into three categories:
children, local communities and sports.
Projects for children include providing
assistance for children with special needs
(especially those with cerebral palsy), such
as no-cost treatment, purchasing special
equipment for local hospitals, organising
workshops for parents and doctors,
providing essential equipment for day
care centres, and career development.
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EVRAZ plc Annual Report and Accounts 2013
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programme for the Pueblo City School system
in Pueblo, Colorado, United States, established
reading rooms at community centres in
Regina, Saskatchewan and Red Deer, Alberta,
Canada, supported reading programmes at
elementary schools in Regina, and funded
the children's section of the new public library
in Claymont, Delaware, United States.
Additional non-profi t organisations and
charitable causes supported by EVRAZ
North America in 2013 included the
United Way, Boys & Girls Clubs, YMCA
Centres, and the American Red Cross.
In the Ukraine, EVRAZ’s initiatives included
funding reconstruction of paved roads,
improving city landscaping in Krivoy
Rog, where production facilities of the
EVRAZ Sukha Balka ore enrichment plant
are located, and organising ecological
events to clear the vicinities of EVRAZ
DMZ and EVRAZ Bagleykoks plants.
In 2013, EVRAZ provided assistance
and funding for a number of projects
including equipping children centres,
orphanages, schools and playgrounds
in Novokuznetsk, Tashtagol and Nizhny
Tagil and expanding its programmes on
hippotherapy and aquatherapy in the Urals.
In Kachkanar, a city in Sverdlovsk Region
where EVRAZ KGOK is located and
in a nearby settlement Valerianovsk,
EVRAZ supported several infrastructure
development projects in 2013 as well
as supporting several sports clubs.
EVRAZ also ran a grant competition “City of
Friends, City of Ideas” in Kachkanar in order
to support local initiatives. 13 social projects
were selected out of 36 project proposals
reviewed by the members of the supervisory
board. The projects are aimed at improving
the city infrastructure, developing youth
culture and organising leisure activities. The
youngest project team to receive EVRAZ grant
was a group of school students aged 14-15.
EVRAZ North America's primary area of
charitable giving focuses on children’s literacy.
Through its Reading Sparks™ platform, in
2013, the company funded a new literacy
Our Strategic Report, as set out on pages 08 to 41 inclusive, has been
reviewed and approved by the Board of Directors on 8 April 2014.
By the order of the Board
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Chief Executive Offi cer
EVRAZ plc
8 April 2014
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EVRAZ plc Annual Report and Accounts 2013
41
BUSINESS UNITS’ REVIEW
42
EVRAZ plc Annual Report and Accounts 2013
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In this section:
45 Steel: Russia
50 Iron Ore: Russia
54 Coal: Russia
59 Steel: North America
63 Steel: Europe
64 Steel: Ukraine
66 Iron Ore: Ukraine
67 Vanadium
70 Other Businesses
Describing EVRAZ’s business
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In this section we discuss the operating performance of EVRAZ’s business units throughout
the year.
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EVRAZ plc Annual Report and Accounts 2013
43
BUSINESS UNITS’
REVIEW
EVRAZ groups its operations into four
principal operating segments: Steel, Mining,
Vanadium and Other. Within each of these
operating segments there are dedicated
management teams which focus on particular
geographies and/or product lines, hence the
segments are subdivided on a geographic
or product basis, for example Steel: Russia,
Steel: North America, Iron ore: Russia
and Coal: Russia. This enables EVRAZ to
provide investors with a clearer view of the
performance of each of its key operating units.
The steel operating segment represents the
core of EVRAZ’s business with operations
spread over four continents. The Company
is a prominent participant in multiple
steel product markets with a specialised
focus on the infrastructure sector.
In 2013, EVRAZ’s consolidated crude steel
output totalled 16.1 million tonnes, a 1%
increase compared to 2012, while gross
production of steel products rose by 2% to
16.0 million tonnes. Reduced production
levels in Europe and North America due to the
suspension of certain operations were offset
by increased production at the Company’s
Russian, Ukrainian and South African steel
mills. The completion of a number of major
investment projects in 2013 also contributed
to improved operational results compared to
2012. For more details please refer to the
respective parts of this Business Units’ Review.
EVRAZ’s mining operations produced 68%
and 80% of the Company’s requirements
in iron ore and coking coal respectively. In
2013, the production of saleable iron ore
Total output of key products by EVRAZ*
Product, ‘000 tonnes
Coke (saleable)
Pig iron
Pig iron (saleable)
Crude steel
Steel products, gross**
Steel products, net of re-rolled volumes***
Semi-fi nished products
Finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Other steel products
Iron ore concentrate, saleable (Russia)
Sinter (Russia)
Pellets (Russia)
Lumpy ore (Ukraine)
2012
1,416
2013
1,380
12,031
12,553
261
15,932
15,701
14,195
3,153
341
16,109
15,972
14,673
3,843
11,042
10,830
5,207
1,801
2,465
872
697
5,615
4,698
6,051
2,608
5,186
1,903
2,108
927
706
4,692
4,396
6,301
2,973
Raw coking coal (mined)****
Coking coal concentrate (production)****
15,509
10,983
18,933
13,664
2013/2012,
change
(2.6)%
4.3%
30.4%
1.1%
1.7%
3.4%
21.9%
(1.9)%
(0.4)%
5.7%
(14.5)%
6.4%
1.3%
(16.4)%
(6.4)%
4.1%
14%
22.1%
24.4%
products decreased by 1% as a result of the
disposal of EVRAZ VGOK and certain mines of
Evrazruda as part of the Company’s ongoing
restructuring programme within the iron ore
business. For more information on the strategic
priorities in EVRAZ’s iron ore business please
refer to the Strategic Report on page 11.
Raw coking coal output increased by 22%
(on a pro-forma basis). The main drivers
of this growth were the acquisition and
integration of the Raspadskaya coal company
in January 2013 and the commissioning of
a new coking coal mine – Yerunakovskaya
VIII. The effect of these factors on the
business and prospects of the Company’s
mining segment is described in more detail
in the Strategic Report on pages 11 – 12.
In 2013, the Company’s vanadium
segment focused on maximising utilisation
levels at its ferrovanadium production
facilities. Ferrovanadium production at
EVRAZ’s facilities increased by 4% as a
result. For more information please refer
to the Vanadium section of the Business
Units’ Review on pages 67 – 69.
EVRAZ’s trading and distribution arms
focused on further strengthening customer
relations and building their presence in key
local markets during the year. In 2013, the
Company’s utilities business pursued a number
of programmes to improve effi ciency whilst
disposing of marginal capacity. Please refer to
the description of EVRAZ’s other businesses on
pages 70 – 71 of the Business Units’ Review.
*
Numbers in this table and the tables below may not
add to totals due to rounding. Per cent changes are
based on numbers prior to rounding.
** Gross volume of steel products in the tables
includes those re-rolled at other EVRAZ mills.
However, such volumes are eliminated as
intercompany sales for the purposes of EVRAZ’s
consolidated operating results.
*** Here and below there are minor differences in some
fi gures for 2012 published in the previous annual
report due to a correction to volumes of railway
products.
**** 2012 data is presented including Raspadskaya’s
fi gures on a pro forma basis, while Raspadskaya is
consolidated in the results of EVRAZ plc from 16
January 2013.
44
EVRAZ plc Annual Report and Accounts 2013
STEEL: RUSSIA
Steel Distribution Outlets
EVRAZ NTMK
EVRAZ ZSMK
EVRAZ’s key Russian steelmaking assets
Fast facts
Operations
Products
EVRAZ ZSMK
Capacity:
• Crude steel: 8.9 mtpa
• Construction products: 3.4 mtpa
• Rails: 950 ktpa
Employees*: 22,508 (2012: 23,481)
Ownership: 100% interest
EVRAZ NTMK
Capacity:
• Crude steel: 4.5 mtpa
• Construction products: 1.3 mtpa
• Rails: 510 ktpa
• Other railway products: 500 ktpa
Employees: 17,419 (2012: 17,494)
Ownership: 100% interest
Two fully integrated steelmaking plants
EVRAZ NTMK and EVRAZ ZSMK include:
• Metallurgical products: coke, pig iron
• Semi-fi nished products: slabs, billets,
– coke and chemical processing facilities
– sinter plant
– blast furnaces
– basic oxygen furnaces
– blooming plant, slab and billet continuous
casting machines
– electric arc furnaces, ladle furnaces and
vacuum vessel
– rolling mills: medium section mill 450,
light section mills 250-1 and 250-2,
wire mill, rail and structural mills, rail
fastening mill, broad-fl ange beam mill,
heavy section mill, wheel rolling mill,
ball rolling mill
pipe blanks
• Long products: rebars, rod, structural
products
• Railway products: heavy-haul rails,
low-temperature and high speed rails,
head hardened, 100 meter rails, wheels,
etc.
• Industrial steel: grinding balls, arch
rock support, etc.
* Number of employees here and throughout the report as of 31 December 2013
EVRAZ’s Russian steel production
Product, '000 tonnes
Crude steel
Steel products, net of re-rolled volumes**
Semi-fi nished products
Finished products
Construction products
Flat-rolled products
Railway products
Other steel products
2012
11,675
10,556
4,091
6,465
4,281
334
1,310
540
2013
2013/2012, change
11,904
10,799
4,517
6,282
4,185
120
1,409
568
2%
2%
10%
(3)%
(2)%
(64)%
8%
5%
** Net of re-rolled volumes in Russia. Results of semi-fi nished products include volumes re-rolled at European and North American rolling mills of EVRAZ
EVRAZ plc Annual Report and Accounts 2013
45
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STEEL: RUSSIA
Continued
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Ramp-up of PCI project at EVRAZ NTMK to
achieve nameplate capacity
The PCI project at EVRAZ NTMK reached
designed parameters in April 2013
Completion of construction works on the PCI
project at EVRAZ ZSMK
Construction works are on-going, however, the
project schedule and implementation were
revisited and extended to reduce planned capital
expenditure in 2013
To launch PCI technology at EVRAZ ZSMK in
H2 2014
Increasing customer focus and enhancing
delivery fl exibility and options
Expansion of deliveries by trucks and increased
optionality for customers through small-volume
deliveries
To launch a new CRM project
To increase warehouse supplies
To improve the quality of work with claims
Review of project to construct an additional
converter shop at EVRAZ NTMK
The project was put on hold to reduce capital
requirements
To be revised as part of EVRAZ’s capital
expenditure review
Review project to install a ball rolling mill and
modernise a wire rolling mill at EVRAZ ZSMK
Under review
To make a decision on whether to proceed with
both projects
Bring modern air separation plants at EVRAZ
NTMK into operation at the end of 2013
The project was largely completed
To fi nalise the project implementation by
Q3 2014
Commence production of rebars and small
sections at the Vostochny rolling mill in
Kazakhstan
Construction works were largely completed and
hot tests started
The rolling mill is expected to reach its designed
annualised nameplate capacity of 450,000
tonnes of rebars in H2 2014
Overhaul procurement systems to increase
inventory turnaround, lower storage costs and
improve productivity
Reduction of stocks in supporting materials led
to cost savings of about US$25 million
(797 million RUB)
To master high grade slab production for a
domestic tubular producer
undertaken by the Company in 2013.
For details please refer to page 21;
• construction of the Yuzhny rolling mill was
put on hold due to unfavourable market
conditions;
• the project to improve the supply of
nearby EVRAZ KGOK operation. Vanadium
slag extracted from pig iron at EVRAZ NTMK’s
converters is then used by producers of
ferroalloys and vanadium products. For
details on the performance of the vanadium
segment please refer to pages 68 – 69.
industrial gases to EVRAZ NTMK via the
construction of modern air separation plants
was largely completed by Praxair during
2013. However, due to delays in obtaining
the required permissions from the electricity
grid company, commissioning was
postponed till 2014.
2013 production and sales
In 2013 EVRAZ ZSMK produced 6 million
tonnes of pig iron, 7.5 million tonnes of
crude steel and 6.7 million tonnes of
steel products. EVRAZ ZSMK focused on
reducing operating costs by closing its
unprofi table plate mill and will also close
a number of coke batteries in 2014.
In 2013, EVRAZ NTMK produced 4.9
million tonnes of pig iron, 4.4 million tonnes
of crude steel and 4.3 million tonnes of
steel products. EVRAZ’s NTMK steel mill
consumes iron ore products made from
unique vanadium rich iron ore mined at the
As a result of the introduction of PCI
technology EVRAZ NTMK has increased
annual pig iron capacity by 100,000 tonnes.
In the reporting period EVRAZ NTMK also
undertook a number of works to enhance
fl exibility and improve productivity at one
of the continuous casting machines.
Crude steel output at EVRAZ’s Russian
operations increased by 2% in 2013
compared to 2012, reaching 11.9 million
tonnes. This increase was due to the
implementation of the PCI project at EVRAZ
NTMK and related operational improvements
as well as effi ciency gains at the blast
furnaces of both Russian steel mills.
In 2013, shipments from EVRAZ NTMK and
EVRAZ ZSMK remained stable with capacity
utilisation remaining high. The Russian
domestic market accounted for approximately
53% of EVRAZ NTMK’s overall sales volumes in
Operational highlights:
• the PCI project at EVRAZ NTMK was
completed allowing for a sustainable
reduction in operating costs of up to US$7
per tonne of crude steel. The project cut
coke and natural gas consumption from 405
kg/t to 315 kg/t of pig iron and 130m3/t to
75m3/t of pig iron respectively, on the back
of usage of 133 kg of PCI coal per tonne of
pig iron;
• hot tests at the Vostochny light-section
rolling mill in Kostanay, Kazakhstan
commenced. The mill is expected to achieve
its nameplate annual capacity of 450,000
tonnes of construction products in the
second half of 2014 and will produce rebars
in various lengths with a diameter of 10 to
40 mm, including unique A500CΠ rebars
that will allow construction customers to
reduce steel consumption. Among the
advantages of the new rolling mill is its
technological link with EVRAZ ZSMK which
will supply billets to be re-rolled at the
Vostochny mill;
• the plate rolling mill at EVRAZ ZSMK was
closed due to its low profi tability in the
prevailing market conditions. The mill had
been underutilised from 2010 and its
closure was part of the cost saving initiatives
46
EVRAZ plc Annual Report and Accounts 2013
2013 with the remainder exported. At EVRAZ
ZSMK, the split between local and export sales
was 49% and 51% respectively. Approximately
80% of the two Russian steel mills’ fi nished
steel products were shipped to the local
Russian market, and 20% were exported.
Most of the construction products are supplied
to Russian steel distributors, while the main
end-users are construction companies.
In 2013, efforts to improve product and service
quality continued. In particular, the further
expansion of EVRAZ’s distribution operations
allowed the Group to increase the share of
small-volume deliveries by trucks, as well
as shipments of assorted orders by rail.
Continuing an initiative fi rst implemented for
rebar and sections, EVRAZ standardised and
improved the quality of beams. In 2014,
EVRAZ NTMK and EVRAZ ZSMK, will produce
new products including rebar A600C, AΤ100
and new types of sheet piles.
In 2013, Russian demand for fi nished long
products increased by 2.5% year-on-year,
while rebar consumption increased by 10%.
Meanwhile the rebar price declined by 10%
compared to 2012 on the back of a weak
European market and, as a result, higher
competition from Ukrainian and Belorussian
producers. In addition, new rebar capacity was
launched in H2 2013. At the same time pricing
for other construction steel products in Russia
was fi rmer.
That said, EVRAZ managed to limit the
negative impact from falling prices by
optimising the Company’s product mix and
geographical sales structure. The average
selling price for EVRAZ’s construction
products declined by 5% compared to 2012.
EVRAZ products' market share in Russia
Interview with Alexey Ivanov, Vice President, Steel business unit, Russia
CUSTOMER FOCUS
How do you monitor your
customers’ satisfaction?
We conduct independent client satisfaction
surveys annually. In 2013, telephone
interviews and questionnaires were used to
gather comments by the consumers of the
different types of steel products produced by
EVRAZ. Metal traders and end users
demonstrated high levels of loyalty, 85%, and
trust, 81%, towards the Company. The level of
loyalty increased by 3% compared to 2012.
Client satisfaction was also high, with as many
as 87% of clients satisfi ed with EVRAZ’s
product range and stable level of stocks at
warehouses. 81% of all clients (compared to
75% in 2012) noted that EVRAZ has the best
service among other steel producers.
How do you use the results
of the survey?
Such surveys enable us to test our business
processes, products, and services against
customer need, fi nd our weak points and
eliminate fl aws before they result in us losing
our partners’ trust. Customers value reliability
and predictability of supplies. Negative
comments carry useful information based on
which we can improve our services.
What are EVRAZ’s key
customers? How do you
compete with other steel
producers?
As a rule, EVRAZ’s key customers are large
infrastructure players, and they focus on the
product range, price and service that can be
offered to them. In today’s highly competitive
market in order to expand our client base we
are looking for new ways of marketing our
products and creating value for customers.
What are these new ways?
We strive to better understand our customers’
requirements and take into account our
customers’ needs. Thus, we have increased the
share of small-volume deliveries by trucks, as
well as shipments of assorted orders by rail.
Our beam consumers can order, for example,
beams in non-standard lengths suitable for a
particular use, which allows them to minimise
the steel losses. By helping our clients solve
their problems and implement a comprehensive
approach to services we can become the
supplier of choice.
100%
100%
100%
Average selling prices by EVRAZ Russia
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Slabs
Billets
Rebars
Beams
80%
45%
17%
Beams
Structural shapes
(angles and channels)
Rebars
EVRAZ
Others
2012
552
596
691
979
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528
634
979
EVRAZ plc Annual Report and Accounts 2013
47
STEEL: RUSSIA
Continued
Railway products: Russia
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Ramp-up of the rail mill at EVRAZ ZSMK with
a target output of 720,000 tonnes for 2013
Total rail production volumes amounted to
463,000 tonnes due to technical delays
To produce 665,000 tonnes of rails
at EVRAZ ZSMK
Commence production of 100 meter and
head-hardened rails at EVRAZ ZSMK
Compliance certifi cate for 100 meter head-
hardened rails was received
To start supplying 100 meter rails, and expand
the product line of head-hardened rails for high
speed applications
Increase railway wheel production volumes
by 10% compared to 2012
Lower volumes of railcar production in Russia
and CIS led to decreased demand for wheels
Develop sales to North America and start
supplies to Europe
Operational highlights:
• the EVRAZ ZSMK rail mill restarted following
completion of the large scale modernisation
programme. The rail mill is expected to be
fully operational in 2014 with an expanded
nameplate capacity of 950,000 tonnes of
rails per annum;
• EVRAZ obtained a compliance certifi cate for
its DT-350 R-65 head-hardened rails with a
length of up to 100 meters paving the way
for commercial production and sales of such
rails from 2014;
• completed fi rst 10,000 tonne shipment of
25-meter head-hardened rails for Russian
Railways;
• EVRAZ was approved as a freight wheel
manufacturer by Deutsche Bahn (Germany),
VUZ (Czech Republic) and NS Roanoke
(USA);
• EVRAZ and Russian Railways signed an
agreement on technical cooperation to
develop new railway products with improved
longevity (rails, railway wheels, tyres and
fasteners);
• EVRAZ NTMK’s wheel production shop
achieved the international IRIS standard for
its quality management system.
2013 production and sales
EVRAZ Russian mills produced 1,409 million
tonnes of railway products in 2013, an 8%
increase compared to 2012 following the
launch of the modernised rail mill. Rails
remained a key product for EVRAZ in 2013,
accounting for approximately 8% of the
Group’s total Russian steel product output.
In 2013, 917,000 tonnes of rails produced in
Russia were sold by the Company, including
765,000 tonnes in Russia and 152,000
tonnes in the CIS and Baltic countries.
EVRAZ supplied 615,000 tonnes of rails
to Russian Railways in the year, 15% more
than in 2012. At the same time, in 2013
Russian Railways imported almost 300,000
tonnes of rails mainly from Japan and Austria
as the EVRAZ ZSMK rail mill was ramping
up its production. EVRAZ aims to gradually
replace these imported volumes with its
own domestic product which benefi ts from
more competitive pricing and lower logistics
costs. EVRAZ has also signed a long term
contract to supply rails to the Moscow metro
which is expected to further enhance the
Company’s market position in Russia.
In 2013, EVRAZ’s market share for
railway wheels in the CIS increased by
4% to 29% compared to 2012. Wheel
sales amounted to 177,000 tonnes.
EVRAZ signed a long term contract with
the leading Russian rail car manufacturer
Uralvagonzavod for the supply of wheels.
The volumes to be delivered by EVRAZ
under the contract are expected to
mitigate any negative impact from the
contraction of the Russian railcar market.
In 2013, following receipt of international
certifi cations, EVRAZ supplied the fi rst
consignment of 4,000 wheels produced
in Russia to North America and expects
to continue and expand sales to the North
American market in 2014. In addition, a
trial batch of freight railway wheels will be
supplied to Deutsche Bahn in H1 2014.
Average price of EVRAZ’s Russian railway products
US$/tonne (ex works)
Railway products
2012
891
2013
852
48
EVRAZ plc Annual Report and Accounts 2013
Interview with Ilya Shirokobrod, Vice President, Railway business unit
GROWTH
Can your rails compete with
products made by other
international producers?
As a result of the modernisation programmes
which we have undertaken at our rail mills,
we can compete with the best rails of many
producers from around the world. We have
launched production of new products and had
them certifi ed both in Russia and in other
countries in the CIS and elsewhere. Also,
we recently held the EVRAZ International Rail
Committee where the Company’s Russian and
American specialists discussed a unifi ed
strategy for expanding production, improving
the quality of all types of railway products
and providing a wide range of services.
What other products except
rails can EVRAZ offer to
international clients?
In 2013, the fi rst 4,000 rail wheels produced
by EVRAZ NTMK were shipped to America.
NS Roanoke, an operator of class one
railroads in the USA, has also approved the
quality of EVRAZ’s wheels. We expect to
supply another 15,000–20,000 in 2014.
We have also received a number of European
certifi cates enabling us to start deliveries to
European markets and international buyers,
for example a TSI certifi cate for our BA318
wheels used on freight railcars, a preliminary
Deutsche Bahn certifi cate, and a certifi cate
for new types of locomotive wheels to be
supplied to General Electric.
What was the main
achievement of 2013
for EVRAZ’s Railway
business unit?
In 2013, we completed the large scale project
to reconstruct the EVRAZ ZSMK rail mill.
As a result, we now have the most advanced
rail production facilities in Russia. EVRAZ was
the fi rst in the country to receive a compliance
certifi cate for head-hardened R65 DT350 rails
with lengths of up to 100 metres, a unique
product in the market. These rails ensure
high performance and allow for more effi cient
maintenance and repair technologies. The
new hardening system improves the durability
of rails substantially and reduces railway
maintenance costs, as well as ensuring better
safety and speed. Launching the production
of head-hardened 100 metre rails lays the
foundation for the establishment of a high
speed railway system in Russia.
Is Russian Railways the only
buyer of your rails?
Russian Railways, which consumes up to
70% of the rails produced in Russia, is the
major and most important buyer of our rails
and we have long standing and mutually
advantageous relations with them. But we also
have other buyers of our railway products both
in Russia and other CIS countries and there is
great potential to enter other export markets.
In 2013 we also renewed compliance
certifi cates for the majority of the other rails
that we produce, as well as certifi ed and
expanded the market for our rail wheels to
ensure we meet our customers’ requirements
and railway transport safety regulation.
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EVRAZ plc Annual Report and Accounts 2013
49
IRON ORE: RUSSIA
EVRAZ KGOK
Evrazruda
EVRAZ’s key Russian iron ore mining assets (as of April 2014)
Fast facts
Operations/Assets
EVRAZ KGOK
Run of mine: 57 mtpa
Saleable products: 9.8 mtpa
Employees: 7,102 (2012: 7,389)
Ownership: 100% interest
Evrazruda
Run of mine: 11 mtpa*
Saleable products: 3.9 mtpa
Employees: 5,524 (2012: 8,496)
Ownership: 100% interest
• 3 open pits at Gusevogorskoye deposit
• Crushing, processing, sintering and
pelletising workshops
• Licence for development of Sobstvenno-
Kachkanarskoye deposit
• 3 iron ore mines:
– Tashtagol, Kaz, Sheregesh
(Kemerovo region)
• 1 processing plant:
– Abagursky (Kemerovo region)
• 1 limestone mine:
– Gurevsky (Kemerovo region)
*
Includes run of mine of discontinued operations
Note: Iron ore reserves as at 1 July 2013 under the JORC Code are given on page 213.
Products
• Sinter
• Pellets
• Crushed stone
• Iron ore concentrate
• Crushed stone
• Limestone
50
EVRAZ plc Annual Report and Accounts 2013
2012
2013
2013/2012,
change
55,478
56,762
2.3%
24
3,575
6,051
5,210
2,082
7
(70.8)%
3,538
6,301
5,315
2,032
(1.0)%
4.1%
2.0%
(2.4)%
60,688
62,077
2.3%
2,106
3,575
6,051
10,372
3,509
1,123
2,039
3,538
6,301
8,363
2,653
858
71,060
70,440
5,615
4,698
6,051
4,692
4,396
6,301
(3.2)%
(1.0)%
4.1%
(19.4)%
(24.4)%
(23.6)%
(0.9)%
(16.4)%
(6.4)%
4.1%
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EVRAZ’s Russian iron ore production
Product, ‘000 tonnes
EVRAZ KGOK:
Raw iron ore
Concentrate (for sale)
Sinter
Pellets
Evrazruda (continuing operations):
Raw iron ore
Concentrate
Total:
Raw iron ore
Concentrate
Sinter
Pellets
Raw iron ore
Concentrate
Sinter
Total (including discontinued operations):
Raw iron ore
Concentrate
Sinter
Pellets
Disposed operations (EVRAZ VGOK and EVRAZ's Mundybashsky processing plant and Teya, Abakan and Irba mines)*:
* VGOK was consolidated until 2 October 2013, Teya and Abakan iron ore mines of Evrazruda – until 26 December 2013, Evrazruda’s Irba iron ore mine – until 1 July 2013
Operational highlights:
In line with the Group’s strategic priorities,
the Iron ore: Russia business unit focused
on developing those large scale and low cost
operations that will support the effi cient vertical
integration of EVRAZ (for details please refer
to page 20). The operational and development
plans of all assets were thoroughly reviewed
during the year and revised based on their
ability to sustainably generate positive free
cash fl ow in the medium-term. Based upon
the results of this review, the Group’s Russian
iron ore assets were split into two groups: core
(EVRAZ KGOK, certain facilities of Evrazruda,
and the Sobstvenno-Kachkanarskoye project)
and assets subject to restructuring (Irba,
Abakan, Teya mines of Evrazruda; EVRAZ VGOK,
and the Mundybashsky processing plant).
Below is the description of key
developments in 2013:
• construction of a new tailings dump at
EVRAZ KGOK, which is required for safe
operation of the processing facilities,
progressed well. Meanwhile 3 years of the
operational life have been added to the
current tailings reservoir by feeding it with
a thickened pulp. Survey works were nearly
completed, major technical decisions
approved and a tentative contract for the
supply of major equipment concluded;
• the Sobstvenno-Kachkanarskoye deposit,
adjacent to the current mining operations of
EVRAZ KGOK, is an important project that
should secure the low cost position of this
asset for the long term. In 2013 the
Company fi nalised the project
documentation and received relevant state
approvals for the development of the
Sobstvenno-Kachkanarskoye deposit.
Following a thorough review of the options
for the deposit, management recalibrated
the development plans in order to mitigate
short term capital requirements while
preserving its long term investment case.
As a result, the timeline for development
works has been extended with the project
split into phases with initial production from
2018. The estimated capital expenditure
of the fi rst stage of the project is
US$150 million;
• a restructuring programme at Evrazruda was
launched with the aim of improving
operational effi ciency by shutting down and/
or disposing of uneconomic facilities,
improving productivity through headcount
reductions and the implementation of a
series of low cost projects with fast returns.
EVRAZ plc Annual Report and Accounts 2013
51
IRON ORE: RUSSIA
Continued
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
Implementation of an operational improvement
programme at EVRAZ KGOK
Mining volumes at EVRAZ KGOK increased
from 55.5 million tonnes to 56.8 million tonnes,
while output of saleable products reached 9.8
million tonnes vs. 9.7 million tonnes in 2012
2014 targets
To maintain full mining capacity utilisation
at EVRAZ KGOK
Finalisation of technical project documentation
for the development of the Sobstvenno-
Kachkanarskoye deposit
Technical project documentation was fi nalised
and a new phased development plan was
created to minimise initial capital requirements
To obtain necessary approvals and permits
covering technical aspects, land, environmental
and other issues
Commencement of work on EVRAZ KGOK’s
tailing dump
Survey completed and major technical details
for the project agreed; contracting work
launched
Environmental and state expert reviews will
be conducted to obtain permits and approvals
Restructuring of Evrazruda’s operations to
optimise production costs
The high cost operations of Evrazruda and
other iron ore assets were disposed of
To implement the expansion project at the
Sheregesh mine and establish a development
programme for the Abagursky processing plant
Complete conceptual studies on geology,
benefi ciation and infrastructure for the Timir
iron ore development project to defi ne
development options
The major elements of the programme in the
year were:
– the permanent closure of the high cost
Irba mine;
– the disposal to a local investor of the
Abakan and Teya iron ore mines, two
utilities companies and the
Mundybashsky processing plant for a
total cash consideration of RUB10 million;
Conceptual plan for Timir (development of
Taeozhnoye deposit) project was approved
To conduct a pre-feasibility study and evaluate
project fi nance options
– good progress on delivering the
Sheregesh expansion project to increase
raw iron ore production to 2.5 million
tonnes per annum from the current level
of 2.0 million tonnes by the end of 2014;
• in September 2013, EVRAZ disposed of the
EVRAZ VGOK operation for a consideration
of US$20 million, calculated on a debt free
basis. EVRAZ VGOK was the highest cost
operation in the Company’s iron ore mining
portfolio when accounting for transportation
costs to EVRAZ ZSMK.
In April 2013, EVRAZ acquired a 51% stake
in the Timir joint venture which holds licences
to four iron ore deposits in Southern Yakutia.
Given the challenging outlook for the global
iron ore market, in 2014 the Company intends
to conduct a thorough pre-feasibility study
to determine the project’s viability under
various macroeconomic scenarios and to
evaluate project fi nance options in order to
minimise balance sheet risks for EVRAZ.
Shipments of iron ore products in 2013
Product, ‘000 tonnes
EVRAZ KGOK
Pellets
Sinter
Evrazruda (including discontinued operations)
Concentrate
Purchased from the market:
Pellets
Sinter
Concentrate
Total*
* Excludes 36,000 tonnes of pellets from KGOK to EVRAZ DMZ Petrovskogo in Ukraine
52
EVRAZ plc Annual Report and Accounts 2013
EVRAZ NTMK
EVRAZ ZSMK
External sales
Russian
market
Export
markets
7,889
4,355
3,534
–
–
–
195
–
8,084
646
646
–
3,895
3,895
1,477
14
2,802
8,834
367
356
11
–
–
–
–
–
893
893
–
–
–
–
–
–
367
893
Interview with Marat Atnashev, Vice President, Iron ore business unit, Russia
ASSET OPTIMISATION
2013 production and sales
Production of saleable iron ore products
decreased by 6% in 2013 and amounted
to 15.4 million tonnes compared with
16.4 million tonnes in 2012.
In 2013, EVRAZ KGOK mined 57 million tonnes
of ore with an average Fe grade of 15.5%.
Total output of saleable products was 9.8
million tonnes, including 6.3 million tonnes
of pellets (61% Fe) and 3.5 million tonnes of
sinter (54% Fe). The key customers of EVRAZ
KGOK are EVRAZ NTMK and EVRAZ ZSMK,
which accounted for 88% of supplies, with
the remaining 12% sold externally. In order
to cut transportation costs and improve
profi t margins, sales to domestic customers
have been prioritised over export customers.
Domestic sales were 4% of total external
sales in 2013 compared to 1% in 2012 and
this positive trend is expected to continue.
In 2013, Evrazruda mined 10.2 million
tonnes of iron ore with an average Fe grade
of 30.9% which was used to produce 3.9
million tonnes of iron ore concentrate (61.6%
Fe), all of which was supplied to EVRAZ
ZSMK. The results include the volumes
of the Teya and Abakan mines, which will
continue to supply iron ore to EVRAZ on
market terms, but accounted for as external
purchases subsequent to their disposal.
In 2014, VGOK will also supply iron ore
products to EVRAZ ZSMK on market terms.
In October 2013, EVRAZ
announced the sale of its
oldest iron ore asset in the
Urals, EVRAZ VGOK. What was
the rationale for the disposal?
EVRAZ VGOK was developed to supply iron ore
to the EVRAZ NTMK steel mill also located in
the Urals region. However, once EVRAZ NTMK
switched to using only EVRAZ KGOK’s vanadium
containing iron ore products as feedstock in
2009, EVRAZ VGOK’s production was no longer
technically compatible with EVRAZ NTMK’s
steelmaking operations. As a result EVRAZ
VGOK sold its products mostly on the open
market and to EVRAZ ZSMK. The cash cost
of iron ore concentrate production at EVRAZ
VGOK is over US$100, amongst the highest
in the mining industry, and in the current
economic environment with decreasing
prices for iron ore EVRAZ VGOK’s operations
were unprofi table.
Why wouldn’t the Company
supply EVRAZ VGOK’s iron ore
to its EVRAZ ZSMK steel
operations?
Although EVRAZ ZSMK could use EVRAZ
VGOK’s production, it is situated a long way
from EVRAZ VGOK, in Siberia, Novokuznetsk,
Kemerovo region. This distance would
make supplies of EVRAZ VGOK’s iron ore
fi nancially unviable.
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What was the value of the
sale?
EVRAZ sold EVRAZ VGOK to NPRO URAL
for a US$20 million consideration, calculated
on a debt free basis.
What is the economic effect of
the EVRAZ VGOK’s disposal?
Management estimates the annualised
positive effect at US$16-17 million at current
spot prices.
Is EVRAZ going to cooperate
with the new owner of VGOK
in the future?
Yes. Simultaneous with the signing of the
VGOK sale agreement, we have signed a
three-year agreement for the supply of iron
ore concentrate from VGOK to EVRAZ ZSMK
on iron ore market terms, processing of
by-products on preferential terms and a
10-year agreement for VGOK to process
certain of EVRAZ NTMK’s by-products.
The new owner of VGOK is a large iron ore
producer in the Urals region and also works
closely with many steelmakers in the region.
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EVRAZ plc Annual Report and Accounts 2013
53
COAL: RUSSIA
Raspadskaya
Mezhegeyugol
Yuzhkuzbassugol
EVRAZ’s key Russian coal mining assets
Fast facts
Operations/Assets
Products
Yuzhkuzbassugol
Run of mine: 11 mtpa
Employees: 11,536 (2012: 14,768)
Ownership: 100% interest
Raspadskaya
Run of mine: 8 mtpa
Employees: 8,232 (2012: 8,231)
Ownership: 82% interest
Mezhegeyugol
Employees: 158
Ownership: 60.02% interest
• 6 coking coal mines:
– Abashevskaya
– Alardinskaya
– Yesaulskaya
– Osinnikovskaya
– Uskovskaya
– Yerunakovskaya VIII
• 1 steam coal mine:
– Kusheyakovskaya
• 3 coal washing plants:
– Abashevskaya
– Kuznetskaya
– EVRAZ ZSMK coal washing plant
(part of EVRAZ ZSMK)
• 3 underground mines:
– Raspadskaya
– Raspadskaya-Koksovaya
– MUK-96
• 1 open-pit mine: Razrez Raspadsky
• 1 coal washing plant
• Hard and semi-hard coking coal (grades Zh,
GZh and KS under Russian classifi cation)
• Steam coal (grades G under Russian
classifi cation)
• PCI coal*
• Hard coking coal (grade K under Russian
classifi cation)
• Semi-hard coking coal (grades GZh, KO
under Russian classifi cation)
• Semi-soft coking coal (grade GZhO under
Russian classifi cation)
• 2 deposits
• Hard coking coal (grade Zh under Russian
– Mezhegey coal deposit
– Eastern fi eld of the Western part of the
Ulug-Khemsky coking coal deposit
classifi cation
* A wide range of coals can be used in PCI, including steam coal which has lower carbon content than coking coal.
Note: Coking coal reserves as at 1 July 2013 under the JORC Code are given on page 212.
54
EVRAZ plc Annual Report and Accounts 2013
EVRAZ’s Russian coal production
Product, ‘000 tonnes
Yuzhkuzbassugol
Raw coking coal (mined)
Raw steam coal (mined)
Coking coal concentrate (production)
Steam coal concentrate (production)
Raspadskaya
Raw coking coal (mined)
Coking coal concentrate (production)
EVRAZ ZSMK coal washing plant
Coking coal concentrate (production)
Total
Raw coking coal (mined)
Coking coal concentrate (production)
Raw steam coal (mined)
Steam coal concentrate (production)
2012*
2013
2013/2012,
change
8,506
2,283
4,102
421
7,002
4,506
11,110
1,432
5,821
99
7,824
5,252
31%
(37)%
42%
(76)%
12%
17%
2,375
2,591
9%
15,508
10,983
2,283
421
18,934
13,664
1,432
99
22%
24%
(37)%
(76)%
* 2012 data for Raspadskaya is on a pro forma basis, as Raspadskaya is consolidated in the results of EVRAZ from 16 January 2013
Performance of EVRAZ’s coal washing plants in 2013
‘000 tonnes
Abashevskaya
Kuznetskaya
Raspadskaya*
ZSMK coal washing plant
Total
Max raw coal
throughput
(capacity)
3,600
5,800
10,600
5,000
25,000
Total raw coal
processed, 2013
Capacity
utilisation, 2013
Raw coking coal
processed, 2013
Output of coking
coal concentrate,
2013
Preparation yield
for coking coal
2,120
5,411
7,284
4,061
18,876
59%
93%
69%
81%
76%
2,089
5,319
7,284
4,061
1,501
3,474
5,252
2,591
18,753
12,818
72%
65%
72%
64%
68%
* Underloaded in 2013 due to lack of own raw coal in suffi cient quantity and a lack of technical ability to enrich third party raw coal
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EVRAZ plc Annual Report and Accounts 2013
55
COAL: RUSSIA
Continued
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Ramp-up of the Yerunakovskaya
VIII mine and production of 1.4 million tonnes
of coking coal
Maintaining and developing the mining
capacity of coking coal mines – Uskovskaya,
Osinnikovskaya, and Alardinskaya while
implementing innovative technologies
Integration of the Raspadskaya business
Grow coal production at Raspadskaya
by approximately 40% compared to 2012
The mine launched ahead of schedule and below
budget with production targets exceeded
To reach full mining capacity of 2.5 million
tonnes of coking coal per annum
Production at Uskovskaya mine increased by
12% year-on-year, at Alardinskaya mine by 91%
Certain management functions were unifi ed and
merged (fi nancial reporting, headcount and
salary budgeting processes)
Actual production in 2013 was 7.8 million
tonnes (+12%) due to the temporary suspension
of mining at the Raspadskaya underground mine
To complete integration of Raspadskaya
To increase coal production at Raspadskaya by
up to 40% compared to 2013 depending on the
performance of the Raspadskaya underground
mine
Continuation of the Raspadskaya mine
reconstruction programme
A summary of works performed on the
restoration of the mine is provided on page 57
Increase Raspadskaya’s export coal
concentrate sales to 35% of total sales
In 2013 export deliveries comprised 37% of
total sales
To enhance EVRAZ’s sales expertise in the
domestic and international coking coal markets
Realisation of Mezhegey Project Phase I with
fi rst coal expected by the end of 2013
Mining works began in December 2013
Operational highlights:
• the Yerunakovskaya-VIII mine was launched
in February 2013 ahead of schedule and
below budget. This coking coal mine has a
nameplate capacity of 2.5 to 3 million
tonnes per annum with an estimated cash
cost of US$40 per tonne of raw coal, one of
the lowest among CIS underground coal
mines. The second longwall at the mine was
launched in February 2014 and
Yerunakovskaya-VIII will ramp up to full
capacity this year;
• coking coal at the Alardinskaya mine was
mined with two longwalls that allowed EVRAZ
to increase production to 3.3 million tonnes
of KS grade coking coal in 2013;
• tunnelling and further preparation works
were suspended at the Abashevskaya coking
coal mine with a view to close the mine in Q1
2014 due to high operating risks (large
concentration of underground waters) and
elevated production costs. The shutdown is
in line with the Company’s plan to increase
production effi ciency and reduce costs at
Yuzhkuzbassugol;
• EVRAZ purchased a controlling interest in
the Raspadskaya coal company, one of
Russia’s largest coking coal companies, and
started the process of integrating
Raspadskaya into the EVRAZ business
structure. Certain management functions
were unifi ed and merged. The integration will
continue in 2014;
• EVRAZ decided to divest its steam coal
business and sold the Gramoteinskaya
steam coal mine, as part of the company-
wide programme of asset portfolio
optimisation and disposal of non-performing
and non-core assets;
• mining works at the Mezhegey coking coal
deposit in the Republic of Tyva commenced
with the fi rst coal mined in December 2013;
• the Company undertook a programme to
improve degassing at the Yuzhkuzbassugol's
mines to minimise the risk of explosions and
fi res and to increase productivity.
To mine 0.3 million tonnes of coking coal at the
Mezhegey deposit
To continue optimisation of the asset portfolio
(for details please refer to page 21)
2013 production and sales
Yuzhkuzbassugol
Yuzhkuzbassugol mined 11.1 million tonnes
of coking coal in 2013, a 31% increase over
2012 volumes. The major contributors to
this increase were: the launch of a second
longwall at the Alardinskaya mine with the
mine’s total output almost doubling (3.3 million
tonnes of coal mined in 2013 compared to
1.8 million tonnes in 2012); the ramp-up of
the Yerunakovskaya VIII mine (1.4 million
tonnes); and increased productivity at the
Uskovskaya (2.4 million tonnes in 2013 vs.
2.1 million tonnes in 2012) and Yesaulskaya
(1.8 million tonnes in 2013 vs. 1.5 million
tonnes in 2012) mines. Meanwhile the growth
plans of the Osinnikovskaya mine were
hampered by a tragic accident and a month
long suspension of production at the mine.
In 2013, steam coal production amounted
to 1.4 million tonnes, 37% less than in
2012, primarily due to the curtailment of
production at the Gramoteinskaya mine
56
EVRAZ plc Annual Report and Accounts 2013
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following the suspension of operations at
the end of 2012 and the mine’s subsequent
disposal in October 2013. The disposal of the
Gramoteinskaya mine was in line with EVRAZ’s
plan for divesting non-performing assets.
In 2013 a SAP ERP management system
trial started at Yuzhkuzbassugol. The
system allows for the automation of most
of the basic functions of the mine relating
to fi nance and accounting, logistics, supply
and material requirements planning and the
cost of repairs. The project allows a single
SAP template to be applied to all EVRAZ's
mining operations, providing the Company
with more accurate information and enhancing
existing systems. In the reporting period
most of the modules were implemented
across the mines and washing plants with HR
module scheduled for introduction in 2014.
The Company expects to maintain
Yuzhkuzbassugol’s mining volumes at
approximately 10 million tonnes of coal in 2014.
Raspadskaya
The following initiatives were undertaken as
part of the integration of the Raspadskaya coal
company into EVRAZ’s operational model:
• unifi cation of HSE programmes, including a
combined HSE policy, a system for reporting
warnings and the development of a
comprehensive audit programme;
• implementation of a common HR policy;
• centralisation of the fi nancial reporting and
accounting function, while the budgeting
process was brought in line with EVRAZ’s
standards including with regards to capital
expenditures;
• a sales and marketing policy for EVRAZ and
the Raspadskaya coal company was
developed for the Russian Federal
Antimonopoly Service.
In 2013, Raspadskaya’s raw coking coal output
increased by 12% to 7.8 million tonnes. This
positive result was achieved despite a 1.3
million tonnes, or 48%, decline in production
compared to 2012 levels at the Raspadskaya
underground mine. The decline was the result
of production being suspended in May-June
2013 due to excessive carbon monoxide levels
in one part of the mine. Having completed
the necessary actions to rectify the situation,
underground mining operations at Raspadskaya
restarted on 5 July 2013 and a new longwall
was launched on 25 December 2013.
Lower output at the Raspadskaya underground
mine was offset by higher (+1.7 million tonnes,
or 75%) production volumes at the Razrez
Raspadsky open pit which ramped up its
production to target levels and extracted over
4.0 million tonnes of coking coal in the year.
The Raspadskaya-Koksovaya mine increased
its production by 30% compared to 2012
reaching 0.9 million tonnes. The MUK-96 mine
increased production by 0.2 million tonnes
achieving total production of 1.5 million tonnes.
Annual production of coking coal
concentrate increased by 17% due to
higher raw coal mining volumes. In 2013,
the concentrate output ratio at the
Raspadskaya preparation plant was 72.1%.
Restoration works at the Raspadskaya
underground mine damaged in 2010 as a
result of series of explosions continued:
• mine paths and tunnels were cleared, with
the work to be continued in 2014;
• a ventilation shaft of the block #4
(“Glukhaya”) was rebuilt and will be put into
operation in 2014;
• approximately 80% of the scheduled mining
works required for commissioning new
longwalls in 2014 were completed.
The Company continues to explore the potential
to unlock additional value in combination
with the legacy assets of Yuzhkuzbassugol.
Mezhegeyugol
In 2013, design documentation for the
Mezhegey project was enhanced and state
permits for construction of the mine were
obtained. A preliminary coal quality report was
also prepared. The facilities necessary to begin
mining operations under the fi rst phase of the
project were installed and two sets of room
and pillar mining equipment were delivered.
At the end of 2013 mining works started with a
mining plan of 300,000 tonnes of coal in 2014.
Capital expenditures for the project amounted
to US$54 million (excluding licence costs)
in 2013. An additional US$76 million is
expected to be invested in 2014.
In 2013, consumption of coking coal
concentrate by EVRAZ’s plants amounted to
7.7 million tonnes. External sales amounted
to 6.1 million tonnes, including 3.6 million
tonnes shipped to Russian consumers and
2.5 million tonnes sold in export markets.
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EVRAZ plc Annual Report and Accounts 2013
57
COAL: RUSSIA
Continued
In 2013, Yuzhkuzbassugol sold 8.2 million
tonnes of coal products, including 4.6
million tonnes of raw coking coal and 3.6
million tonnes of coking coal concentrate.
0.8 million tonnes of raw coking coal
were sold to the market and 3.8 million
tonnes were shipped to EVRAZ plants.
EVRAZ’s Russian and Ukrainian steel mills –
EVRAZ ZSMK, EVRAZ NTMK and EVRAZ DMZ
Petrovskogo – remained Yuzhkuzbassugol’s
key customers in 2013. Intragroup deliveries
by Yuzhkuzbassugol accounted for 65% of its
total sales. In 2013, long-term contracts with
Mechel, Severstal, KemerovoKoks and some
others were signed for the supply of coal from
Yuzhkuzbassugol as well as from Raspadskaya.
In 2013 Raspadskaya coal company’s
sales volumes of coking coal concentrate
amounted to approximately 5.1 million tonnes,
an 18% increase compared to 2012. 3.0
million tonnes, or 58% of all concentrate
was sold to customers in Russia, 0.6
million tonnes, or 11% was sold to Ukraine,
with 1.6 million tonnes, or 31% of the
total directed to the Asia-Pacifi c region.
The price of coking coal in the Russian
domestic market remained fl at in H1 2013,
despite downward pressure from global
steel markets. However, due to continuing
weak steel industry fundamentals, domestic
coal prices declined in H2 2013.
58
EVRAZ plc Annual Report and Accounts 2013
Interview with Sergey Stepanov, Vice President, Coal business unit, business unit Russia
LABOUR SAFETY AND EFFICIENCY
What were the other initiatives
in 2013 to reduce costs and
increase effi ciency?
In line with the Company wide plan to optimise
our asset portfolio and divest non-performing
operations, we have concluded that the steam
coal mining business is non-core and sold one
of our two steam coal mines, Gramoteinskaya.
What were the Coal division’s
main achievements in 2013?
There were a number of signifi cant
achievements in 2013 which I would like to
highlight – the launch of the Yerunakovskaya
VIII mine, the acquisition of the Raspadskaya
coal company, continued works on the
restoration of the Raspadskaya underground
mine and the launch of coal mining at the
Mezhegey project.
What was the focus of the Coal
Division in 2013?
In the past few years attitudes to labour safety
have been changing. We have now created a
culture across our operations of zero tolerance
of unsafe working conditions. We have begun a
programme to increase safety by making
management personally responsible and
accountable for implementing and supervising
labour safety principles. All employees get
involved in the programme and undergo training
on how to work safely. We pay special attention
to issues such as monitoring gas levels,
maintenance, transportation safety, electrical
safety and additional precautions when
performing dangerous works.
Are the safety and effi ciency
programmes which EVRAZ is
implementing interrelated?
Yes, they are. To give you an example: as safety
has become our top priority, we decided to stop
mining works at the Abashevskaya mine. It is
the ultimate solution of all safety issues, and
we have adopted a series of initiatives,
including job placements of the released miners
at the Company’s other mines, to ensure social
issues are managed appropriately. The main
argument in favour of shutting the mine was the
high risk of fl ooding due to large underground
water accumulation. Unfortunately, we had an
accident with a mine fl ood at another mine in
March 2013 that resulted in four fatalities. Our
aim, therefore, has been to prevent similar
accidents in the future. Aside from the labour
safety risk, the Abashevskaya mine is one of
the oldest mines in the Kuzbass area and cash
costs are approximately twice as high as the
current market price which makes operations
uneconomic in current market conditions.
STEEL: NORTH
AMERICA
EVRAZ Calgary
EVRAZ Red Deer
EVRAZ Camrose
EVRAZ Regina
EVRAZ Portland
EVRAZ Pueblo
EVRAZ’s key North American steelmaking assets (as of April 2014)
Fast facts
EVRAZ North America
Capacity:
• Crude steel*: 2.6 mtpa
• Flat-rolled products: 2.3 mtpa
• Tubular products: 2.2 mtpa
• Long products: 900 ktpa
Employees: 4,240 (2012: 4,599)
Ownership: 100% interest
Operations
• Flat product group:
– Portland, Oregon
– Regina, Saskatchewan
– Claymont, Delaware (currently suspended)
• Tubular product group:
– Portland, Oregon
– Calgary, Alberta
– Red Deer and Camrose, Alberta
– Regina, Saskatchewan
– Pueblo, Colorado
• Long product group:
– Pueblo, Colorado
Products
• Flat products: steel plate, coil and structural
tubing used in the construction of liquid
storage tanks, vessels, bridges, rail cars,
armour; coil and plate used in
manufacturing of goods by the tubular
products group
• Tubular products: steel pipes including large-
diameter American Petroleum Institute (API)
grade pipes used for oil and gas pipelines
and small-diameter API grade welded and
seamless pipes for use in down-hole drilling
and in the collection of oil and gas application
• Long products: railroad rail and rod & bar
used to make wire products; round billets
used in the production of other long products
and goods by the tubular products group
* Hereinafter excludes capacity of suspended Claymont steel mill and includes the updated capacity at other North American steel mills.
EVRAZ’s North American steel production
Product, ‘000 metric tonnes
Crude steel
Steel products, net of re-rolled volumes
Flat products group
Tubular products group
Long products group
Construction products
Railway products
2012
2,411
2,662
968
872
331
491
2013
2012/2013, change
2,180
2,760
990
927
348
494
(10)%
4%
2%
6%
5%
1%
EVRAZ plc Annual Report and Accounts 2013
59
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STEEL: NORTH AMERICA
Continued
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Increase steel billet production capacity at
EVRAZ Pueblo by 52,000 tonnes in 2013
and improve conversion costs
Yields have improved and EVRAZ Pueblo has the
capability to consistently cast high carbon billets
with capacity increased by approximately
50,000 tonnes
To increase steelmaking volumes at EVRAZ
Pueblo by 5% to 1.2 million tonnes
Flat products: grow capacity, lower cost
positions and improve operational stability
Capacity increases were postponed due to
uncertainties in the Canadian market and
constrained capex. Conversion costs per tonne
of saleable product decreased by 3%
To develop the fl at products group to capture
incremental demand created by LNG
liquefaction terminal projects on the West
Coast
Tubular products: further focus on areas
critical for profi tability (productivity, fi rst
pass yield, working capital management)
Tubular products: start of major capital
projects in heat treating and threading
Progress achieved in reducing overhead costs
as well as improving conversion costs on large
diameter pipes vs. 2012. However, improvements
to yields and operational stability of mills were
behind plan
The second premium threading line for OCTG
pipe at EVRAZ Red Deer was commissioned,
doubling capacity
Long products: improvements in rail quality
and ramp-up of EVRAZ Pueblo’s capacity
to 526,000 tonnes of rails per annum
Equipment upgrades were commissioned, a new
product technology centre was established
Yields and operational stability to remain
the highest priority for 2014
To fully utilise EVRAZ Red Deer’s premium
threading capacity and to expand the range of
OCTG premium and semi-premium connections
in order to provide clients a full range of
products
To launch a new welding technology and
to expand production of the Pueblo rail mill
to 526,000 tonnes (by 10%)
To introduce new rod & bar products
EVRAZ North America is a leading steel
manufacturer in the United States and Canada.
The business of EVRAZ North America is
organised into three primary divisions: fl at
products, tubular products and long products.
Operational highlights:
1. Update on key development projects:
• EVRAZ North America launched a
programme to rationalise its asset portfolio
as part of EVRAZ’s strategy on asset
optimisation and cost improvements:
– operations at the Claymont facility were
suspended as a result of soft market
conditions. The Company is currently
studying strategic options for this mill;
– the Company sold its cut-to-length facility
in Surrey, as EVRAZ had excessive
capacity in this region. Clients will be
served from EVRAZ Portland and Regina
facilities.
• The Long products division progressed with
two key organic growth projects at the
EVRAZ Pueblo facility with the aim of
expanding steelmaking and rail mill
capacities along with improving product
quality:
– upgrades to EVRAZ Pueblo’s steelmaking
operations were completed, resulting in
improved yields, and improved ability to
consistently cast high carbon billets to
support the next generation of rail and
rod products;
– EVRAZ Pueblo also received the “Best
Operational Improvements Award” for
Steel Excellence at the AMM Steel
Success Strategies conference in
recognition of its operational
achievements, especially at the rail mill
facility (as described below).
• The OCTG segment of the Tubular products
division commissioned a second premium
threading line at EVRAZ Red Deer doubling
premium threading capacity on time and
within budget. The facility is expected to
achieve full utilisation in 2014 and is a key
element of the Company’s overall OCTG
strategy. The implementation of this project
will further strengthen the Company’s
market position in the premium segment.
EVRAZ will continue to expand OCTG heat
treatment capacity in Western Canada to
target the high margin alloy pipe market,
which has seen high growth rates as a result
of the rapid development of Alberta oil sands
and US shale drilling.
• The Camrose DSAW line and Portland spiral
mills were restarted, having undergone
quality and yield upgrades further
strengthening our market position in the
Large diameter segment of the Tubular
products division.
• The planned increase to steelmaking
capacity in Regina was postponed due to
uncertainties in the Canadian fl at steel
market and the decision to optimise capex
across the Company.
2. Cost optimisation initiatives:
• In 2013, lean initiatives were launched at all
product divisions aimed at improving yields,
conversion costs and production volumes.
– conversion costs per tonne decreased by
3% on average in the Flat product division
to US$217 per tonne;
– efforts at the Regina spiral mill resulted in
over 20% fi rst pass yield improvements
and 5% improvements in yield;
– sound progress was made in the Tubular
product group: improved large diameter
pipe yields supported a more than 5%
conversion cost reduction vs. 2012.
In addition, in 2013 an overtime
reduction project contributed US$10
million of savings vs. 2012.
2013 production and sales
Volumes increased across all product groups
compared to 2012 despite unplanned
downtime in Q1 and Q3 of 2013 related
mainly to electrical failures and caster
break-outs. Maintenance procedures
60
EVRAZ plc Annual Report and Accounts 2013
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and controls are being adjusted to
prevent a recurrence of these issues.
EVRAZ North America's average prices
US$/tonne (ex works)
Construction products
Railway products
Flat-rolled products
Tubular products
America plans to expand the range of OCTG
Premium and Semi-Premium connections
to offer full range of sizes to clients.
Flat product division
Production of fl at-rolled products by EVRAZ
North America remained largely unchanged in
2013 at 990,000 tonnes. This performance
was achieved despite heavy pricing pressure
from imports and domestic suppliers of
commodity grades during most of 2013 and
the suspension of the EVRAZ Claymont mill
in Q4 2013. The fl at product group intends to
focus on developing its capabilities to capture a
large share of the incremental demand created
by the installation of new LNG liquefaction
terminal projects on the West Coast.
Sales volumes and prices
EVRAZ North America’s total sales showed
a decrease of approximately 2% compared
to 2012 driven by unplanned stoppages in
Pueblo and Regina as well as competition
from imports. Aggressive importing into North
Long product division
In the Long product division, EVRAZ undertook
upgrades to the rail mill at EVRAZ Pueblo to
improve the quality of premium rail production
to meet industry leading standards with a
particular focus on advanced automated
inspection systems, improved end straightness
and better head hardening capabilities.
A new product technology centre was
established, staffed with scientists, engineers,
metallurgists, and equipped with a state-
of-the-art lab to enable advanced internal
testing and the accelerated development
of next-generation products. Annual rail
mill capacity rose by 10% from 475,000
metric tonnes to 526,000 tonnes, while
output reached 494,000 tonnes in 2013.
The primary goal of EVRAZ’s North American
rail segment in 2014 is to launch new
welding technology, which will improve
weld life, therefore reducing total life cycle
costs and improving safety for customers.
Continuous work on product quality,
operational costs and new client services
is also expected to improve margins.
The rod and bar mill at EVRAZ Pueblo
increased its production rate by approximately
6% compared to 2012, while signifi cantly
extending the Group’s product offering.
Tubular product division
EVRAZ enjoys a leading market share in North
America due to strong customer relationships,
multiple plant footprint, favourable geographic
locations and Made in Canada labelling for
further development of its large diameter
pipe business. 2013 was a successful year
for large diameter pipes with volumes more
than doubling vs. 2012 and the Company
achieved its highest historical shipments
across an increased product range. The
Portland and Camrose large diameter mills
were restarted to meet additional demand.
Demand for large diameter pipes is expected
to remain driven by new export terminals
and associated pipelines and sustainable
oil pipeline demand from Canada.
Small diameter OCTG production at the
lower end of the market was impacted by
intense competition from imports causing
pricing declines and the commoditisation of
low-end products. Shipments of OCTG pipes
were in line with 2012 volumes. To meet
market demand from horizontal, directional,
and unconventional drilling, EVRAZ North
2012
843
987
1,019
1,497
2013
764
932
860
1,318
American markets has led to the initiation
of a trade action against nine countries
by the United States Federal Government
which may result in the introduction of anti-
dumping measures against producers from
certain countries (Vietnam, Thailand, India
etc.). The fi nal determinations by the US
Department of Commerce in respect of the
countries involved are due on 7 July 2014.
In 2013, EVRAZ North America sold almost
40,000 tonnes of new products, including rod
& bar, rails and tubular premium products, e.g.
QB1-HT, a new semi-premium connection.
The competitive conditions described above
adversely infl uenced the Company’s sales mix
and spread. This negative impact was, however,
offset with operational improvements and the
introduction of new products to the market.
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EVRAZ plc Annual Report and Accounts 2013
61
STEEL: NORTH AMERICA
Continued
Interview with Pavel Tatyanin, Senior Vice President, International business
ACCOMPLISHMENTS OF THE INTERNATIONAL BUSINESS UNIT
An LNG (liquefi ed natural gas) pipeline between
Canada and Portland is already in the works
and EVRAZ is best positioned to benefi t from
the development of LNG as it is a reliable pipe
supplier with a solid reputation.
OCTG, or small diameter pipes, including drill
pipes, pipe casings and oil pipes, are another
segment that is set for growth. Based on the
location of our assets, we expect demand for
OCTG to come from oil and gas producers in the
Dakotas, West Canada and Colorado; for them,
a shortage of OCTG is currently a major
production-limiting factor.
Demand for fl ats is driven both internally, by
our growing pipe production volumes, and
externally, by the demand coming from railway
tank makers.
What will you focus on to
ensure growth of the business
in North America?
While we have a fi rm foothold in those regions,
we must not lose our focus: improving product
quality is key to sustaining and growing our
presence. Speaking of pipe quality, for example,
today, unfi nished “green pipe” is a major part of
our sales. To change that and add more value,
we are set to grow our fi nishing capacities.
A heat treatment line is under way in Alberta;
our premium connection offering is good and
we will build on that technology further.
What were the achievements
of the International division
in 2013?
In Calgary, heat-treated pipe production
volumes hit an all-time high of 7,400 tonnes. In
Regina, December 2013 saw an all-time
monthly record in fl ats production. In Ukraine,
at DMZ Petrovskogo, last year they posted a
21% year-on-year steel production increase
– despite all the hardships the plant has seen.
At EVRAZ Highveld, January of 2014 has been
the best month over the last 3 and a half years
– thanks to a huge internal effort against the
background of a growing market.
What is the market
environment in North America
and how does it affect EVRAZ
North America’s business?
Although EVRAZ North America is commonly
perceived solely as a steel-making company,
we increasingly benefi t from the North American
oil and gas renaissance. Our large diameter
pipe assets are the most direct and obvious
benefi ciaries. Performance in the previous two
or three years was good, with solid demand
and well utilised capacities and we are well
positioned to have yet another good year in
2014.
62
EVRAZ plc Annual Report and Accounts 2013
STEEL: EUROPE
EVRAZ Palini e Bertoli
EVRAZ’s key European steelmaking assets
Fast facts
EVRAZ Palini e Bertoli
Capacity: 450 ktpa of steel products
Employees: 133 (2012: 141)
Ownership: 100% interest
Operations
Rolling mill
Products
Plate
EVRAZ’s European steel production* (EVRAZ Palini e Bertoli)
Product, ‘000 tonnes
Flat-rolled products
2012
417
2013
230
2012/2013,
change
(45%)
* Steel production numbers exclude EVRAZ Vitkovice Steel, which was classifi ed as asset held for sale during the year
Due to unfavourable market conditions EVRAZ decided to temporarily suspend operations at EVRAZ Palini e Bertoli's plate mill from 20 August 2013.
The Company will closely monitor developments in the European plate market and any further decisions on re-opening the mill will be subject to
prevailing market conditions.
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EVRAZ plc Annual Report and Accounts 2013
63
STEEL: UKRAINE
EVRAZ Bagliykoks
EVRAZ DMZ Petrovskogo
EVRAZ’s key Ukrainian steelmaking assets
Fast facts
EVRAZ DMZ Petrovskogo
Capacity: 1.2 mtpa of crude steel
Employees: 5,913 (2012: 6,141)
Ownership: 96.78% interest
EVRAZ Bagliykoks
Capacity: 747 ktpa
Employees: 1,484 (2012: 1,488)
Ownership: 94.37% interest
Operations
• Steel plant:
– Blast furnaces
– Basic oxygen furnaces
– Rolling and blooming mills
• Coke plants
Products
• Billet
• Specialty construction products
• Specialty fl at products
• Coke
EVRAZ’s Ukrainian steel production*
Product, ‘000 tonnes
Crude steel
Steel products
Semi-fi nished products
Finished products
Construction products
Other steel products
Coke (saleable)
* Numbers can be different from the published earlier due to minor alterations in calculations
2012
820
702
244
458
357
101
913
2013
2012/2013, change
995
854
359
494
407
87
788
21%
22%
47%
8%
14%
(13)%
(14)%
64
EVRAZ plc Annual Report and Accounts 2013
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Commence approved investment programme
at EVRAZ DMZ Petrovskogo (PCI, power plant,
mill 800, furnace of mill 550, sinter screening)
Investment programme initiatives underway
with engineering solutions developed and tender
procedures completed
Continuing efforts towards higher volumes of
water recycling at EVRAZ DMZ Petrovskogo
Equipment was installed with feasibility study
and water audit procedures launched as part
of the water recycling project
To implement the modernisation of mill 800;
to complete the technical design of sinter
screening installation; to complete the technical
design of a reheat furnace reconstruction at
mill 550
To reduce wastewater discharges by 9 million
cubic tonnes per year starting from 2014
Completion of the ecological project at EVRAZ
Bagliykoks to reduce water discharges
Construction works were completed to
reconstruct the heat station demineraliser plant
To commission the modernised heat station
demineraliser plant
Further operational improvements and
installation of a pilot automated system for
environmental monitoring at EVRAZ Bagliykoks
The project was postponed until 2014 because
of delays in integration of the municipal system
To commission one automated environmental
monitoring post
To reach the average daily production of 3 kt of
pig iron at EVRAZ DMZ Petrovskogo
To become profi cient in the production and sale
of new steel profi les at EVRAZ DMZ
Petrovskogo
To implement the project to debottleneck mill
1050 to produce higher margin long billets
(instead of short billets)
at EVRAZ Bagliykoks aimed at reducing
the amount of return water discharge,
with operations to be started in 2014.
The implementation of the automated
environmental monitoring system at
EVRAZ Bagliykoks announced in 2013 was
postponed till 2014 when the automated
monitoring post starts its operation.
Currently, monitoring is carried out
manually in line with legal requirements.
Sales of construction steel to Russia amounted
to 164,000 tonnes, and an additional 155,000
tonnes were sold to customers outside the CIS.
Average selling prices for most steel products
in 2013 decreased due to the continuing
price declines in global steel markets.
2013 production and sales
In 2013, EVRAZ DMZ Petrovskogo produced
995,000 tonnes of crude steel and 854,000
tonnes of steel products. The increase
in production volumes was the result of
increased blast furnace effi ciency following
a number of operational improvements
in the melting process, improved coke
quality and less downtime for repairs.
The Company aims to increase the share of
higher value added products in its product
portfolio. In 2013, several new product lines, in
particular construction profi les for the European
market, were designed and launched at EVRAZ
DMZ Petrovskogo with sales totaling 80,000
tonnes. In 2014, the production team plans to
become profi cient at making seven new profi les
of auto rims to be sold in the Russian market.
EVRAZ DMZ Petrovskogo increased
consumption of intragroup coal in its coke
production from 49% to 66%, whilst also
improving the quality of coke and consequently
increasing the productivity of its blast furnaces.
In 2014, work to stabilise the blast furnace
operation will continue with the aim of lifting
average daily production to 3,000 tonnes of pig
iron by securing a stable supply of high quality
coke and thus leading to effi ciency gains.
Following the optimisation programme and
a greater focus on increasing in-house
consumption of steelmaking materials,
EVRAZ Bagliykoks reached its highest
level of coke oven battery utilisation in
the last 5 years, at 97% in 2013.
During 2013, 90% of construction works
were implemented for the ecological project
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Additionally, EVRAZ DMZ Petrovskogo’s blast
furnace shop eliminated the consumption
of natural gas using a “zero gas melting
process”. As a result production costs
were reduced by replacing more expensive
natural gas with less costly metallurgical
coke. Consequently cash costs of saleable
steel products decreased by 11% in 2013
to US$600/t from US$674/t in 2012.
Implementation of the PCI project at EVRAZ
DMZ Petrovskogo continues on schedule
and in line with budget with investments of
US$0.8 million in 2013. A feasibility study was
completed with key contractors identifi ed.
Average selling prices of EVRAZ Ukraine
US$/tonne (ex works)
Coke
Pig iron
Steel products
Semi-fi nished products
Construction products
Other steel products
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213
356
465
600
878
2012
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337
524
646
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EVRAZ plc Annual Report and Accounts 2013
65
IRON ORE: UKRAINE
EVRAZ Sukha Balka
EVRAZ’s key Ukranian iron ore mining assets
Fast facts
Operations
EVRAZ Sukha Balka
Run of mine: 3.0 mtpa
P&P reserves: 86 million tonnes*
Employees: 4,199 (2012: 4,248)
Ownership: 99.42% interest
• 2 underground mines:
– Yubileynaya
– Frunze
Products
• Lump ore
* As of 1 July 2011 under the JORC Code
Iron ore production by EVRAZ in Ukraine
Product, ‘000 tonnes
Lump ore
2012
2,608
2013
2012/2013, change
2,973
14%
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Implement electrical safety programme
The programme was implemented and its scope
increased
To complete programme implementation
reaching the target of removing 50% of
electrical networks below the surface
To start extraction of blast furnace iron ore
with Fe content of 63%
Operational highlights:
Key operational highlights at EVRAZ
Sukha Balka during 2013 include:
• total lump ore production in 2013 was 3
million tonnes, a 14% increase compared to
2012 as a result of mine debottlenecking
programmes;
ore can be fed directly into the blast furnace
bypassing the sintering stage);
• the electrical safety programme was
implemented and the scope extended with
12 diesel locomotives purchased to replace
underground electrical networks.
deliveries of 17% to the Yuzhny Mining
and Enrichment Plant and EVRAZ DMZ
Petrovskogo. There were also export
shipments to customers outside of Ukraine
by rail and sea (38% of total output).
As of 1 July 2011, total proven and probable
reserves under the JORC Code were estimated
at 86 million tonnes with Fe grade of 57%.
• a technical feasibility study was conducted
to assess the possibility of extracting blast
furnace ore with a Fe content of 63% (the
2013 production and sales
EVRAZ Sukha Balka’s domestic sales
amounted to 62% of production, including
66
EVRAZ plc Annual Report and Accounts 2013
VANADIUM
EVRAZ Vanady Tula
EVRAZ Nikom
EVRAZ Stratcor
EVRAZ Vametco
EVRAZ Highveld Steel and Vanadium
EVRAZ’s key vanadium assets
Fast facts
Operations/Assets
Products
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EVRAZ Vanady Tula (Russia)
Capacity:
• 7,350 mtV of V2O5:
• 5,000 mtV of FeV
Employees: 657 (2012: 672)
Ownership: 100% interest
EVRAZ Nikom (Czech Republic)
Capacity: 4,845 mtV of FeV
Employees: 53 (2012: 48)
Ownership: 100% interest
EVRAZ Stratcor (USA)
Employees: 84 (2012: 95)
Ownership: 78.76% interest
EVRAZ Vametco (South Africa)
Capacity:
• 3,600 mtV of V2O3
• 3,000 mtV of Nitrovan®
Employees: 412 (2012: 440)
Ownership: 66.95% effective interest
• Hydrometallurgical shop (V2O5 production);
• Electrometallurgical shop (FeV production)
• Vanadium pentoxide (V2O5)
• Ferrovanadium (FeV)
• Oxide vanadium product
• Metallurgical shop (FeV production)
• Ferrovanadium (FeV)
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• Chemicals production
• Oxides
• Specialty vanadium chemicals
• Vanadium alloys
• Vanadium halide
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• Modifi ed vanadium oxide production
• Nitrovan® production
• Modifi ed vanadium oxide (V2O3)
• Nitrovan®
EVRAZ plc Annual Report and Accounts 2013
67
VANADIUM
Continued
Vanadium production by EVRAZ
Product, tonnes of V*
Vanadium in slag (gross production)
Russia
South Africa
Vanadium in fi nal products (saleable)
Ferrovanadium
Produced at own facilities
EVRAZ Vanady Tula
EVRAZ Nikom
Processed at 3rd parties’ facilities
Nitrovan®
Oxides, vanadium-aluminum and chemicals
2012
21,060
14,856
6,205
14,381
7,259
2,715
4,544
7,122
2,723
1,330
2013
2012/2013, change
21,077
14,403
6,675
13,975
7,465**
2,607
4,845
6,510
2,294
1,648
0%
(3)%
8%
(3)%
3%
(4)%
7%
(9)%
(16)%
24%
* Calculated in pure vanadium equivalent (the same applies to the below description)
** Includes also 13t produced at EVRAZ Stratcor
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Increase vanadium output at all EVRAZ plants
Production increased at EVRAZ Nikom and
EVRAZ Vanady Tula and decreased at EVRAZ
Stratcor and EVRAZ Vametco
To increase production by 10% and expand the
daily throughput of vanadium pentoxide to 50
tonnes at EVRAZ Vanady Tula
Completion of the pulp fi ltration project and
implementation of a new enhanced
maintenance system at EVRAZ Vanady Tula
EVRAZ Vanady Tula completed installation of
new pulp fi ltration equipment and fully
implemented a new maintenance system
To decrease costs and improve productivity
following the installation of pulp fi ltration
equipment
Increase of production capacity at EVRAZ
Nikom through the modernisation of the
current production line
Completion of the project to use slag from
EVRAZ NTMK to alleviate feedstock shortages
at EVRAZ Stratcor and increase output of
specialty high value added vanadium
chemicals
The project was put on hold due to a shortage of
input feedstock (vanadium pentoxide)
The project is underway
To use tailings in conversion to eliminate more
expensive third-party feedstock. Increase
output of specialty high value added vanadium
chemicals
68
EVRAZ plc Annual Report and Accounts 2013
Operational highlights:
• Record production of vanadium pentoxide at
EVRAZ Vanady Tula in 2013 of 7,352 tonnes,
an increase of 3.3% or 235 tonnes
compared to 2012;
• In 2013 EVRAZ Vanady Tula installed new
pulp-fi ltration equipment that will allow the
company to cut operational costs and further
increase production of vanadium pentoxide
in 2014 by 4% (or 296 tonnes) compared to
2013;
• EVRAZ Stratcor has resumed its position as
a reliable supplier of specialty high value
added vanadium chemicals. In 2013 the
Company resolved issues relating to
unstable feed stock supplies by replacing
third party material with vanadium slag
sourced from EVRAZ NTMK;
• In 2013 EVRAZ Vametco experienced safety
stoppages enforced by the South African
Department of Mineral Resources (“DMR”).
Vametco’s management implemented
various mitigating measures identifi ed by the
DMR to minimise unplanned safety
stoppages in the future;
• Various labour optimisation initiatives were
initiated during the year to increase labour
productivity and reduce costs. A productivity
optimisation project resulted in cost savings
totalling US$4 million in 2013. This will be
an ongoing area of focus for all vanadium
assets in 2014.
2013 production and sales
In 2013, the Company focused on fully
utilising its proprietary production capacity
and as a result did not require additional
third party conversion services to the same
extent as in 2012, when production was
impacted by reduced vanadium pentoxide
availability. Production of ferrovanadium at
EVRAZ’s own facilities increased by 3%.
In 2013, EVRAZ Vanady Tula produced
7,352 tonnes of vanadium pentoxide. Of
this production, 2,650 tonnes were further
processed into ferrovanadium at EVRAZ Vanady
Tula, whilst 4,398 tonnes were consumed by
EVRAZ Nikom and the balance was sold to
a third party. As a result of the operational
improvements programme, the daily throughput
at EVRAZ Vanady Tula increased by 8%
compared to 2012 to 42 tonnes of pentoxide by
the end of 2013, with a maximum daily rate of
50 tonnes. The vanadium pentoxide extraction
yield also rose from 76% at the beginning
of the year to 82% in December 2013.
EVRAZ Vanady Tula sold 53% of total
ferrovanadium volumes to the Russian
domestic market, including intragroup deliveries
of 12% to EVRAZ ZSMK, EVRAZ NTMK and
EVRAZ DMZ Petrovskogo. Generally, Russian
& CIS markets remained strong over 2013
with ferrovanadium sales volumes increased
by 4.1% compared to 2012 to 3,475 tonnes.
In 2013, EVRAZ Nikom produced 4,845 tonnes
of ferrovanadium, 7% higher compared to 2012.
EVRAZ Nikom delivered most of its products
to North America (47% of total sales), Europe
(33%), Asia, South America and the CIS.
Production of oxides, vanadium aluminium
and chemicals increased by 24% in
2013 compared to 2012 due to the
resolution of feedstock supply issues
faced by EVRAZ Stratcor during 2012.
In 2013, EVRAZ Vametco produced 2,549
tonnes of modifi ed vanadium oxide and 2,294
tonnes of its proprietary Nitrovan® product.
The decrease in Nitrovan’s output was driven
by a labour strike in September – October
2013 and the temporary suspension of
operations initiated by the DMR, which lasted
for two weeks from November to December
2013. EVRAZ Vametco increased throughput
yield to 75% through improved roasting
effi ciency and an improved fi rst pass yield.
Despite a challenging economic environment,
demand for vanadium remained fi rm in 2013
both for steel and non-steel applications.
Production growth, especially from new
projects, was limited resulting in a largely
balanced market outside China with periods
of market tightness, which supported pricing.
EVRAZ’s average vanadium product prices
US$/tonne of V (ex works)
Vanadium in fi nal products
Ferrovanadium
Nitrovan®
Oxides, vanadium aluminium and chemicals
2012
2013
24,062
27,900
32,579
26,581
28,945
34,295
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EVRAZ plc Annual Report and Accounts 2013
69
OTHER
BUSINESSES
EVRAZ’s key trading, logistics and other auxiliary assets
Name
EVRAZ NMTP
Sinano
Trading Company EvrazHolding
EVRAZ Metall Inprom
East Metals AG
ZapSib Power Plant
(part of EVRAZ ZSMK)
Power Plant at EVRAZ NTMK
(part of EVRAZ NTMK)
Kachkanar Power Plant
(part of EVRAZ KGOK)
Metallenergofi nance
EvrazEnergoTrans
Location
Russia
Europe
Russia
Russia
Europe
Russia
Russia
Russia
Russia
Russia
Services provided
Logistics
Logistics
Trading
Trading
Trading
Electricity and heat generation
Electricity and heat generation
Electricity and heat generation
Electricity supplies
Power grid
What EVRAZ said and did in 2013 and 2014 targets
2013 plans
2013 achievements
2014 targets
Increase cargo turnover at the Nakhodka sea
port to 8 million tonnes in 2013
Port handling volumes rose to 7.4 million tonnes
in 2013 but due to shortages in coal and metals
delivered to the port the target wasn’t met
To increase port handling volumes to 9.4 million
tonnes
Modernise and upgrade the Nakhodka coal
sea port handling capacities to increase coal
capacity incrementally from 2013 to reach 5
Mtpa by 2015
In 2013 coal port handling volumes increased
by 57% to 3.6 mtpa
To increase coal port handling volumes by
another 56% to 5.6 mtpa
Improve Trading Company EvrazHolding’s
customer loyalty
Sales support programmes were successfully
implemented
To launch a new CRM project
Centralise processing of customer claims and
complaints at EVRAZ Metall Inprom
Continuation of operational improvement
programmes at key power generating facilities
in Russia
Key customer expectations were identifi ed and
customer service standards were developed.
As a result the number of complaints decreased
by 58%
The Company disposed of loss making heat
and power station Tsentralnaya TETs in
Novokuznetsk; 100% collection of funds from
external energy consumers
To launch a new CRM project
To develop internal power networks at EVRAZ
ZSMK and EVRAZ NTMK
70
EVRAZ plc Annual Report and Accounts 2013
EVRAZ ships most of its exports to Asia
through EVRAZ NMTP, Nakhodka Trade
Sea Port, which is one of the largest
ports in the Russian Far East.
In 2013, cargo turnover at the port increased
by 7% and totalled 7.4 million tonnes, including
3.4 million tonnes of coal and 3.6 million
tonnes of ferrous metals. EVRAZ shipped
1.3 million tonnes of proprietary coal and
3.4 million tonnes of steel products through
EVRAZ NMTP. In 2013, coal handling volumes
increased by 57% mostly due to the expansion
of warehouse capacity and the expansion
and construction of new discharges which
allowed the unloading of 60 railcars per day.
Sinano provides sea freight services and
historically delivered up to 4 million tonnes
of EVRAZ’s products to clients. In 2013
the Company decided to sell all four of
Sinano’s vessels, as the prevailing market
conditions didn’t warrant the operation of
proprietary vessels. One vessel was sold
in November 2013, while the remaining
three vessels were sold in Q1 2014.
Trading Company EvrazHolding (TC
EvrazHolding) is EVRAZ's trading arm
for Russian & CIS markets covering all
of the Group’s products. Sales of steel
products by TC EvrazHolding in 2013
amounted to 6.5 million tonnes.
In 2013, the Company successfully
implemented sales support
programmes for key products:
• a loyalty program was introduced for key
domestic customers which helped ensure an
increase in EVRAZ’s share of the Siberian
rebar market from 68% to 77%;
• a customer relations programme was
developed to cover beam sales in the
European part of Russia. The programme
enabled EVRAZ to successfully compete with
imported products and helped ensure the
EVRAZ’s market share remained at
approximately 80% despite growing
competition in the Russian market.
In 2013, TC EvrazHolding improved customer
satisfaction, according to the results of an
independent study. Claim processing was
improved, resulting in a 40% reduction of
total claims. The Company also increased
deliveries of smaller lots by trucks (+30%
vs. 2012). In addition, EVRAZ increased
the availability of products in merchandise
cars (+50% in 2012), allowing for a more
fl exible response to customer demand.
In 2014, the Company will continue to develop
and improve its services including through
the launch of a new CRM project where every
customer will have an on-line personal account
for order tracking and monitoring payment
and application status. In addition, customer
loyalty programmes to retain and expand the
account base in the Russian market will be
extended. To meet customer demand product
lines will be extended in 2014 to include
new product types in U-channels, wheels
and track shoes. The programme to promote
sales of niche products will be continued
and (rebar A500CΠ) complemented with
new types of rebars (including A600CΠ).
EVRAZ Metall Inprom is the second largest
Russian steel trading company with an 11%
market share. It fi nishes and distributes steel
products (rebar, structural shapes, sheet,
pipe) produced mostly by EVRAZ in Russia
and Ukraine. Thanks to EVRAZ Metall Inprom,
EVRAZ has access to information about the
state of the market. In addition, by utilising
EVRAZ Metall Inprom’s warehouses the Group
is able to ensure a more stable capacity
utilisation across EVRAZ’s Russian steel
mills even in periods of declining demand.
In 2013, EVRAZ Metall Inprom increased its
sales of steel products to 2 million tonnes a
1.3% rise compared to 2012. EVRAZ steel
products amounted to 1.3 million tonnes, or
58% of total sales, a 9% increase in 2013
In order to reduce costs, EVRAZ Metall Inprom
closed a number of non-profi table branches
and trading sites and reduced headcount,
which resulted in cost saving of US$2 million.
In 2013 EVRAZ Metall Inprom received an
award for having the best sales network
in Russia because of its wide geographic
presence, customer focus, portfolio and the
quality of products and services it offers.
In 2014 EVRAZ Metall Inprom plans to
increase sales volumes by 2% and retain
its overall market share. In addition, the
Company aims to focus on improving the
effi ciency of business processes whilst
expanding its tubular products options.
In 2014, EVRAZ Metall Inprom will
participate in the Russian state projects
on infrastructure development, including
preparation for the 2018 World Cup.
East Metals AG, located in Switzerland,
trades EVRAZ's Russian, Ukrainian and
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South African steel products in international
markets. In 2013 the Company maintained
strong positions in its key strategic product
segments: merchant slabs and square billets.
Sales volumes of square billets increased
from 1.3 million tonnes to 1.6 million tonnes,
mainly as a result of the closure of the
plate mill at EVRAZ ZSMK in June 2013.
EVRAZ’s major energy assets are located
in Russia and in 2013 supplied 43% of the
Company’s electricity needs. The ZapSib Power
Plant supplies electricity and heat to EVRAZ
ZSMK and external customers whilst a second
power plant is in operation at EVRAZ NTMK.
In 2013, EVRAZ continued to improve
operational performance at key power
generating facilities. Measures were
undertaken to ensure 100% collection of
funds from external energy consumers
for the heat and power produced and
supplied by the Company’s plants.
In line with the plan to divest non-core
and non-performing assets, in September
2013 EVRAZ sold Tsentralnaya TETs, a loss
making heat and power station, located in
Novokuznetsk, Russia, that generated and
sold heat to the city of Novokuznetsk.
In 2014, EVRAZ will launch an internal power
network development project to increase
energy self-suffi ciency at EVRAZ ZSMK. In
2013, approval was received to continue
construction of a turbine generator at the NTMK
heat and power plant. The Company is looking
to shift to cheaper energy supply markets and
exclude third-party intermediaries from the
energy supply chain. In line with this plan, the
Raspadskaya coal company will be transferred
to the wholesale power market with the
contracts of third-party suppliers terminated.
Metallenergofi nance supplies electricity to
EVRAZ’s steel and mining segments and to
third parties. Total volumes of realised energy
in 2013 amounted to 6.5 billion kW/h including
5.6 billion kW/h of intragroup deliveries.
EvrazEnergoTrans is a power grid operator,
which transmitted 5.5 billion kW/h in 2013
including 3.6 billion kW/h intragroup deliveries.
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EVRAZ plc Annual Report and Accounts 2013
71
GOVERNANCE
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In this section:
74 Letter from Chairman
76 Board of Directors
78 Vice Presidents of EVRAZ plc
79 Corporate Governance Report
93 Remuneration Report
105 Directors’ Report
109 Directors’ Responsibility Statements
Embedding good governance
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In this section we introduce the Board of Directors and senior management. We describe our
approach to corporate governance and remuneration.
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EVRAZ plc Annual Report and Accounts 2013
73
LETTER FROM CHAIRMAN
Dear stakeholders,
The year 2013 witnessed several important
events and initiatives, the results of which are
set to become key drivers of the Company’s
long-term development.
74
EVRAZ plc Annual Report and Accounts 2013
In line with our strategy we successfully
completed a number of major projects,
encompassing both our steel and mining
operations, designed to heighten effi ciency and
underwrite organic growth. We also signifi cantly
increased our presence in coking coal with the
acquisition, in January 2013, of a controlling
interest in the Raspadskaya coal company.
Such developments took place against an
unfavourable trading background with the
global steel and mining sectors widely exposed
to strong cyclical pressures, duly refl ected in
a softening of prices across the majority of
product groups. Consequently, the Board was
extensively engaged in the reassessment of
key business risks in the “new normal reality”,
a review of capital allocation principles and
adjustments to our ongoing strategy. The
Board enjoyed regular, in-depth and mutually
challenging meetings with the Company’s senior
executive team, variously focused on strategy,
performance, responsibility and accountability.
In view of evident interest in the Company’s
performance and strategies on the part of
private shareholders and large investment
funds, the Board has advocated a wider
engagement of Directors and management
in stakeholder communications. In line
with this the heads of EVRAZ’s business
units participated in almost half of our
meetings with investors during 2013.
We believe that shareholder access to
management has become all the more
important during the post 2008 period
of economic turbulence and we welcome
this dialogue which serves to impart new
perspectives to Directors and management.
The participation of line managers at the
Company’s investor meetings is ongoing.
The Board also held an extensive review of the
Company’s health and safety performance.
While noting a decrease in the number of fatal
accidents that occurred in 2013 versus 2012,
we fully acknowledge that EVRAZ still has a
long way to go to attain its zero fatality target.
Embedding a zero tolerance culture across the
entire organisation is currently at the forefront
of our agenda following our investments in the
creation of a safer working environment and
the introduction of further safety rules and
regulations. Changing employees’ mindsets
in relation to their own safety and the safety
of their colleagues is of vital importance
and represents a challenge which we will
vigorously pursue throughout 2014 and
beyond. Positive changes have already been
achieved through the sharing of best practice
know-how throughout our operations, a policy
much in keeping with our appointment of a
highly experienced head of health and safety,
drawn from our North American operations.
In addition, the remuneration of senior
management is directly linked to the safety
performance of specifi c business units.
The aforementioned deliberations between the
Board and senior executives led to a series of
initiatives primarily designed to streamline the
Company’s business. These included closures
and divestments of ineffi cient capacity and
the implementation of rigorous cost reduction
measures, accompanied by the reinforcement
of stringent health and safety policies, all of
which are covered in detail in the preceding
aspects of the report. To summarise, I believe
that EVRAZ is now well prepared to withstand
the cycle’s lows and, having retained its
growth options, is equally well placed to take
advantage of the next stage in the cycle.
This is the Company’s fi rst Annual Report under
the new reporting requirements and, as such,
contains detailed information regarding various
non-fi nancial matters. Certain highlights in this
regard are listed below.
EVRAZ’s Board believes that effective
corporate governance is essential to the
long-term success of the business and
remains committed to strong governance
policies and the implementation of such. I
am pleased to inform you that the Company
has complied with most of the provisions of
the UK Corporate Governance Code and has
explained one instance in respect of non-
compliance. For details please refer to page 79.
Our corporate governance framework
is constantly reviewed, while our Board
committees play a pivotal role in ensuring
the effectiveness of procedures. Each
committee chairman has provided a report
which explains the committee’s role and
the work carried out during the year. For
details please refer to pages 83 to 104.
appointments of appropriately qualifi ed
candidates will lead to adjustments in the
gender ratio. I am fi rmly of the opinion, however,
that appointments to the Board should be
made on merit, based on objective, transparent
criteria, namely that Directors should possess
the right skill sets, experience and backgrounds
to enable them to add value to the work of
the entire Board. I believe that the current
composition of the Board meets such criteria,
and that the Company’s procedures for the
appointment of new directors to the board
are in line with the UK Corporate Governance
Code. For further details, please see the
Directors’ biographies on pages 76 – 77.
During 2013, the Board approved a number of
Company policies, including the Anti-corruption
Policy and changes to the Code of Business
Conduct. The Directors have committed to
promote these practices and endeavour to
ensure strict observance of the Company’s
principles and values by all employees.
I would like to take this opportunity to
encourage stakeholders to inform us of
any questions or concerns they may have
regarding the Company’s operations and/or
its approach to the various issues outlined
above. Please communicate directly with the
Company or with Sir Michael Peat, EVRAZ’s
Senior Independent Director, who is competent
to address many issues himself and is
empowered to bring shareholders’ concerns to
the attention of the Board and management.
I would also like to extend my sincere thanks
to all employees for their hard work and
dedication and to shareholders and other
stakeholders for their continued support.
The Board considered various matters
raised in the changes to the Directors’
Report and Corporate Governance Code,
particularly greenhouse gas (GHG) emissions,
diversity and remuneration policy.
Alexander Abramov
Chairman of the Board
EVRAZ plc
8 April 2014
In order to comply with the requirement on
GHG emission reporting, we have revised
our existing practices that were valid
for separate operations within the vast
geographies of our business and set up a
Group wide system of GHG reporting. The
data on GHG emissions in respect of 2012
and 2013 together with the methodology
used can be found on pages 38 – 39.
Your Board strongly supports the principle
of boardroom diversity in all its aspects
and, as opportunities present themselves,
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EVRAZ plc Annual Report and Accounts 2013
75
BOARD OF DIRECTORS
Alexander Abramov
Alexander Frolov
Olga Pokrovskaya
Eugene Shvidler
Eugene Tenenbaum
Non-Executive Chairman
(born 1959)
Chief Executive Offi cer
(born 1964)
Non-Executive Director
(born 1969)
Non-Executive Director
(born 1964)
Non-Executive Director
(born 1964)
Appointment: Founded
EvrazMetall, a predecessor
of the Group, in 1992. CEO
of EVRAZ Group S. A. until
1 January 2006, Chairman
of EVRAZ Group S.A.’s Board
until 1 May 2006. Appointed
Chairman of EVRAZ plc on
14 October 2011.
Committee membership:
Member of the Nominations
Committee.
Skills and experience:
Mr. Abramov served as
a non-executive director
from May 2006 until his
re-appointment as Chairman
of the Board on 1 December
2008. A director of OJSC
Raspadskaya, a member
of the Bureau of the Board
of Directors, a member of the
Board of Directors of the
Russian Union of Industrialists
and Entrepreneurs (an
independent non-governmental
organisation), a director of
OJSC Bank International
Financial Club, a member of
the Board of Skolkovo Institute
for Science and Technology
and a member of the Board of
Moscow University of Physics
and Technology.
Appointment: Joined
EvrazMetall in 1994 and
served as EvrazMetall’s Chief
Financial Offi cer from 2002 to
2004 and as Senior Executive
Vice President of Evraz Group
S.A. from 2004 to April 2006.
Chairman of the Board of
Directors of Evraz Group S.A.
from May 2006 until December
2008 and appointed CEO with
effect from January 2007.
Appointed CEO of EVRAZ plc
on 14 October 2011.
Committee membership:
Member of the Health, Safety
and Environment Committee.
Skills and experience:
Alexander Frolov has held
various positions at
EvrazMetall and other
companies, predecessors of
Evraz Group S.A., since joining
in 1994 and has been a
member of the Board of
Directors of Evraz Group S.A.
since 2005. Prior to joining
EVRAZ, Mr. Frolov worked
as a research fellow at the I.V.
Kurchatov Institute of Atomic
Energy.
Appointment: Has been
a member of the Board of
Directors of Evraz Group S.A.
since August 2006. Appointed
to the Board of EVRAZ plc on
14 October 2011.
Appointment: Member of the
Board of Directors of Evraz
Group S.A. since August 2006.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Appointment: Member of the
Board of Directors of Evraz
Group S.A. since August 2006.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Committee membership:
Member of the Nominations
Committee.
Skills and experience: Eugene
Shvidler currently serves as
Chairman of Millhouse LLC and
Highland Gold Mining Ltd. He is
also on the board of directors
of AFC Energy plc. Mr. Shvidler
served as President of Sibneft
from 1998 to 2005.
Committee membership:
Member of the Audit
Committee and of the Health,
Safety and Environment
Committee.
Skills and experience:
Ms. Pokrovskaya is head of
corporate fi nance at Millhouse
LLC and a member of the
Board of Directors of Highland
Gold Mining Ltd. Since 1997,
Ms. Pokrovskaya has held
several key fi nance positions
with Sibneft, including head
of corporate fi nance. From
1991 to 1997, she worked
as a senior audit manager
at the accounting fi rm
Arthur Andersen.
Committee membership: None
Skills and experience:
Mr. Tenenbaum is currently
Managing Director of MHC
(Services) Ltd. and serves on
the Board of Chelsea FC Plc
and Highland Gold Mining Ltd.
He served as Head of
Corporate Finance for Sibneft
in Moscow from 1998 to 2001.
Mr. Tenenbaum joined Salomon
Brothers in 1994 as Director
for Corporate Finance where
he worked until 1998. Prior
to that, he spent fi ve years in
Corporate Finance with KPMG
in Toronto, Moscow and
London, including three years
(1990-1993) as National
Director at KPMG International
in Moscow. Mr. Tenenbaum
was an accountant in the
Business Advisory Group at
Price Waterhouse in Toronto
from 1987 until 1989.
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Sir Michael Peat
Duncan Baxter
Karl Gruber
Alexander Izosimov
Terry Robinson
Senior Independent
Non-Executive Director
(born 1949)
Independent Non-
Executive Director
(born 1952)
Independent Non-
Executive Director
(born 1952)
Independent Non-
executive Director
(born 1964)
Independent Non-
Executive Director
(born 1944)
Appointment: Appointed
to the Board of EVRAZ plc
on 14 October 2011.
Committee membership:
Chairman of the Nominations
Committee and a member of
the Audit Committee.
Skills and experience:
Sir Michael Peat is a qualifi ed
chartered accountant with over
40 years’ experience. He
served as Principal Private
Secretary to HRH The Prince of
Wales from 2002 until 2011.
Prior to this, he spent nine
years as the Royal Household’s
Director of Finance and
Property Services, Keeper of
the Privy Purse and Treasurer
to the Queen, and Receiver
General of the Duchy of
Lancaster. Sir Michael Peat
was at KPMG from 1972, and
became a partner in 1985. He
left KPMG in 1993 to devote
himself to his public roles. Sir
Michael Peat is an Independent
Non-executive on the Board of
Deloitte LLP, a director of CQS
Management Limited, a
Non-executive Director of
Tamar Energy Limited and
Chairman of the Advisory Board
of GEMS UK. He is an MA,
MBA and Fellow of the Institute
of Chartered Accountants in
England and Wales.
Appointment: Member of the
Board of Directors of Evraz
Group S.A. since May 2011.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Appointment: Member of the
Board of Directors of Evraz
Group S.A. since May 2010.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Committee membership:
Chairman of the Remuneration
Committee and a member of
the Audit Committee.
Committee membership:
Chairman of the Health, Safety
and Environment Committee
and a member of the
Remuneration Committee.
Skills and experience:
Mr. Gruber has over 35 years’
experience in the international
metallurgical mill business.
He has held various
management positions,
including eight years as a
member of the Managing
Board of VOEST-Alpine
Industrieanlagenbau (VAI), fi rst
as Executive Vice President of
VAI and then 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. Further
he has executed various
consultancy projects for
steel industry and served
as CEO and Chairman of
the Management Board of
LISEC Group.
Skills and experience: Duncan
Baxter, resident in Jersey, has
had many years’ experience of
international banking. He
began his career in banking
with Barclays International
Bank in Zimbabwe before
joining RAL Merchant Bank in
1978. In 1985, he became a
director of Commercial Bank
(Jersey) Ltd, which was
subsequently acquired by
Swiss Bank Corporation (SBC).
In 1988, he became managing
director of SBC Jersey Branch.
Since leaving SBC in 1998
after its merger with UBS AG,
he has undertaken a number of
consultancy projects for
international banks and
investment management
companies. He is a Non-
Executive Director of Highland
Gold Mining Ltd and also holds
other non-executive
directorships. Mr. Baxter is a
Fellow of the Institute of
Chartered Secretaries and
Administrators, the Securities
Institute, the Chartered
Institute of Bankers, the
Institute of Management and
the Institute of Directors.
Appointment: Appointed
to the Board of EVRAZ plc
on 28 February 2012.
Committee membership:
Member of the Remuneration
Committee and a member of
the Nominations Committee.
Skills and experience:
Alexander Izosimov has
extensive managerial and
board experience. From 2003
to 2011, he was President and
CEO of VimpelCom, a leading
emerging market
telecommunications operator.
From 1996 to 2003 he held
various managerial positions
at Mars Inc. and was Regional
President for CIS, Central
Europe and Nordics, and a
member of the executive
board. Prior to Mars Inc, Mr
Izosimov was a consultant with
McKinsey & Co. (Stockholm,
London) (1991-1996) and was
involved in numerous projects
in transportation, mining,
manufacturing and oil
businesses. Mr Izosimov
currently serves on the boards
of MTG AB, East Capital AB,
Dynasty Foundation, LM
Ericsson AB and Transcom SA,
as well as on the executive
board of ICC (International
Chamber of Commerce). He
previously served as director
and Chairman of the GSMA
(global association of mobile
operators) board of directors,
and was also a director of
Baltika Breweries,
confectionery company Sladko,
and IT company Teleopti AB.
Appointment: Member of the
Board of Directors of Evraz
Group S.A. since April 2005.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Committee membership:
Chairman of the Audit
Committee and a member of
the Nominations Committee
and of the Health, Safety and
Environment Committee. He
also chairs the Group’s Risk
Committee, which is an
Executive Committee.
Skills and experience:
Mr. Robinson is a qualifi ed
chartered accountant and
has 40 years’ international
business experience. He spent
20 years at Lonrho PLC, the
international mining and
trading group, the last 10 years
of which he served as a main
board director. Since 1998, 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 independent director and
Deputy Chairman of Katanga
Mining Limited and is also
an independent and senior
non-executive director of
Highland Gold Mining Ltd.
He is a Fellow of the Institute
of Chartered Accountants of
England and Wales. Terry
Robinson was elected to the
Board of OJSC Raspadskaya,
a subsidiary of EVRAZ, at the
Company’s AGM in 2013. The
Board is satisfi ed that this
nomination has no impact on
Mr Robinson’s independence.
EVRAZ plc Annual Report and Accounts 2013
77
VICE PRESIDENTS OF EVRAZ PLC
Pavel Tatyanin
Senior Vice President
Head of International Business
Leonid Kachur
Senior Vice President
Business Support and Interregional Relations
Marat Atnashev
Vice President
Iron Ore Division and Major Projects
Giacomo Baizini
Vice President
Corporate Affairs and CFO
Scott Baus
Vice President
EVRAZ Business System
Grigory Botvinovskiy1
Vice President
Raw Materials Sales
Natalia Ionova
Vice President
Human Resources
Aleksey Ivanov
Vice President
Steel Division
Michael Shuble
Vice President
Health, Safety and Environment
Vsevolod Sementsov2
Vice President
Corporate Communications
Alexander Kuznetsov
Vice President
Strategic Development and
Operational Planning
Artem Natrusov
Vice President
Information Technologies
Yury Pavlov
Vice President
Procurement
Ilya Shirokobrod
Vice President
Railway Products Division
Sergey Stepanov
Vice President
Coal Division
Timur Yanbukhtin
Vice President
Business Development and International
Business
Elena Zhavoronkova
Vice President
Legal Affairs
1
2
In March 2013 Grigory Botvinovskiy was appointed Vice President of Raw Materials Sales; prior Mr. Botvinovsky
was Vice President of Vanadium Assets
In June 2013 Vsevolod Sementsov was appointed Vice President of Corporate Communications.
78
EVRAZ plc Annual Report and Accounts 2013
Chairman and Chief Executive
The Board determines the division of
responsibilities between the Chairman and
the Chief Executive Offi cer.
The Board is chaired by Alexander Abramov.
The Chairman’s principal responsibility is the
effective running of the Board, ensuring that
the Board as a whole plays a full and
constructive part in the development and
determination of the Group’s strategy and
overall commercial objectives.
Alexander Frolov is the Company’s Chief
Executive. The Chief Executive Offi cer is
responsible for leading the Group’s operating
performance and day-to-day management of
the Company and its subsidiaries. He is
supported by the executive team. Membership
of the executive team is set out on page 78.
CORPORATE GOVERNANCE REPORT
Board responsibilities and
performance
The Board and management of EVRAZ aim
to pursue objectives in the best interests
of EVRAZ, its shareholders and other
stakeholders, and particularly to create
long-term value for shareholders.
The EVRAZ’s Board is responsible for the
following key aspects of governance and
performance:
• Financial and operational performance;
• Strategic direction;
• Major acquisitions and disposals;
• Overall risk management;
• Capital expenditures and operational
budgeting;
• Business planning;
• Approval of internal regulations and policies.
During the year ended 31 December 2013,
the Board considered a wide range of matters,
including:
• the Company’s strategy and key priorities;
• the performance of key businesses;
• consolidated budget and budgets of
business units;
• the interim and full year results and 2012
Annual Report;
• the Group’s corporate restructuring;
• the implementation of projects;
• transactions, including Raspadskaya’s
acquisition and asset disposals, and
borrowing activities;
• HSE updates;
• corporate governance matters and
Company’s policies, including approvals
of the Anti-corruption Policy, the Code of
Conduct, Directors and Offi cers Liability
Insurance Policy, changes to the Share
Dealing Code;
• amendments to the Board committees’
Terms of Reference;
• listing considerations and UK regulatory
updates.
Introduction
EVRAZ plc is a public company limited by
shares incorporated in the United Kingdom.
The Company is committed to high standards
of corporate governance and control.
Further information on the Company’s
Corporate Governance policies and principles
are available on the Company’s website:
www.evraz.com. The UK Corporate Governance
Code is available at www.frc.org.uk.
Compliance with corporate
governance standards
EVRAZ’s approach to corporate governance is
primarily based on the UK Corporate
Governance Code published by the Financial
Reporting Council (FRC) and the Listing Rules
of the UK Listing Authority. The Company
complies with the UK Corporate Governance
Code or, if it does not comply, explains the
reasons for non-compliance.
As of 31 December 2013 EVRAZ complied with
all the principles and provisions of the UK
Corporate Governance Code (2012 version)
with the following exception:
• Contrary to provision C.3.1 of the UK
Corporate Governance Code, Olga
Pokrovskaya is a member of the Audit
Committee, but does not meet the
independence criteria set out in the UK
Corporate Governance Code. More than
50% of EVRAZ activities and operations are
based in the Russian Federation, and Olga
Pokrovskaya’s technical and regional
experience and qualifi cation, as a past
senior audit manager at Arthur Andersen
and as Head of Corporate Finance at
Russian oil company Sibneft is of particular
value to the Committee. Her experience
would be extremely diffi cult to replicate,
particularly as EVRAZ is seeking to
strengthen diversity on its Board. The
Company considers that, in light of her
involvement with the Group over a number
of years and her experience in this area, her
membership of the Audit Committee is to
the benefi t of the Group. The Audit
Committee includes three non-executive
directors, all independent, which we believe
mitigates any potential risks.
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EVRAZ plc Annual Report and Accounts 2013
79
CORPORATE GOVERNANCE REPORT
Continued
Meetings of the Board, Board composition and AGM
EVRAZ plc held 10 scheduled Board meetings
and 2 extraordinary meetings held in form of
conference calls and exchange of emails
during 2013.
The following table sets out the attendance
of each director at scheduled EVRAZ plc Board
and Board Committee meetings.
Members of senior management attended
meetings of the Board by invitation. They
delivered presentations on the status of
projects and performance of the business
units.
Total meetings in 2014 (until 8 April)
Total meetings in 2013
Directors’ participation:
Alexander Abramov
Duncan Baxter
Alexander Frolov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Board
3
12
12/12
11/12
12/12
12/12
12/12
12/12
12/12
12/12
12/12
12/12
Remuneration
Committee
HSE
Committee
Audit*
Committee
Nominations
Committee
1
3
–
3/3
–
3/3
3/3
–
–
–
–
–
1
2
–
–
2/2
2/2
–
–
2/2
2/2
–
–
4
11
–
11/15
–
–
–
11/15
11/15
11/15
–
–
–
2
2/2
–
–
–
2/2
2/2
–
2/2
2/2
–
AGM
–
1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
* The Audit Committee met 11 times in 2013 and 4 times since the beginning of 2014 until the publication date of this annual report.
80
EVRAZ plc Annual Report and Accounts 2013
Board composition and independence
Non-Executive Independent Directors (5)
Duncan Baxter
Karl Gruber
Alexander Izosimov
Sir Michael Peat, Senior Independent Director
Terry Robinson
Non-Executive Directors (4)
Alexander Abramov, Chairman
Olga Pokrovskaya
Eugene Shvidler
Eugene Tenenbaum
Executive Director (1)
Alexander Frolov, CEO
Total Board size (10)
As at 31 December 2013, the Board of EVRAZ
plc consisted of ten members, comprising the
Non-Executive Chairman, eight Non-Executive
Directors and one Executive Director.
The Independent Non-executive Directors
comprised the majority on and chaired all
Board Committees.
The Board considers that fi ve Non-Executive
Directors (Duncan Baxter, Karl Gruber,
Alexander Izosimov, Sir Michael Peat and Terry
Robinson) are independent in character and
judgement and free from any business or other
relationship which could materially interfere
with the exercise of their independent
judgement, in compliance with the UK
Corporate Governance Code.
The Board noted the nomination of Terry
Robinson, an Independent Non-Executive
Director, to the Board of OJSC Raspadskaya,
which became a subsidiary of the Company
in January 2013, and was satisfi ed that this
nomination had no impact on independence
of Mr. Robinson as a director of EVRAZ plc.
The Board has also satisfi ed itself that there
is no compromise to the independence of,
or existence of confl icts of interest, for those
directors who serve together as directors on
the boards of outside entities.
Boardroom diversity
EVRAZ recognises the importance of diversity
both at Board level and in the whole
organisation. The Company is committed
to increasing diversity across its global
operations and we take diversity into account
during the recruitment and appointment
process striving to attract a variety of
outstanding people with diverse backgrounds,
skills, ideas and culture.
The Company believes that the present Board
structure provides an appropriate balance
of skills, knowledge and experience. The
members comprise a number of different
nationalities with a wide range of diverse skills
sets, capabilities and experience from a variety
of business backgrounds. EVRAZ’s current
female representation amongst the Board’s
membership is 10% with one woman,
Olga Pokrovskaya, on the Company’s Board
of Directors.
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Date of appointment
14 October 2011
14 October 2011
28 February 2012
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
Years of
tenure as at
31 December
2013
3
3
2
3
3
3
3
3
3
3
When making new appointments, the
Board’s stance on diversity, including gender,
is to act in good faith toward meeting the
recommendation contained in Lord Davies’
report of the 25% female board representation
by 2015 while appointing the most appropriate
candidate. To this end, female representation
on the Board in particular was the focus of
a meeting of the Nominations Committee
in 2013. (See the Nominations Committee’s
report on page 87).
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EVRAZ plc Annual Report and Accounts 2013
81
CORPORATE GOVERNANCE REPORT
Continued
Board expertise
The Board has determined that as a whole
it has the appropriate skills and experience
necessary to discharge its functions. Executive
and Non-Executive Directors have the
experience required to contribute meaningfully
to the Board’s deliberations and resolutions.
Non-Executive Directors assist the board by
constructively challenging and helping develop
strategy proposals. Most of the directors have
been in post since the date of EVRAZ plc
incorporation in October 2011.
Board. Directors have full access to a regular
supply of fi nancial, operational, strategic and
regulatory information to help them discharge
their responsibilities. Directors’ training in
2013 included an update by Ernst & Young
on recent material changes to laws and
regulations affecting their duties as directors,
including governance matters.
The Chairman has proposed organising a visit
by the directors to one or more of the
Company’s production sites in 2014, and
the directors supported this initiative.
Full details of the skills and experience of the
Board members are provided in the Board of
Directors section above on pages 76 to 77.
Induction and professional
development
The Chairman is responsible for ensuring that
there is a properly constructed and timely
induction for new directors upon joining the
Performance evaluation
An internally facilitated Board evaluation was
conducted in December 2013. The review was
carried out with the initiative and participation
of the Nominations Committee of the
Company. A questionnaire was distributed to
all Board directors for their response and
comment. The results were discussed at three
levels: (i) between the members of the
Nominations Committee, (ii) between Sir
Michael Peat (as chairman of the Nominations
Committee) and Alexander Abramov (as the
chairman of the Board) and (iii) at the Board
meeting in December. Board performance was
deemed to be satisfactory. See also the
Nominations’ Committee report on page 87.
The Company undertakes regular internal
performance evaluation of the Board in line
with the UK Corporate Governance Code.
Evaluation of the Board will be externally
facilitated in 2014.
Board Committees
The Board is supported in its work by the
following principal committees: the Audit
Committee, the Remuneration Committee,
the Nominations Committee and the Health,
Safety and Environment Committee.
The table below sets out the role and composition of each committee:
Name of committee
Audit Committee
Function
Composition
Audit, fi nancial reporting, risk
management and controls
Nominations Committee
Selection and nomination of Board
members
All 4 members are non-executive
directors, of which 3 are
independent
All 5 members are non-executive
directors, of which 3 are
independent
Remuneration Committee
Remuneration of Board members
and top management
All 3 members are independent
directors
HSE Committee
HSE issues and corporate
citizenship
3 of 4 members are non-executive
directors, of which 2 are
independent
For more information please
refer to the Audit Committee
Report on page 83
For more information please
refer to the Nominations
Committee Report on page 87
For more information please
refer to the Remuneration
Committee Report on pages 93
and 103
For more information please
refer to the HSE Committee
Report on page 88
83
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88
Each committee has written terms of reference, approved by the Board, summarising its role and responsibilities.
The terms of reference for each committee are available on the Company’s website www.evraz.com/governance/directors/committees
Reports from each committee follow.
82
EVRAZ plc Annual Report and Accounts 2013
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• whether the Annual Report, taken as a
whole, is fair, balanced and understandable
and provides the necessary information for
shareholders to assess the Group’s
business model, strategy and performance.
Review of the new and revised accounting
standards as well as standards issued but not
yet effective
See note 2 CFS, Basis of Preparation, Changes
in Accounting Policies
Among other matters, the following were
reviewed and tested by the Audit Committee in
respect of the Interim Financial Statements and
the full year Consolidated Financial Statements.
Financial reporting standards and governance
requirements
Prior period restatement, correction for prior
year error. See note 2 Consolidated Financial
Statements (CFS) and Financial Review
During the review of the Interim Financial
Statements, management identifi ed an error,
being the accounting as required by IAS 21, in
respect of recycling accumulated translational
gains/losses on the disposal of subsidiaries,
as identifi ed in note 2 of the CFS. Following a
review of the substance of the error and
possible control issues within the Group’s
fi nancial accounting function, and in view of
the fact that the error represented a material
error in the 2012 Annual Financial Statements,
management advised and recommended that
the comparative fi gures in the 2013 Interim
and Annual Financial Statements would
require restatement.
The Audit Committee, taking into consideration
the Companies Act 2006 and the Financial
Conduct Authority’s Disclosure and
Transparency Rules (DTR), consulted with the
Company’s external auditors, stockbrokers and
lawyers and concluded that the error was not
pervasive to the Annual Financial Statements
and that the withdrawal and reissuance of the
2012 Annual Financial Statements was not
necessary, taking into account the fact that the
issuance of the 2013 Interim Accounts with
appropriate disclosures was imminent and that
the error was not of a price sensitive nature,
as would otherwise have required immediate
disclosure in accordance with DTR. This
conclusion, together with the opinions of the
Company’s external auditors and lawyers, was
presented to the Board, together with an
analysis of the principal reason for the fi nancial
function’s error. The recommendation by
management and the Audit Committee that the
comparatives should be restated in the 2013
Financial Statements was reviewed and agreed
by the Directors.
The Audit Committee has reviewed the issues
leading to the restatement and discussed
with management the remediation plans.
This remediation has now been implemented
to the satisfaction of the Committee.
Amended IAS 19 Employee Benefi ts
See note 23, CFS
This amended standard is required to be
applied retrospectively. The Audit Committee
reviewed the retrospective changes to the
2010, 2011 and 2012 as required for the
Statements of Operations and of Financial
Position. While the impact on Statement of
Operations is negligible, the retrospective
impact on the Balance Sheet is material, in that
it reduces accumulated profi ts by $256 million.
Areas of signifi cant management judgement
Critical considerations made by the Audit
Committee were:
Acquisition of subsidiaries: Corber.
See notes 4 and 11 CFS, and Chief Executive
Offi cer’s Review
In January 2013 the Company fi nalised the
purchase of the 50 per cent of Corber
Enterprises Limited that it did not previously
own, thereby increasing its holding in the
quoted (MICEX) OJSC Raspadskaya to
82 per cent.
The Audit Committee reviewed the valuation
carried out by American Appraisal of all assets
except net current assets; the valuation of
proven and probable reserves of Raspadskaya
was made by IMC Montan. These valuations
result in a gain to Statement of Operations of
US$94 million from the previously held
investment in Corber, valued at a restated fair
value of US$658 million.
In view of the fact that Raspadskaya was loss
making in the year 2013, the Audit Committee
reviewed an impairment analysis as at
December 2013 on the carrying value of
Corber. See note 6, CFS.
Assets held for Sale See note 12, CFS, Chief
Executive Offi cer’s and Financial review
Following a review of the Company’s strategic
priorities by the Board, the streamlining of
the operating businesses in order to optimise
the Group’s assets has been a major
consideration. Two nominated assets held for
sale have been delayed: Evraz Highveld Steel
and Vanadium Limited and Evraz Vitkovice Steel
(EVS), both re-classifi ed in the 2012
Consolidated Financial Statements as Assets
held for Sale, with the then expectation that
such sales would be closed in 2013.
EVRAZ plc Annual Report and Accounts 2013
83
Audit Committee
Dear Shareholder,
I am pleased to present the report of the
Audit Committee for the fi nancial year to
31 December 2013. I would like to thank the
Committee members, the executive
management team, the internal audit group
and Ernst & Young, our external auditors,
for their diligence and for their respective
contributions to open discussion at our
meetings.
Work of the Committee in 2013
At the Committee’s meetings during 2013,
we focused on fi nancial reporting, including
the Interim Management Statements, internal
controls, internal audit, external audit, risk
management including fi nance, operations,
regulation, fraud and compliance. These
matters were comprehensively reviewed
and, when required, formally presented to
the Committee by management, internal
audit and the external auditors.
During the year the Committee also reviewed
its own terms of reference, the internal audit
charter, the Group’s anti-corruption policy,
drafting changes to the Group’s Code of
Conduct and the Group’s insurance policy.
Financial Reporting for the fi nancial year 2013
In addressing our key objective, namely to
assist the Board in ensuring the integrity of
its fi nancial statements, the Audit Committee
together with the assistance of both
management and the external auditor,
concentrated on:
• compliance with fi nancial reporting
standards and governance requirements;
• accounting areas that require signifi cant
judgments in applying accounting policies;
• the substance, consistency and fairness of
management estimates;
CORPORATE GOVERNANCE REPORT
Continued
It was anticipated that Evraz Highveld would
be sold to a party with which the Group had a
Memorandum of Understanding (MOU). While
this sale on the basis of the existing MOU
remains a possibility, the Company has, in the
second half of 2013, initiated a remarketing
through a recognised local investment bank.
This bidding process has suggested a lower
consideration expectation thereby resulting
in a value adjustment in the 2013 Financial
Statements. The Audit Committee has met
with the management overseeing the sale of
Evraz Highveld. The Committee has seen sight
of a letter, from the investment bank managing
the sale, supporting management’s judgement
that it remains appropriate to classify the
entity as Assets held for Sale, and that this
sale will be completed during 2014.
Additionally, progress on the sale of EVS to
2012’s identifi ed buyer has similarly proved
slow to reach fruition. However, this disposal
has now been completed at the Company’s
estimated gross consideration within the
Financial Statements. The Subsequent Events
note in the Financial Statements records this
disposal.
Going Concern See note 2, CFS
The Audit Committee considered a going
concern analysis, prepared by management,
using the Company’s business model,
including a base case and a fl exed pessimistic
case. The base case utilised parameters
considered and adopted by the Board of
Directors in respect of the Company’s 2014
budget and also drew on the model adopted
for the Company’s forward strategy.
The most sensitive input related to the forward
prices for steel, coal and iron ore. In the
pessimistic case, capital expenditure and
forward product prices were fl exed, while the
rouble/US$ rate was devalued from the
business model’s base case assumption.
The Audit Committee reviewed existing funding
and committed sources of funds, together with
the potential effects of a rouble devaluation on
the Company’s solvency considerations. In
addition, the maintenance covenant remaining
on a minor element of the Company’s source
of funding was reviewed and the Committee
also considered probability with regard to
signifi cant lines of funding in relation to the
Company’s forward fi nancing plan.
A further consideration was the “emphasis of
matter” in relation to going concern noted in
the publicly available Consolidated Financial
Statements of Raspadskaya. It was confi rmed
that the Evraz Group’s consolidated business
model includes the stand-alone cash fl ow and
free cash fl ow models of Raspadskaya, in
relation to both the base and pessimistic
case scenarios.
Following this detailed review the Audit
Committee resolved to recommend to the
Company’s Directors that it is appropriate for
the Financial Statements to be prepared on a
going concern basis.
Management Estimates
Impairment See note 6, CFS
The key assumptions reviewed by the Audit
Committee are detailed in the note above.
Of the total impairment charge of US$446
million shown in the Statement of Operations,
US$326 million of the impairment is related to
Evraz Claymont Steel in North America, which
is a suspended operation as described in the
Strategic Report contained in the Annual
Report.
The Audit Committee challenged management
on the key sensitivities, forward commodity
and product prices, the semi and fi nished mix
of steel volumes, while also comparing the
weighted average cost of capital assumptions
(WACC) with management’s WACC
assumptions in respect of prior periods.
The Committee particularly challenged
management on the fair value, or value in use
assessments of cash generating units (CGU’s)
that showed marginal surplus over the carrying
value in the Financial Statements.
Depletion charge of mining assets
See note 9, CFS and Financial Review
The depletion charge has signifi cantly reduced
year-on-year, from $467 million in 2012 to
$194 million in 2013, despite a $32 million
charge for Raspadskaya Coal acquired in
January 2013. The depletion charge in relation
to mining assets for the fi rst half of 2013 was
$124 million.
The material reduction in the 2013 depletion
charge compared with 2012 and the material
change in 2013’s second half charge
compared with the higher fi rst half charge was
extensively discussed by the Audit Committee.
An independent JORC valuation was made of
the Yuzhkuzbassugol, Raspadskaya, Evrazruda
and EVRAZ KGOK mining assets, as at
1 July 2013. The results and tabulation
of the proven and probable reserves are
included in the Annual Report.
Following upon this independent JORC
valuation, the decrease in the depletion
expense was caused by a resulting revision
and detailing of mine plans. The overall mine
plans, with prospective extraction extending
beyond 40 – 100 years, were disaggregated
into separate components of proven and
probable reserves which are excluded from
the calculation of the depletion charge until
production begins. This results in a better
matching of the current depletion charge with
the estimated costs of extraction.
The Audit Committee was satisfi ed that the
depletion charge for the year 2013 refl ected
the revised mine plans.
Consideration of the reporting changes to
Annual Report
The Audit Committee initiated an educational
exercise, held in November 2013, for those
members of management responsible for the
preparation of EVRAZ’s 2013 Annual Report
and subsequently organised a presentation by
the external auditor, Ernst & Young LLP (EY),
to the Board on the key reporting issues laid
out in the Financial Reporting Council’s (FRC)
‘Guidance on the Strategic Report – Exposure
Draft’ published in August 2013 and the
reporting changes implemented as described
in the revised UK Governance Code 2012.
Following the Board presentation, the Directors
resolved that the Audit Committee’s Terms of
Reference should be amended to include a
duty to report on the assurance process for
the completion of the Annual Report and to
ensure the Annual Report and Accounts are
fair, balanced and understandable.
As a consequence of this duty, the Audit
Committee, in March 2014, presented for the
Board’s consideration a draft Principal Risks
and Uncertainties section of the Annual Report
and the Chairman of the Audit Committee has
had meetings with the Group’s CEO to discuss
the CEO’s own report and the strategy section
of the Annual Report.
Evraz Group 2013 Annual Report
The Audit Committee has reviewed the form
and content of the Group’s 2013 Annual
Report to shareholders. The Committee
reported to the Board that it considers the
Annual Report, taken as a whole, to be fair,
balanced and understandable.
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Other matters
Group Financial procedures manual
The Audit Committee received and considered
the Group Financial Procedures manual
detailing all the principal fi nancial controls and
revisions thereto. This report has been tabled
at the Board to inform Directors of the relevant
internal fi nancial controls.
UK Bribery Act
Following upon the introduction in 2012
of training programmes, anti-corruption
procedures and the necessary records, the
Audit Committee requested management to
instigate an external review of the compliance
and framework of the Company’s business
processes and controls. A major international
and qualifi ed consulting organisation was
engaged to conduct this review and has
reported on compliance with laws of the
Russian Federation and the UK Bribery Act.
Although there are matters, processes and
records that can be improved, the existing
processes and controls were confi rmed as fi t
for purpose.
To ensure that the existing processes continue
to operate at a high level of integrity the Audit
Committee has nominated that anti-corruption
processes are regularly included for assurance
in the annual Internal Audit programme.
Ukraine
In the light of current developments, the Audit
Committee has reviewed the Company’s
various exposures and business risks in the
Ukraine. The Group has no specifi c exposure
in the Crimea. The Audit Committee paid
particular attention to the impairment review
of assets in the Ukraine together with tax
receivables from the Ukraine government and
risks to Free Cash Flow with possible impact
on the Group’s going concern considerations.
See Principal Risks and Uncertainties.
Audit Committee self-assessment
A self-assessment of the Audit Committee was
undertaken encompassing its composition, its
duties and responsibilities, its access to
management and its performance.
Risk Management and Internal Control
See Governance section, Risk management
and Internal Control.
The Group Head of Internal Audit presented a
half-yearly consolidated internal audit report for
the consideration of the Audit Committee. The
Audit Committee referred areas of signifi cant
risk in the Group’s control environment,
registering a higher score than the Group’s risk
appetite, to the Board for consideration and
with recommended further action.
accommodate the additional work resulting
from the Raspadskaya acquisition. The Head
of Internal Audit holds regular meetings with
the Chairman of the Audit Committee and the
Committee reviews the allocated Internal
Audit KPI’s.
Action on all Internal Audit recommendations
was reviewed quarterly by the Audit Committee
and, where recommended actions fell short
of agreed timelines, management was called
to the Committee to provide explanation.
A particular internal control concern related to
independent bulk stocktaking in respect of
scrap, ore and coal.
Through the Internal Audit function, the Audit
Committee received and considered a six
monthly fraud report from the Group’s
security function.
In July and November 2013, the Audit
Committee reviewed the considerations of the
Group’s Risk Committee, including the Group’s
risk register and key divisional risk registers,
together with the Security and Governance
registers. Following these reviews, the
committee considered the proposed Group’s
Risk appetite and the resulting proposal and
revised Group Risk register were presented to
the Board.
Internal Audit
In addition to the above the Audit Committee
received from the Head of Internal Audit a
monthly report detailing matters relating to
business risks, audit programme progress,
any time delays or changes to the agreed
internal audit programme, a summary of any
signifi cant fi ndings from completed audits,
a report on any whistleblowing activity, any
matters relating to the UK Bribery Act and an
updated litigation summary.
The Committee reviewed all whistleblowing
reports from Internal Audit.
The Committee reviewed the process and risk
scoring with regard to the Internal Audit’s
recommendation for the 2014 audit
programme; with certain amendments the
committee approved this programme. The
Audit Committee requested Internal Audit to
perform an internal control review of
Raspadskaya’s fi nancial and operational
procedures and recommended an increase in
the Internal Audit’s resource in order to
The Audit Committee undertakes an annual
assessment of the effectiveness,
independence and quality of the Internal Audit
function by way of a questionnaire to Audit
Committee members, management and to
the external auditors.
External Audit
The Audit Committee reviews and discusses
the external audit programme with regard to
the Interim Review and Year-end audit. In
particular the Committee reviews key audit
risks and audit materiality and challenges audit
scope, independence and EY’s quality
assurance processes.
The Audit Committee reviewed the Interim and
Year-end reports with particular consideration
given to EY’s reports as to areas of signifi cant
estimation within the Group. Further, following
upon the FRC’s Audit Quality Thematic Review,
published in January 2014, the Committee
requested the external auditor to respond to
matters detailed in the review, concerning
EY’s audit processes in relation to fraud
and their processes for consideration of
laws and regulations. The Audit Committee
reviewed and discussed the external
auditor’s responses to these issues.
The Audit Committee reviewed the letter of
representation to be signed by management
in respect of both the Interim review and the
Year-end audit.
The Audit Committee, together with the
relevant management, considered the external
auditor’s management letter following the
2012 audit, and reviewed the steps proposed
by management in response to the external
auditor’s fi ndings.
The Audit Committee held a session with
the external auditors without management
being present and enquired as to the
appropriateness of the Company’s accounting
policies. The external auditor confi rmed that
the policies remain appropriate.
EVRAZ plc Annual Report and Accounts 2013
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CORPORATE GOVERNANCE REPORT
Continued
Correspondence from the Regulators FRC
Audit Quality Review Team (AQRT)
EY’s external audit team was subject to an
Audit Quality review by the UK external audit
regulator in relation to its audit of the 2012
Financial Statements. The results were shared
with the Chairman of the Audit Committee
and have been discussed with the EY audit
partner. While some limited areas for
improvement were identifi ed, the results
did not cause any concern for the Audit
Committee in terms of the overall quality
of the external audit process.
Following the completion of a questionnaire
by members of the Audit Committee and
management, assessing the effectiveness,
and quality of the audit and the independence
of EY, together with a review of the FRC’s
report on EY, and EY’s annual Transparency
report; the Audit Committee has
recommended the reappointment of
EY as the external auditor.
Committee members and attendance
The Audit Committee has a majority of
Independent Non-Executive Directors.
Role of the Audit Committee:
• to assist the Board in ensuring the integrity
of its Financial Statements.
Responsibilities of the Audit Committee:
• to review the announcements of the
Financial Results, Financial Statements and
Annual Report, and provide assurance in
respect of all reporting regulations;
• to review the appropriateness of accounting
policies and the key judgments and
estimates;
• to assess and monitor the scope and
effectiveness of internal controls and
systems;
• to identify and challenge management as to
fi nancial and non-fi nancial risks;
• to review and propose to the Board the
appropriate level of the Group’s risk
appetite;
• to review the procedure of detecting,
monitoring and managing the risk of fraud
and regulatory compliance;
• to oversee the relationship with the external
auditors and make recommendations to the
Board regarding the appointment of the
external auditor;
• to review the scope, resources, relationship,
results, effectiveness and management
action of internal audit and the internal
audit’s central recommendations;
• to report to the Board on whether the Audit
Committee considers the Annual Report
taken on a whole, to be fair, balanced and
understandable.
As explained in the Corporate governance
report (page 79) the technical experience and
regional expertise that Olga Pokrovskaya
brings to the Committee is of immense value,
underlined by the scale of the Company’s
Russian operations.
Attendees were: The external auditors Ernst &
Young LLP (EY), Head of Group Internal Audit/
Secretary to the executive Risk Committee,
Group head VP, the Group Compliance offi cer
and the Group Chief Financial Offi cer. Senior
members of the fi nancial accounting team
were also invited to attend the meetings.
The Committee also invited the VP’s of
Strategy, International Assets, Security,
Projects, Procurement, Steel, Directors of IR
and other senior executives to attend various
meetings during the year.
The Audit Committee met eleven times in
2013 and four times since the beginning
of 2014 until the publication date of this
Annual Report.
Name
Attendance
Terry Robinson (Chairman)
Duncan Baxter
Sir Michael Peat
Olga Pokrovskaya
* Four meetings were held by conference calls.
Non-audit services
See note 31, Financial Statements.
Non-audit services are managed in
accordance with the Group’s policy for
approval of services to be provided by the
external auditor; the policy can be found on
the Company’s web-site.
Irrespective of the prior approval of the CFO
or the Chairman of the Audit Committee, all
non-audit fees are reported to the Audit
Committee for noting and comment.
In 2013, non-audit fees totalled US$775,758,
of which US$268,414 related to services in
connection with the April 2013 bond issuance.
Of the balance, the principal engagements
were in connection with Tax advisory work in
the United States, US$250,000, and advising
on GHG reporting, US$149,000. None of the
services were provided by personnel having a
connection with the external audit.
Non-audit services represent 11 per cent of
the audit fee of US$6,937,773.
Reappointment of the external Auditor
During the year the Audit Committee reviewed
its policy regarding the selection of the
Group’s external auditor, the original practice
being to seek a tender for external audit every
fi ve years. The Audit Committee considered
the UK Governance Code’s guidance that a
tender be made every 10 years and have so
amended the Company’s policy. EY were
appointed as auditors to the Company upon
Listing in 2011. EY were the auditors to the
predecessor group of companies and the audit
was last tendered in 2009.
The rotation of the lead EY audit partner is
every fi ve years. The lead audit partner,
Mr Ken Williamson, assumed that role for
the 2011 audit.
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At its meeting on 17 October the Committee
considered the following issues:
• The composition of the Board and the age,
diversity and length of time in offi ce of its
members, as well as the continuing
independence of the independent non-
executives. It was agreed that the Board
represented a good mix of skills and
experience, that the Company had benefi ted
from having a stable Board and a group of
people who interact well, and that the
independent non-executives continued to be
independent. It was also agreed that greater
female representation and, in due course,
progressive change to bring fresh
perspectives are desirable, and options in
this respect were discussed. The Committee
also considered the membership and
chairmanship of Board committees and the
committees’ effectiveness. It was agreed
that the chairmanship of the committees
should be rotated over time.
• The Committee considered the performance
of senior management and senior
management succession planning, with
important input from the Chief Executive.
It was a wide-ranging and constructive
discussion with conclusions deferred
until the Committee’s next meeting.
• Finally, the Committee considered directors’
development and training requirements.
It was concluded that a briefi ng on
developments in UK Corporate Governance
and Reporting should be provided to the
Board as a whole (this was done at the
November Board meeting) and that individual
directors should be encouraged to identify
and attend courses which meet their
Nominations Committee
Committee members and attendance
The members of the Nominations Committee at
31 December 2013 and throughout the year
were Sir Michael Peat (Chairman), Alexander
Abramov, Terry Robinson, Alexander Izosimov
and Eugene Shvidler. Three of the fi ve members
of the Committee were independent non-
executives.
The Committee met on two occasions during
2013, on 17 October and 12 December.
Name
Attendance
Sir Michael Peat (Chairman)
Alexander Abramov
Terry Robinson
Alexander Izosimov
Eugene Shvidler
All members were present for both meetings, with the Chief Executive in attendance.
particular development and training
requirements.
• At its meeting on 12 December, the
Committee continued its discussion of
senior management performance and
succession planning. The Committee agreed
with the Chief Executive’s assessment of
senior management and with his plans for
development and succession, and were
appreciative of the time and attention
devoted to this important area.
The Committee also considered the results
of the Board Effectiveness questionnaire.
It was a detailed questionnaire, replies to
which were submitted by all Board members,
without attribution, directly to the Company’s
external Board Secretaries. They aggregated
the replies which were considered by the
Committee (and subsequently by all other
Board members). The evaluation considered,
inter alia, the balance of skills and
experience on the Board, independence,
knowledge of the Group, the content and
effectiveness of meetings and diversity
(including gender).The Committee concluded
that it had been a helpful and encouraging
exercise, with the results confi rming that the
Board was working well, but also including
some helpful suggestions for improvement.
These included actions to enhance the
company secretarial function, training for
directors, reporting to the Board by
sub-committees and the allocation of time
to agenda items.
Performance of the Chairman and individual
directors
Prior to the Nominations Committee meeting
on 12 December 2013 the Chairman of the
Company and the Chairman of the Nominations
Committee discussed the performance of the
individual directors, including time available to
devote to the Company’s business. In addition,
the Senior Independent Non-executive Director
sought views from all directors about the
performance and contribution of the Chairman.
Assessment of the Committee’s effectiveness
The Committee’s own effectiveness was
considered as part of the review of the Board’s
effectiveness.
2014 priorities
The Committee will continue to fulfi ll its general
responsibilities, with particular emphasis on
compliance with the UK Corporate Governance
Code, development and succession planning
for senior management, providing and
encouraging training for directors and
facilitating an external review of the Board’s
performance during 2014.
EVRAZ plc Annual Report and Accounts 2013
87
CORPORATE GOVERNANCE REPORT
Continued
Role of the Health, Safety and Environmental
Committee
The Health, Safety and Environment Committee
leads the Board’s thinking on health and safety
issues, as well as maintaining responsibility for
environmental, security and local community
matters.
Responsibilities of the Health, Safety and
Environment Committee are:
• Assessing the performance of the Group
with regard to the impact of health, safety,
environmental and community relations
decisions and actions upon employees,
communities and other third parties and
on the reputation of the Group;
• On behalf of the Board, receiving reports
from management concerning all fatalities
and serious incidents within the Group and
actions taken by management as a result of
such fatalities or serious incidents;
• Reviewing the results of any independent
audits of the Group’s performance in regard
to environmental, health, safety and
Attendance
Health, Safety and
Environment Committee
Committee members and attendance
The members of the Health, Safety and
Environmental Committee at 31 December
2013 were Karl Gruber (Chairman), Alexander
Frolov, Terry Robinson and Olga Pokrovskaya.
Name
Karl Gruber (Chairman)
Alexander Frolov
Terry Robinson
Olga Pokrovskaya
The Committee met on two occasions during 2013, on 12 February 2013 and 18 September
2013.
community relations matters, reviewing any
strategies and action plans developed by
management in response to issues raised
and, where appropriate, making
recommendations to the Board concerning
the same;
• Making whatever recommendations it deems
appropriate to the Board on any area within
its remit where action or improvement is
needed.
The following sections summarise how the
Committee has fulfi lled its duties in 2013.
In addition to the scheduled meetings the
Committee requested and now receives a
monthly HSE summary report and the VP of
HSE reports directly to the Board of Directors
on a quarterly basis.
HSE Performance Assessment of the Group
The HSE committee reviewed the dynamics of
HSE Performance and EVRAZ HSE Policy
implementation progress.
Health & Safety
Health & Safety performance includes the
following metrics:
• Fatal incidents
• Lost Time Injuries (LTI)
• Lost Time Injury Frequency Rate (LTIFR)
calculated as number or lost working hours
due to injuries per 1 million hours worked
• Cardinal safety rules enforcement
The HSE Committee reviewed the causes of
all fatalities and serious incidents within the
Group and the follow-up actions taken by the
management as well as the information related
to the Company’s internal incident investigation
system (immediate actions/root causes/
systemic corrective actions). The Committee
members concluded that the key task is to set
standard work requirements on safety for all
management levels. HSE topics have to
become a fi xed agenda item in daily work and
management should provide effective safety
training for employees.
The Committee reviewed the status of the
2012 – 2013 HSE initiatives and concluded
that in most areas the initiatives started have
to be further consequently implemented during
2014. The Committee reconfi rmed the need
to drive a cultural change where safety is
recognised as a core value by every employee
and contractor and discussed the roadmap for
specifi c HSE goals and actions to be taken in
2014, including:
• enforcement of the minimum Personal
Protective Equipment requirements;
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• implementation of the lock out/try out
(LOTO) energy isolation program to establish
a zero energy state of all equipment before
any type of work is commenced and
completed, especially during maintenance
and repair;
• facilitation of a more proactive approach to
instill a risk or hazard assessment
methodology into the daily activity of every
employee;
• roll-out of behaviour safety conversations as
an HSE management tool ensuring regular
communications between the employees
and their supervisors with a strong focus on
unsafe actions to make sure incidents are
prevented before they occur.
All of these areas of focus also involve new
and improved training for managers,
employees and contractors.
Environmental performance
Environmental performance includes the
following metrics:
• Non-compliance related environmental
levies (taxes) and penalties.
• Air Emissions (Nitrogen Oxides NOx, Sulphur
Oxides SOx, Dust and Volatile Organic
Compounds).
• Non-mining waste and by-products
generation, recycling and re-use.
• Fresh water Intake and water management
aspects.
The Committee undertook an environmental
performance benchmark analysis vs. similar
companies of the same industry profi le. The
members concluded that EVRAZ has a good
waste recycling rate due to processing of its
old landfi lls, on the other hand EVRAZ steel
making facilities have potential to improve
fresh water consumption rate and decrease
of air emissions per ton of steel produced.
The Committee reviewed environmental
activities to minimise the risks of
environmental incidents and issues such as
water usage and quality of return discharged
water, air emissions, metallurgical waste
recycling, tailing dam overfl ow or collapse
and community complaints.
It was noted that the main focus should be on
environmental risk mitigation measures: waste
water and air emission reduction programs
that should be implemented during the next
fi ve years. In June 2013 EVRAZ Environmental
Strategy was updated based on risk
assessment and the cost options have been
included into the fi nancial models for the next
fi ve years. Environmental risk minimization
measures have been considered by the
management at Strategic sessions.
The members reviewed the new requirement
on Greenhouse gases (GHG) emissions
disclosure set by the Companies Act which was
amended by the UK Parliament on August 6,
2013. The Committee made recommendations
on the process of GHG data consolidation and
reporting.
Details on HSE performance could be found in
the Corporate Social Responsibility section on
pages 35 to 41.
HSE audit results review
EVRAZ operations are subject to HSE
compliance inspections undertaken by
supervisory governmental agencies. The
consequential risks of violating HSE
regulations might be regulatory fi nes, penalties
or – in the worst case scenario – withdrawal of
mining or plant environmental licences thus
curtailing operations.
The Committee Members of the Board
reviewed:
• the performance statistics of Internal
Industrial Audit Department (IIAD) for the
coal and mining assets vs. the same data
of the state control agency’s inspections.
• the results of environmental due diligence
at Raspadskaya Coal Company, which has
been recently incorporated into the
Company’s management scope.
• the status of the HSE Committee decision
on a system registering employees violating
HSE requirements. The Committee issued
a recommendation to create a unifi ed
consolidated violators tracking system and
develop a standard set of corporate
measures.
Other issues and recommendations
The Committee members reviewed the HSE
reporting system, and made recommendations
on the information, metrics and deadlines
provided.
Risk management
and internal control
Risk management process
As part of the Group’s Primary Listing
requirements in October 2011, a
comprehensive fi nancial procedures report
was prepared detailing the Group’s Internal
Controls and risk management systems and
activity. In substance the report represents the
Group Internal Control Manual. This Manual
was last updated in March 2014. The Board
has overall responsibility for the Group’s
processes of Risk Management and Internal
Control, and for reviewing the effectiveness of
these processes. In accordance with FRC
guidance, the purpose of the risk management
is designed to identify, evaluate and manage
signifi cant risks associated with the
achievement of the Group’s objectives.
The Company’s risk management procedures
are designed to meet the risks to which it is
exposed. Consequently, it can only provide
reasonable and not absolute assurance
against a risk being realised and a material
misstatement or loss occurring. The Board has
delegated to the Audit Committee the oversight
of this committee’s deliberations and the chair
of the Audit Committee is the chair of the
Group’s Risk Committee.
The Group’s Risk Committee undertakes a
twice yearly review of the Group’s risk profi le.
It reviews the Group’s operations and
determines the Group’s principal risks and
uncertainties according to an impact and
probability score, nominating the appropriate
risk owner and reviewing the actions necessary
to mitigate such risks and their implementation
by management at the Group and Regional
levels. Particular scrutiny is given to risks
having an ‘inherent’ risk greater than the
Group’s risk appetite and the mitigating actions
to manage, where feasible, to a ‘residual’ risk
evaluation directed below the Group’s risk
appetite.
Given the breadth of the Group’s operations
it was agreed that a reporting process from
the regional risk committees should be
established with specifi c accountability to the
Group Risk Committee through its members
(Vice Presidents of Business Units), for the
purpose of identifying, evaluating and
establishing management actions for risk
mitigation at a regional level.
Risk management processes and internal
controls operate across our steel plants,
mines, ancillary service operations, capital
projects and administrative functions. Risk
management and internal control procedures
are embedded within our business practices
across function areas including fi nance, HSE,
human resources, procurement, IT, legal,
security, anti-corruption and insurance
management. There is detailed assessment of
safety risks at all hazardous work places, steel
plants and mines, and of project risks for all
major projects which include environmental
risk assessments. The fi nance and strategic
risks of major projects are prepared by the
executive and presented to the Board for its
consideration and key associated risks are
kept under regular review by the Board.
Regional risk committees have been set up at
all major regions of the Group’s assets and
lead the process to deploy risk management at
our major steel and mining operations.
EVRAZ plc Annual Report and Accounts 2013
89
CORPORATE GOVERNANCE REPORT
Continued
The Group Enterprise Risk Management (ERM)
process is designed to identify, quantify,
respond to and to monitor the consequences
of a Risk Committee agreed risk register that
encompasses both internal and external
critical risks. This process is consistent with
the listing rules published by the UK Financial
Conduct Authority and is based on ‘Internal
Control: Revised Guidance for Directors on the
Combined Code’.
An important part of the risk management
process is the determination of appropriate
risk appetite at Group management level,
thereby identifying particular risks and
uncertainties which require specifi c
Board oversight.
The Audit Committee reviews the Group’s
EVRAZ risk management framework
major risks and uncertainties prior to the
publication of the Annual Report and the
interim results and presents the major risk
register and risk matrix for the Board’s
consideration and approval, together with
a review and recommendations in respect
of the Group’s risk appetite.
The Group’s executive management is
responsible for 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.
EVRAZ applies the following core principles to
the identifi cation, monitoring and management
of risk throughout the organisation:
• Risks are identifi ed, documented,
assessed, monitored, tested and the risk
profi le 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; and
• All acquired businesses are brought within
the Group’s system of internal control as
soon as practicable.
‘Top-down approach’: oversight,
identifi cation, assessment and
management of risks at corporate
level
‘Bottom up approach’
identifi cation, assessment and
management of risks at regional
and site level and across the
functions
The Board of Directors:
• Overall responsibility for the Group’s risk management and internal control
• Approves strategic objectives and risk appetite
Executive Risk Committee
– Identifi es, assesses and
monitors group-wide risks and
mitigation actions
Audit Committee
– Supports the Board in monitoring
risk exposure against risk appetite
– Reviews the effectiveness of risk
management and internal controls
systems
Internal Audit
– Supports the Audit Committee
in reviewing the effectiveness of
our risk management and internal
controls systems
Regional risk committees
• Adopt regional risk appetite
• Support the Executive Risk Committee in reviewing and monitoring effectiveness of risk management
• Identifi cation, assessment and management of risks at the regional level
• Monitoring of risk management process and effectiveness of internal control
Site levels
• Identifi cation, assessment and mitigation of risks
• Promoting risk awareness and safety culture
Risk management activity in 2013
In 2013 regional risk committees continued
identifying, evaluating and instigating regional
risk management mitigating actions. Detailed
risk assessment and evaluation of risk issues
at the plant and mine levels were conducted in
2013. Risk registers for Yuzhkuzbassugol and
Raspadskaya were developed and reviewed by
the Group Audit Committee.
The Group’s Risk Committee reviewed the
Group’s risk profi le in June and October 2013.
Principal risks considered on the October
meeting were then used in preparation of the
Group consolidated budget for 2014 according
to the new requirement for the budgeting
process and aimed at enhancement of this
process including balanced risk mitigation
actions.
The Head of Internal Audit served as Secretary
to the Risk Committee and participated in
discussions of the Group’s risk profi le and
mitigation actions as part of its monitoring
process.
The Group has made good progress in making
sure that its anti-bribery and anti-corruption
programme is effective through a independent
and external party attestation process. As
noted above, from 2013 the budgeting process
includes consideration of principle risks in
building up budgets for initiatives mitigating
those risks exposures.
Controls
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 the annual audit programme
thereby ensuring that the Group’s ongoing
internal control process is adequate and
effective.
As of the end of the year 2013 the control
environment of Raspadskaya is still in the
process of integration into the control
environment of the whole EVRAZ group.
A department of the Company headed by
Senior Vice President Leonid Kachur has
specifi c responsibility for preventing and
detecting business fraud and abuse, including
fraudulent behaviour of the Company’s
employees, customers and suppliers, which
may cause a direct economic loss to business.
Solid internal controls help minimise the risk,
and EVRAZ’s business security department
ensures that appropriate processes are in
place to protect the Company’s interests.
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Components of the system of internal control
Component of the system of internal control
Basis for assurance
Actions in 2013
Assurance framework – principal entity-level
controls to prevent and detect error or material
fraud, ensure effectiveness of operations and
compliance with principal external and internal
regulations
Documented regulations on establishment of
delegated authorities, including approval of
transactions and investment projects
• Self-assessment by management at all
major operations
• Review of the self-assessment by Internal
Audit
• Certifi cation of the system of internal control
took place in mid-year and at the end of
2013 and was facilitated and reviewed by
Internal audit
• Monitored by controlling and established
management committee and sub-
committees
• Reviewed by Internal Audit
• Signing power matrix defi ning transaction
authority limits has been updated in 2013
• Signing power matrix is subject to approval
by the Management committee of the Group
Operating policies and procedures
• Implemented, updated and monitored by
management
• Reviewed by Internal Audit
Operating budgets
• Monitored by Controlling Unit
• Reviewed by Internal Audit
• Approved by the Board of Directors
• Operating policies and procedures were
updated as per the internal initiatives by
operational management as well as a
response to the Internal Audit
recommendations
• Operating budgets were prepared and
approved by the Board of Directors
Accounting policies and procedures as per the
corporate accounting manual
• Developed and updated by Reporting
• Accounting policies and procedures were
department
• Reviewed by Internal Audit
updated as the standard process
Internal Audit
Internal audit is an independent appraisal
function established by the Board to evaluate
the adequacy and effectiveness of controls,
systems and procedures, within EVRAZ,
in order to reduce business risks to an
acceptable level in a cost effective manner.
The latest version of Internal Audit Charter
of EVRAZ plc was approved by the Board on
13 December 2012.
The role of the Internal Audit Department in the
Group is to provide an independent, objective,
innovative, responsive and effective value-
added internal audit service through a
systematic and disciplined approach by
assisting management in controlling risks,
monitoring compliance, improving the effi ciency
and effectiveness of internal control systems
and governance processes.
In 2013, EVRAZ’s Head of Internal Audit, being
Secretary to the Audit Committee, attended all
its meetings and addressed any reported
defi ciencies in internal control as required by
the Audit Committee. The Audit Committee
continued to engage with executive
management during the year to monitor the
effectiveness of internal control and
accordingly considered certain defi ciencies
that had been identifi ed in internal control
together with management’s response to such
defi ciencies. In 2013 Internal Audit initiated
a review of the effectiveness of the procedure
of physical inventory on the Executive
management committee as a further step in
improving internal control in this area.
The internal audit planning process starts with
the Group’s strategy and includes the formal
risk assessment process, and the process of
identifi cation of management concerns based
on previous audits results, and ends with an
internal audit plan which is approved by the
Audit Committee. Audit resource is
predominantly allocated to areas of higher risk
and to the extent considered necessary,
resource is allocated to the fi nancial and
business control and processes with
appropriate resource reservation for the
ad hoc and follow-up assignments.
In 2013 internal audit projects have covered
the following principal group risks:
1. Capital projects management
2. Treasury and working capital management
3. Health and safety and environmental
4. Cost competitiveness
5. Business interruption and equipment
downtime management
The Company’s internal audit is structured on
a regional basis, refl ecting the developing
geographic diversity of the Group’s operations.
In light of this the head offi ce internal audit
function has been in process of aligning
common internal audit practices throughout
the Group through its quality assurance and
improvement programmes.
Further information regarding the Company’s
internal control and risk management
processes can be found on the Company’s
website www.evraz.com/governance/control
Confl icts of interest
For information on the Shareholder Agreement
please refer to Signifi cant contractual
arrangements in Directors’ Report on
page 107.
Alexander Abramov is the Chairman of the
Company and Alexander Frolov is the CEO.
Ms. Pokrovskaya, Mr. Shvidler, Mr. Tenenbaum,
Mr. Abramov and Mr. Frolov have been
appointed to the Board of Directors of the
Company by the major shareholder pursuant
to the terms of the relationship agreement.
The indirect and direct shareholdings of these
Directors in the share capital of the Company
are set out in the Directors’ Report. No other
confl icts of interests exist between the private
interests of the directors or members of senior
management and their duties to the Company.
EVRAZ plc Annual Report and Accounts 2013
91
CORPORATE GOVERNANCE REPORT
Continued
For completeness, in 2012 the Board
considered an arm’s length business
arrangement between one of the Non-
independent directors and the son of Sir
Michael Peat, the senior Independent Director
of the Company, and satisfi ed itself that this
arrangement has no impact on Sir Michael
Peat’s independence.
Constructive use of Annual General Meeting
The AGM is an opportunity for shareholders
to communicate with the Board and the Board
welcomes their participation. The next AGM will
be held on 12 June 2014. The Chairman and
the respective Chairmen of Committees will be
present at the AGM to answer shareholders’
questions.
In addition, the Board noted the nomination
of Terry Robinson to the Board of OJSC
Raspadskaya, a subsidiary of the Company,
and was satisfi ed that this nomination had no
impact on Mr. Robinson’s independence.
Relations with shareholders
An ongoing dialogue with stakeholders is an
essential aspect of corporate activity. We use
various communication channels including
announcements made via the London Stock
Exchange, the Annual Report and Accounts,
the Annual General Meeting (the AGM) and the
Company’s website www.evraz.com
Details of the resolutions to be proposed at
the next AGM can be found in the Notice of
AGM at www.evraz.com/investors/information/
general_meeting
The Board has determined that voting on all
resolutions at the AGM will be by way of a poll.
Each member present in person or by proxy
has one vote for each fully paid ordinary share
of which she/he is a holder.
Geographical distribution of institutional
investor share ownership by geography – or
by investment type – as at mid- January 2014
The Chairman of the Board, the Chief
Executive, senior management and the
investor relations team regularly engage with
institutional investors through roadshows,
group and one-on-one meetings to discuss the
Company’s operations and a wide range of
issues including governance. Approximately
500 individual/group meetings, conferences
and other public events involving the
investment community took place during 2013.
The Company’s top management took an
active part in the meetings giving the investors
and analysts an opportunity to receive
fi rst-hand information about Company’s
operations and discuss concerns – the
initiative that has been very much appreciated
by the investors. We also held conference calls
and a meeting with socially responsible
investors (SRI) to discuss operational risks,
health and industrial safety policies,
environmental and social issues.
The senior Independent Director, Sir Michael
Peat, is available to shareholders if they have
concerns that have not been resolved by
contact through the normal channels of the
Chairman, Chief Executive Offi cer or Chief
Financial Offi cer or for which such contact
is inappropriate.
13%
2%
4%
4%
7%
22%
48%
United Kingdom
USA
Norway
Sweden
Russia
Rest of Europe
Rest of the World
Information pursuant to the takeovers
directive
The Company has provided the additional
information required by DTR 7.2.7 (directors
interests in shares; appointment and
replacement of directors; powers of the
directors; restrictions on voting rights and
rights regarding control of the Company) in the
Directors' Report on pages 105 – 108.
92
EVRAZ plc Annual Report and Accounts 2013
REMUNERATION REPORT
This report has been prepared in accordance
with the Companies Act 2006 and Schedule 8
to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 (as amended in 2013). It also meets the
relevant requirements of the Listing Rules of
the Financial Services Authority and describes
how the Board has applied the principles
of good governance as set out in the UK
Corporate Governance Code issued by the
Financial Reporting Council in September 2012.
This report contains both auditable and non-
auditable information. The information subject
to audit by the Group’s auditors, Ernst & Young
LLP, is set out in the Annual Remuneration
Report and has been identifi ed accordingly.
Letter from the Remuneration
Committee Chairman
Dear Stakeholder,
On behalf of the board, I am pleased to
present our Remuneration Report for 2013.
Despite the unfavourable economic and market
conditions, affecting our fi nancial results,
EVRAZ has delivered on several key investment
projects, which are aimed at developing
EVRAZ’s raw material base, improving its steel
product mix and preserving the Company’s
low cost positions. Company’s management
initiated a cost reduction programme and have
achieved good results in its implementation.
Many of the Company’s achievements would
not be possible without our people’s keen
involvement and contribution. That’s why
talent management and the retention of
senior management and executives remained
key items on our agenda during the year. We
want to ensure that EVRAZ has a competitive
remuneration mix that rewards our people’s
efforts and is aligned to the long-term and
sustained performance of the company.
This report represents the fi rst EVRAZ
Remuneration Report to fully comply with
the new Directors’ remuneration reporting
regulations introduced last year by the UK
Government. As required by these regulations,
this report is split into two sections, as follows:
• Directors’ remuneration policy. This sets
out details of the EVRAZ remuneration policy
for Directors. This will be put to a binding
vote at the 2014 AGM, and, subject to
shareholder approval, will apply from the
2014 AGM.
• Annual remuneration report. This gives
details of how remuneration was paid in
2013 and how we intend our policy to apply
for 2014. This section will be put to an
advisory shareholder vote at the forthcoming
AGM.
The Committee reviewed the remuneration
policy in detail as part of the move towards
adopting the new regulations. We believe
that our remuneration policy remains
appropriate, and as such, there have been no
major changes in the year. In particular, the
following key features remain unchanged:
• The Chief Executive Offi cer participates in a
bonus scheme based on the achievement of
the Company’s KPIs to ensure focus is
spread across the key aspects of Company
performance and strategy.
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• Due to his substantial shareholding in the
Company, the CEO does not participate in
any long-term incentive plan, nor in any
pension or superannuation scheme. Other
members of senior management are eligible
to participate in a long-term incentive plan to
ensure shareholder alignment.
In terms of key decisions made in the year,
the Committee determined that the CEO’s
salary for 2014 will remain frozen at the
same level as 2013, refl ecting the continuing
challenging market conditions and low
general increases to employees across the
Company. Based on performance against the
pre-determined KPIs and targets, the CEO’s
annual bonus pay out in respect of 2013
would have been 69% of maximum. However,
after due consideration, and in the context
of the Company’s overall performance this
year, the Committee and CEO jointly agreed
to cap the annual bonus in respect of 2013
at the target level (50% of maximum).
In line with our commitment to good corporate
governance, we will continue to monitor our
investors’ views, best practice developments
and market trends on executive remuneration.
These will be taken into account when deciding
upon executive remuneration at EVRAZ in order
to ensure our policy remains appropriate in the
context of business performance and strategy.
Policy Report
Details of the executive Director and non-
executive Director remuneration policies are
given in the following sections. In accordance
with section 439A of the Companies Act, a
binding shareholder resolution to approve this
report will be proposed at the Annual General
Meeting of the Company to be held in 2014.
This policy will apply to payments made from
the 2014 AGM, subject to shareholder
approval.
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EVRAZ plc Annual Report and Accounts 2013
93
REMUNERATION REPORT
Continued
Remuneration policy
Element
Purpose and link to strategy
Operation
Maximum potential value
Performance metrics
Executive Director
Base salary
Provides a level of base
pay to refl ect individual
experience and to attract
and retain high calibre
talent.
Benefi ts
To provide a market level
of benefi ts, as appropriate
for individual
circumstances
Normally reviewed
annually, taking into
account individual and
market conditions,
including:
• size and nature of the
role,
• relevant market pay
levels,
• individual experience
and pay
• increases for
employees across the
Group.
For the current CEO, base
salary incorporates a
Director’s fee (paid to all
Directors of the company
for participation in the
work of the Board
committees – see the
section on Non-Executive
Director remuneration
policy below).
Benefi ts currently include:
• private healthcare
• meal allowances
Other benefi ts (including
pension benefi ts) may be
provided if the Committee
considers it appropriate.
The current CEO does not
currently participate in any
pension scheme.
In the event that an
executive Director is
required by the Group to
relocate, benefi ts may
include but are not limited
to relocation allowance
and housing allowance.
None
Generally, the maximum
increase per year will be
in line with general level of
increases within the
Group.
However, there is no
overall maximum
opportunity as increases
may be made above this
level at the Committee’s
discretion, to take
account of individual
circumstances such as
increase in scope and
responsibility and to
refl ect the individual’s
development and
performance in the role.
None
Generally the cost of
benefi ts will be in line
with that for the senior
management team.
However the cost of
insurance benefi ts may
vary from year to year
depending on the
individual’s
circumstances.
The overall benefi t value
will be set at a level the
Committee considers
proportionate and
appropriate to refl ect
individual circumstances.
There is no total
maximum opportunity.
94
EVRAZ plc Annual Report and Accounts 2013
Element
Annual bonus
Purpose and link to strategy
Operation
Maximum potential value
Performance metrics
200% of base salary per
fi nancial year
Aligns executive
remuneration to Company
strategy through
rewarding the
achievement of annual
fi nancial and strategic
business targets.
The Company operates
an annual bonus
arrangement under which
awards are generally
delivered in cash.
Targets are reviewed
annually and linked to
corporate performance
based on predetermined
targets.
The bonus is based on
achievement of the
Company’s key
quantitative fi nancial,
operational and strategic
measures in the year to
ensure focus is spread
across the key aspects of
Company performance
and strategy.
The exact measures and
associated weighting will
be determined on an
annual basis, according to
the Company’s strategic
priorities, however at least
60% will be based on
Group fi nancial measures.
For achievement of
threshold performance,
0% of maximum will be
paid, rising straight line to
50% of maximum for
target performance and
100% of maximum for
outstanding performance.
The Committee retains
discretion to adjust bonus
payments to refl ect the
overall performance of the
Company.
Non-Executive Directors
Chairman and
Director Fees
To provide remuneration
that is suffi cient to attract
and retain high calibre
non-executive talent
Director fees are paid in the form of cash fees, but with the fl exibility to forgo all or
part of such fees (after deduction of applicable income tax and social taxes) to
acquire shares in the Company should the Non-Executive Director so wish.
Non-Executive Director fees are reviewed from time to time.
Non-Executive Directors receive an annual fee for membership of the Board.
Additional fees are payable by reference to other Board responsibilities taken on by
the Non-Executive Directors (for example membership and chairmanship of the Board
committees).
The Chairman of the Board receives an all-inclusive annual fee.
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Expenses incurred in the performance of Non-Executive duties for the Company may
be reimbursed or paid for directly by the Company, including any tax due on the
expenses. This may include travel expenses, professional fees incurred in the
furtherance of duties as a Director and the provision of training and development.
In addition, the Company contributes an annual amount towards secretarial and
administrative expenses of Non-Executive Directors
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Non-Executive Directors may not participate in the Company’s share incentive
schemes or pension arrangements.
Total fees paid to Non-Executive Directors will remain within the limit stated in the
Articles of Association.
EVRAZ plc Annual Report and Accounts 2013
95
REMUNERATION REPORT
Continued
The Committee reserves the right to make any
remuneration payments and payments for loss
of offi ce that are not in line with the policy set
out above where the terms of the payment
were agreed before the policy came into effect
or at a time when the relevant individual was
not a Director of the Company and, in the
opinion of the Committee, the payment was
not in consideration of the individual becoming
a Director of the Company.
The Committee does not operate “clawback”
arrangements on Directors’ remuneration on
the basis that such arrangements would not be
enforceable under the Russian Labor Code.
The Committee may make minor amendments
to the policy set out above (for regulatory,
exchange control, tax or administrative
purposes or to take account of a change in
legislation) without obtaining shareholder
approval for that amendment.
Performance measures and targets
Annual bonus measures and targets are
selected to provide an appropriate balance
between incentivising the Director to meet
fi nancial objectives for the year and achieving
key operational objectives. They are reviewed
annually by the Committee to ensure that the
measures and weightings are in line with the
strategic priorities and needs of the business.
Remuneration arrangements throughout the
Group
The remuneration approach and philosophy is
applied consistently at all levels, including the
Executive Director. This ensures that there is
alignment with business strategy throughout
the Company. Remuneration arrangements
below the Board refl ect the seniority of the role
and local market practice and therefore the
components and levels of remuneration for
different employees may differ in parts from
the policy set out above.
For instance, in addition to a base salary, a
performance related bonus (KPIs aligned with
Company’s strategy) and the provision of
benefi ts, senior managers are also entitled to
participation in a long-term incentive
programme. This is designed to align interests
of these individuals to the delivery of long-term
growth in shareholder value. The current CEO
already holds a substantial shareholding in the
Company and therefore does not participate in
this plan.
Illustration of the application of the
remuneration policy
The chart below provides an indication of what
could be received by the Executive Director
under the proposed remuneration policy.
Application of the remuneration policy
7,515
67%
5,015
50%
2,515
100%
50%
33%
Minimum
In line with
expectation
Maximum
Base pay
Annual bonus
Base pay
Annual bonus
Minimum
In line with expectations
Maximum
Base salary + value of annual benefi ts provided in 2013
0% of salary
100% of salary
(target opportunity)
200% of salary
(maximum opportunity)
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Policy on recruitment of Executive Directors
In the event of hiring a new Executive Director,
remuneration would be determined in line with
the following policy. This policy has been
developed to enable the Company to recruit
the best candidate possible who will be able to
contribute to the Company’s performance and
will help to reach its goals.
• So far as practicable and appropriate, the
Committee will seek to structure pay and
benefi ts of any new executive Directors in
line with the current remuneration policy.
• Notwithstanding this, the Committee
recognises that the Executive Director
Remuneration policy set out above is
tailored towards the only current Executive
Director, the CEO, who has a signifi cant
shareholding in the Company. Any new
Executive Director is likely to have a
different fact-pattern to the current CEO,
and thus the Committee believe it is
important to retain the fl exibility to be able
to offer other elements, namely market
competitive, share-based incentive
programs, which are linked to the
company’s performance and designed to
align the executive Director’s interests to
the delivery of growth in shareholder value.
• The maximum level of variable remuneration
which may be granted at the time of
recruitment (excluding any buyouts) will not
exceed the on-going policy described in the
policy table above by more than 200% of
base salary. This additional headroom has
been capped at a level comparable to
maximum award levels seen in conventional
long-term incentive plans operated in the
wider UK listed market.
• The Committee’s intention would be for any
share-based incentive awards to be subject
to performance conditions. Where the
intention is to grant regular long-term
incentive awards to a candidate, the
Committee would seek appropriate
shareholder approval for a new share plan
in accordance with the Listing Rules.
• When setting salaries for new hires, the
Committee will take into account all relevant
factors, including the skills and experience
of the individual, the market from which they
are recruited and the market rate for the
role. For interim positions a cash
supplement may be paid rather than salary
(for example a non-executive Director
taking on an executive function on a
short-term basis).
• To facilitate recruitment the Committee may
need to compensate loss of remuneration
arrangements on joining the company. In
granting any buyout award, the Committee
will take into account relevant factors
including any performance conditions
attached to the awards forfeited, the form in
which they were granted (e.g. cash or
shares) and the timeframe of the awards.
The Committee will generally seek to
structure the buyout on a comparable basis
to awards forfeited. The overriding principle
is that any buyout award would be at or
below the commercial value of
remuneration forfeited.
• The Committee retains the fl exibility to alter
the performance measures of the annual
bonus for the fi rst year of appointment,
if the Committee determines that the
circumstances of the recruitment merit
such alteration.
Where an Executive Director is appointed from
within the organisation, the normal policy is
that any legacy arrangements would be
honoured in line with the original terms and
conditions. Similarly, if an Executive Director is
appointed following an acquisition of, or merger
with another company, legacy terms and
conditions will be honoured.
On appointment of a new Chairman or
Non-Executive Director, their fees will typically
be in line with the Policy as set out above. Any
specifi c cash or share arrangements delivered
to the Chairman or Non-Executives will not
include share options or any other
performance related elements.
Executive Director’s service contract and loss of offi ce policy
The CEO has a service contract with a subsidiary of EVRAZ plc.
The terms of the CEO’s service contract are summarised below:
Executive Director
Alexander V. Frolov
Date of contract
Notice period
(months)
31 December 2012
N/A
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EVRAZ plc Annual Report and Accounts 2013
97
REMUNERATION REPORT
Continued
The CEO’s service contract does not provide
for any specifi c notice period and therefore,
in the event of termination, the applicable
notice period will be as provided for as in the
Russian labour code from time to time (where
the termination is at the Company’s initiative
the entitlement to pay in lieu of notice is
currently limited to 3 months’ base salary).
The Committee may determine that a
termination payment of up to 12 months’ base
salary should be paid, taking into consideration
the circumstances of departure. Going forward,
all new executive Directors contracts will
provide for a notice period of no more than
12 months and for any compensation
provisions for termination without notice will
be capped at 12 months base salary and
contractual benefi ts.
There is no automatic entitlement to annual
bonus, and Executive Directors would not
normally receive a bonus in respect of the
fi nancial year of their cessation. However,
where an Executive Director leaves by reason
of death, disability, ill-health, or other reasons
that the Committee may determine, a bonus
may be awarded. Any such bonus would
normally be subject to performance and
time pro-rating, unless the Committee
determines otherwise.
Non-Executive Directors letters of
appointment
Each Non-Executive Director has a letter
of appointment setting out the terms and
conditions covering his or her appointment.
They are required to stand for election at the
fi rst AGM following their appointment and,
subject to the outcome of the AGM, the
appointment is for a further one year term.
Over and above this arrangement, the
appointment may be terminated by the Director
giving three months’ notice or in accordance
with the Articles of Association. Letters of
appointment do not provide for any payments
in the event of loss of offi ce.
All Directors are subject to annual re-
appointment and accordingly each Non-
Executive Director will stand for re-election
at the AGM on 12 June 2014.
The key terms of the Non-executive Directors’
appointment letters are summarised below:
Non-Executive Directors
Alexander G. Abramov
Duncan Baxter
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Date of contract
Notice period
14 October 2011
3 months
14 October 2011
3 months
14 October 2011
3 months
28 February 2012
3 months
14 October 2011
3 months
14 October 2011
3 months
14 October 2011
3 months
14 October 2011
3 months
14 October 2011
3 months
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EVRAZ plc Annual Report and Accounts 2013
Copies of the Directors’ letters of appointment
or, in the case of the Chief Executive Offi cer,
his service contract, are available for
inspection by shareholders at the
Company’s registered offi ce.
Consideration of shareholder views
When determining executive Director
remuneration policy, the Committee takes into
account the guidelines of investor bodies and
shareholder views.
Consideration of conditions elsewhere in
the Company
Management prepares details of all employee
pay and conditions which is considered by the
Committee on an annual basis. The Committee
takes this into consideration when setting the
CEO’s remuneration. However the Committee
does not consider any direct comparison
measures between the Executive Director and
wider employee pay. The company does not
formally consult with employees on Executive
Director remuneration.
Annual Remuneration Report
In this section we provide a summary of
remuneration paid out to our Directors for the
2013 fi nancial year, and details of how the
remuneration policy will be implemented in the
following fi nancial year.
Executive Director’s remuneration
In 2013 year Mr Alexander Frolov, as the Chief
Executive Offi cer (CEO) was entitled to a base
salary, a performance related bonus and
provision of benefi ts. As a member of the
Board of Directors he is also entitled to the
Director’s fee (US$150,000) and any
applicable fees for participation in the work
of the Board committees as laid out in the
section below on non-executive Director
remuneration, however the Committee
consider these fees to be incorporated in his
base salary. Alexander Frolov’s current
shareholding (10.89% of issued share capital
as of 8 April 2014) provides alignment to the
delivery of long term-growth in shareholder
value. As such, we do not consider it
necessary for the CEO to participate in any
long term incentive plans, or to impose formal
shareholding guidelines. However, the
Remuneration Committee will review this on
an on-going basis.
Single fi gure of remuneration (audited)
Key elements of the CEO’s remuneration
package received in relation to 2013
(compared to prior year) are set out below.
Alexander V. Frolov
Salary and Director fees
Benefi ts
Bonus
Total
2013
(US$)
2012
(US$)
2,379,3821,2
2,136,000
14,904
5,000
2,500,000
0
4,894,286
2,141,000
1) The CEO’s salary of US $2,500,000 was set in US$ in 2008. In 2011 it was converted to Russian roubles at the prevailing exchange rate, refl ecting the currency of payment, and
this amount has remained unchanged since. Fluctuations in exchange rates means that the retranslated, reported US$ fi gure may vary year on year.
2) Also includes US$ 62,798 as Director’s fees from Raspadskaya Coal Company, a company in which EVRAZ has a controlling shareholding.
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EVRAZ plc Annual Report and Accounts 2013
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REMUNERATION REPORT
Continued
Base salary
The current CEO’s salary was approved by the
Remuneration Committee on 23 May 2008 at
a level of US$2,500,000 (which includes, for
the avoidance of doubt, the Director’s fee, the
fees that are paid for committees’ membership
and any salary from an EVRAZ plc subsidiary).
For 2014, the CEO’s salary will be
US$2,500,000.
Pension and benefi ts (audited)
The CEO does not participate in any private
pension plans. Benefi ts principally consist of
a private healthcare and meal allowances.
Annual bonus
The CEO is eligible to participate in a
performance-related bonus which is subject
to the agreement of the Remuneration
Committee and approval by the Board of
Directors and paid in cash. The bonus is linked
to the achievement of performance conditions
based on predetermined targets set by the
Board of Directors. The target bonus is 100%
of base salary with a maximum potential of up
to 200% of base salary.
Annual bonus for 2013 (audited)
The bonus is linked to corporate performance.
For 2013, fi ve indicators with equal weightings
of 20% were taken into account when
determining the CEO’s annual bonus, as
follows: LTIFR, EBITDA, Current/approved NPV,
Free Cash Flow and Cash Cost Index. The
bonus pay-out is adjusted by a profi tability
coeffi cient, ranging between 70% and 130%,
based on EBITDA performance versus budget.
The Committee reviews the resulting bonus
pay-out to ensure that the resulting bonus
pay-out is appropriate in light of the overall
performance of the Company.
As shown in the table below, performance
against the pre-determined KPIs and targets
was strong, resulting in an annual bonus
pay-out of 69% of maximum. However, after
due consideration and in the context of the
Company’s overall performance in the year, the
Committee and CEO jointly agreed to cap the
annual bonus in respect of 2013 at the target
level (50% of maximum), waiving any bonus
above this level.
The table below sets out details of the targets
set for each KPI, the actual achievement in the
year and total pay-out level for the 2013 year
bonus:
Target 2013
Upper level
1.97
US$1,730m
80%
120%
Result Measurement
Planned level
(% of target)
100%
100%
Lower level
Actual 2013
Bonus payout
(% of max)
120%
80%
104%
105%
US$0m
US$200m
US$0m
US$200m
US$458m
85%
100%
120%
90%
100%
100%
80%
110%
96%
94%
1.3
1
0.7
1.0525
40%
63%
100%
42%
81%
65%
69% (138%
of salary)
Capped at
target bonus
50%
(100% of salary)
KPIs
LTIFR
EBITDA
FCF
Current/approved NPV
Cash cost index
Total
Profi tability coeffi cient
Bonus payout
Discretionary adjustment
Total bonus payout – post adjustment
Annual bonus for 2014
For 2014, the bonus framework will be broadly
in line with the prior years. The pay-out will
continue to be subject to the EBITDA
profi tability adjustment. Forward targets are
considered by the Board to be commercially
sensitive; however they will generally be
disclosed in the subsequent year.
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EVRAZ plc Annual Report and Accounts 2013
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Non-Executive Directors remuneration
Non-executive remuneration payable in respect of 2013 and 2012 is given below (audited information):
Single fi gure of remuneration (audited)
2013 (US$, ‘000)
2012 (US$, ‘000)
Total fees(1)
Admin(2)
Total fees(1)
Admin(2)
Non-executive Director
Alexander G. Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Duncan Baxter
Olga Pokrovskaya
Sir Michael Peat
Terry Robinson(3)
750
198
174
150
224
224
198
224
351.1
30
30
30
Total
780
228
204
32.5
182.5
30
30
32.5
30
35.7
254
254
230.5
254
386.8
658
165
170
172
224
224
176
224
298
25
25
25
Total
683
190
195
22.5
194.5
30
30
254
254
22.5
198.5
30
30
254
328
1) Total fees include annual fees and fees for committee membership or chairmanship (pro rata working days).
2) The Company contributes an annual amount of US$30,000 towards secretarial and administrative expenses of Non-Executive Directors.
3) Also includes US$ 58,800 (53,100 paid as fees and 5,700 as administrative expenses) for Chairmanship in Raspadskaya Coal Company, a company in which EVRAZ has
a controlling shareholding.
A Non-Executive Director’s remuneration consists of an annual fee of US$150,000 and a fee 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). For
reference, the fees payable for the chairmanship of a committee include the membership fee, and any Director elected chairman of more than one
committee is only generally entitled to receive fees in respect of one chairmanship. The fee for the Chairman of the Board amounts to US$750,000
from 1 March 2012 (this fee includes, for the avoidance of doubt, the Directors fees and the fees that are paid for committee membership).
Fees will remain unchanged for 2014.
Aggregate Director’s Remuneration
The aggregate amount of Director’s remuneration payable in respect of qualifying services for the year ended 31 December 2013 was US$7,668
thousand (2012: US$4,692 thousand).
Share ownership by the Board of Directors (audited)
As set out earlier in this report, there are no formal minimum shareholding requirements currently in place, refl ecting the CEO’s current shareholding
in EVRAZ.
As of 31 December 2013 the following Directors had benefi cial interests in EVRAZ shares:
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Number of
shares
Total holding,
Ordinary
shares, %
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158,442,915
45,257,031
21.55%
10.76%
3.07%
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Pursuant to the exchange of shares for warrants by Lanebrook in January 2014, Lanebrook’s interest in EVRAZ changed which resulted in changes
of ultimate holders’ ownership.
EVRAZ plc Annual Report and Accounts 2013
101
REMUNERATION REPORT
Continued
Thus, the Directors’ interests in EVRAZ’s shares as of 8 April 2014 was as follows:
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Number of
shares
Total holding,
Ordinary
shares, %
328,620,382
164,095,485
46,864,423
21.81%
10.89%
3.11%
All shares held by Directors are held outright, with no performance or other conditions attached to them, other than those applicable to all shares of
the same class.
Other Directors do not currently hold any shares in the Company.
Relative importance of spend on pay
The graph below shows comparison of total cost of remuneration paid to all employees between current and previous years and fi nancial metrics in
US$ millions.
2,027
1,821
-10%
2,398
2,617
+9%
375
0
EBITDA
Dividends
Total Employee Pay
2012
2013
Performance graph
The following graph shows the Company’s performance measured by total shareholder return compared to the performance of the FTSE 250 Index
since EVRAZ plc’s admission to the premium listing segment of the London Stock Exchange on 7 November 2011. The FTSE 250 Index has been
selected as an appropriate benchmark as it is a broad based index of which the Company is a constituent member.
Total shareholder return performance
180
160
140
120
100
80
60
40
20
0
11/1/2011
11/1/2012
11/1/2013
EVRAZ
FTSE 250
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EVRAZ plc Annual Report and Accounts 2013
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The table below shows the CEO’s single fi gure of total remuneration over the past 3 years along with comparison of variable payments with maximum
opportunity.
2013
2012
2011
CEO single
fi gure or total
remuneration
(US$)
4,894,286
2,141,000
Annual
variable
element award
rates against
maximum
opportunity
50%
0%
1,667,000
11.3%
Percentage change in remuneration
The table below sets out the percentage change in remuneration elements of the Director undertaking the role of CEO and average fi gures for
Russian based administrative personnel. We have selected this group of employees as an appropriate comparator as they are based in the same
geographical market as the CEO, meaning they are subject to similar external environment/pressures.
Salary
Benefi ts
Annual bonus
CEO
0%
200%(1)
N/A(2)
Russian administrative
personnel
4%
8%
164%
(1) The increase in CEO benefi ts refl ects a change in terms of private healthcare provided.
(2) It is not possible to calculate the percentage change in CEO annual bonus given the pay-out in respect of 2012 was $nil.
Remuneration Committee
In this section we give details of the
composition of the Remuneration Committee
and activities undertaken over the past year.
Members of the Remuneration Committee
The EVRAZ plc Remuneration Committee was
constituted and appointed by the Board on
14 October 2011, and the Committee
comprised the following independent
Non-Executive Directors during the 2013 year:
• Duncan Baxter (Committee Chairman);
• Karl Gruber;
• Alexander Izosimov
No Directors are involved in deciding their own
remuneration. The Committee may invite other
individuals to attend Committee meetings, in
particular the Chief Executive Offi cer, the Head
of Human Resources and external advisers for
all or part of any Committee meeting as and
when appropriate and necessary.
Role of the Remuneration Committee
The Remuneration Committee is a formal
committee of the Board and can operate with
a quorum of two Committee members. It is
operated according to its Terms of Reference,
a copy of which can be found on the
Company’s website.
The main responsibilities of the Remuneration
Committee are:
• to set and implement the remuneration
policy for the remuneration of the Chairman
of the Board, the Company’s Chief Executive
Offi cer, the Company Secretary and key
senior management;
• to take into account all factors which it
deems necessary to determine such a
framework or policy, including all relevant
legal and regulatory requirements, the
provisions and recommendations of the UK
Corporate Governance Code and associated
guidance;
• to review and take into account the
remuneration trends across the Group when
setting remuneration policy for Directors;
• to review regularly the on-going
appropriateness and relevance of the
remuneration policy;
• to determine the total individual
remuneration package of the Chairman of
the Board, the Company Secretary and key
senior management, including pension
rights, bonuses, benefi ts in kind, incentive
payments and share options or other share
based remuneration within the terms of the
agreed policy;
• to approve awards for participants where
existing share incentive plans are in place;
• to review and approve any compensation
payable to executive Directors and senior
executives; and
• to oversee any major changes in employee
benefi ts structures throughout the Group.
EVRAZ plc Annual Report and Accounts 2013
103
REMUNERATION REPORT
Continued
Attendance
During 2013, the EVRAZ’s Remuneration
Committee met three times. The purpose of
the meetings was to consider and to make
recommendations to the Board in relation to
the remuneration packages of the Executive
Director and key senior managers, to approve
the annual bonus for the 2012 results as well
as to approve the 2013 LTIP awards and list of
participants.
During the year, the Remuneration Committee
undertook a detailed self-assessment.
Upon consideration of the results, we are
comfortable that the Remuneration Committee
is independent and the current members
possess the appropriate range of skills and
experience to deliver a high quality contribution
to our decision making.
Advisors
The Committee received advice during the year
from independent remuneration consultants
Deloitte LLP. Deloitte LLP was selected by
the Committee to provide the Company
remuneration consultancy services.
During the year, Deloitte advised the
Committee on developments in the regulatory
environment and investor views and in the
development and disclosure of the Company’s
incentive arrangements. Total fee for advice
provided to the Committee during the year
was £31,100. No other services were provided
to the Company by the advisor during the
fi nancial year.
Deloitte is a founding member of the
Remuneration Consultant’s Group and, as
such, voluntarily operates under the code of
conduct in relation to executive remuneration
consulting in the UK.
Sir Michael Peat, an Independent Non-
Executive Director of EVRAZ, is also an
Independent Non-Executive on the Board
of Deloitte LLP. Both the Chairman and the
Remuneration Committee Chairman recognise
the need to ensure that there is no confl ict of
interest arising from the appointment of
Deloitte LLP as independent remuneration
consultants. We are satisfi ed that the nature
of Sir Michael’s role at Deloitte LLP does not
give rise to such confl ict and that there are
appropriate internal controls and segregation
of duties in place. Sir Michael did not play
a part in the tender and selection process.
The Committee is satisfi ed that the advice they
have received has been objective and
independent.
Shareholder considerations
We remain committed to on-going shareholder
dialogue and take an active interest in
feedback received from our shareholders
and voting outcomes. Following feedback
from shareholders on the structure of our
Remuneration Committee and on the
recommendation of the Nominations
Committee, we made changes to its
composition in 2012.
Where there are substantial votes against
resolutions in relation to Directors’
remuneration, we shall seek to understand
the reasons for any such vote and will detail
any actions in response to these.
The following table sets out actual voting results from the Annual General Meeting which was held on 13 June 2013 in respect of our previous
remuneration report.
Number of votes
For
Against
Withheld
Total votes as
% of issued
share capital
Directors’ Remuneration Report for the year ended 31 December 2012
1,058,394,986
(98.86%)(1)
12,190,735
(1.14%)
193,934
72.70%
(1) Percentage of votes cast.
These results illustrate the strong level of
shareholder support for the Directors’
remuneration framework.
Signed on behalf of the Board of Directors,
Duncan Baxter
Chairman of the Remuneration Committee
8 April 2014
104
EVRAZ plc Annual Report and Accounts 2013
DIRECTORS’ REPORT
The Directors present their report to
shareholders for the fi nancial year ending
31 December 2013, which they are required
to produce by law.
Introduction
For the purposes of the disclosures required
under the Disclosure and Transparency Rules
and the Listing Rules of the UKLA, cross
references are made where appropriate to
other sections of the Annual Report.
Dividends
The directors recommend a dividend of 6 cents
per share to be consistent with their intention
of distributing, where appropriate, a proportion
of the margin on disposals as dividends, and
as an indication of confi dence in the
Company’s position. The US$90.4 million
represents the approximate cash portion of the
proceeds from the sale of EVRAZ Vitkovice
Steel, leaving US$196.6 million for the
reduction of debt.
Events since the reporting date
The major events after 31 December 2013 are
disclosed in Note 32 to the Consolidated
Financial Statements on page 200.
Directors and their interests
Biographical details of the directors who
served on the Board during the year are set out
in the Corporate Governance section on pages
76 – 77.
The Company was incorporated under the
name EVRAZ plc as a public company limited
by shares on 23 September 2011. EVRAZ plc
listed on the London Stock Exchange in
November 2011 and is a member of the FTSE
250 index.
Sustainable development
The Corporate Social Responsibility section
of this report focuses on the health and safety,
environmental and employment performance
of the Company’s operations, and outlines the
Company’s core values and commitment to the
principles of sustainable development and
development of community relations
programmes. Details of the Company’s policies
on diversity and employee engagement are
provided in the Corporate Social Responsibility
Section on pages 35 – 41.
Going concern
The fi nancial position and performance of the
Group and its cash fl ows are set out in the
Financial Review section of the report on pages
28 – 34.
The Directors have considered the Group’s
debt maturity and cash fl ow projections and an
analysis of projected debt covenants
compliance for the period to the end of June
2014. The Board is satisfi ed that the Group’s
forecasts and projections, taking into account
reasonably possible changes in trading
performance, show that the Group will continue
in operation for the foreseeable future and has
neither the intention nor the need to liquidate
or materially curtail the scale of its operations.
For this reason the Group continues to adopt
the going concern basis in preparing its
fi nancial statements.
Going forward, the dividend policy has been
revised to support the fi nancial strategy of
deleveraging and envisages that the regular
dividends will be paid only when the net
leverage (net debt/EBITDA) target of below
3.0x is achieved. The Board reserves the right
to propose special dividends in the event of
asset disposals.
Overseas branches
EVRAZ does not have any branches. The
Company does, however, have a controlling
interest in Evraz Group S.A., which owns steel
production, mining and trading companies, as
well as in EVRAZ Greenfi eld development.
Information about the direct and indirect
subsidiaries of EVRAZ is provided in the
Additional Information (EVRAZ’s Corporate
Structure) section of this report on page 210.
Future developments
Information on the Group and its subsidiaries’
future developments is provided in the Chief
Executive Offi cer’s Review, Strategic Report,
Business Units’ Review and Financial Review
sections of this report.
Financial instruments
The fi nancial risk management and internal
control processes and policies and details
of hedging policy and exposure to the risks
associated with fi nancial instruments can be
found in Note 28 to the Consolidated Financial
Statements, the Corporate Governance section
of this report on pages 72 – 111 and in the
Financial Review on page 33.
Political donations
No political donations were made in 2013.
Greenhouse gas emissions
In 2013, following the requirements of the
Companies Act 2006 (Strategic and Directors’
Report) Regulations 2013 EVRAZ undertook to
assess full greenhouse gases’ (GHGs)
emissions from facilities under its control.
Details can be found in the Corporate Social
Responsibility section on pages 35 – 41.
Detailed information on share ownership by
directors can be found in the Remuneration
Report on pages 101 – 102.
Members of EVRAZ plc Board do not receive
share-based compensation.
Powers of Directors
Subject to the Company’s Articles of
Association, UK legislation and to any
directions given by special resolution, the
business of the Company is managed by the
Board, which may exercise all the powers of
the Company. The Articles of Association
contain specifi c provisions concerning the
Company power to borrow money and also
provide the power to make purchases of any
of its own shares. The directors have the
authority to allot shares or grant rights to
subscribe for or to convert any security into
shares in the Company. Further details of the
proposed authorities are set out in the Notice
of AGM.
Director appointment
and re-election
The Board has the power at any time to elect
any person to be a director, but the number
of directors must not exceed the maximum
number fi xed by the Articles of Association of
the Company. Any person so appointed by the
directors will retire at the next Annual General
Meeting and then be eligible for election.
Under the Articles of Association each director
shall retire at the Annual General Meeting held
in the fourth calendar year following the year in
which he/she was elected or at such earlier
Annual General Meeting as the directors may
decide. In accordance with the UK Corporate
Governance Code, the directors may be eligible
to annual re-election.
EVRAZ plc Annual Report and Accounts 2013
105
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DIRECTORS’ REPORT
Continued
Directors’ liabilities
(Directors’ indemnities)
As at the date of this report, the Company has
granted qualifying third party indemnities to
each of its directors against any liability that
attaches to them in defending proceedings
brought against them, to the extent permitted
by the Companies Acts. In addition, directors
and offi cers of the Company and its
subsidiaries have been and continue to be
covered by Directors & Offi cers liability
insurance.
Substantial shareholdings
As of 31 December 2013, the following
signifi cant holdings of voting rights in the share
capital of the Company were disclosed to the
Company under Disclosure and Transparency
Rule 5.
Lanebrook Ltd.*
Lanebrook Ltd. Affi liates
Kadre Enterprises Ltd.**
Verocchio Enterprises Ltd.***
Number of
Ordinary
Shares
% of Issued
Ordinary
Shares
934,440,556
63.46
42,870,614
83,751,827
82,887,014
2.91
5.69
5.63
* Lanebrook Ltd. (the Major Shareholder) is a limited liability company incorporated under the laws of Cyprus on 16 March 2006. It was established for the purpose of holding
a majority interest in the Group. Lanebrook Ltd. is controlled by (i) Mr. Abramovich, who held a benefi cial interest in 456,310,736 ordinary shares in EVRAZ plc (30.99%),
(ii) Mr. Abramov, who held a benefi cial interest in 317,300,488 ordinary shares in EVRAZ plc (21.55%), (iii) Mr. Frolov, who held a benefi cial interest in 158,442,915 ordinary
shares in EVRAZ plc (10.76%) and (iv) Mr. Shvidler, who held a benefi cial interest in 45,257,031 ordinary shares in EVRAZ plc (3.07%). The percentages in this paragraph exclude
any treasury shares and any shares held by or on behalf of EVRAZ pursuant to any employee incentive plan.
From 31 December 2013 to 8 April 2014 (being the last practicable date prior to the publication of this document), there was an increase in the number of ordinary shares held
by Lanebrook Ltd. and in the underlying number of benefi cial interests held by each of Mr. Abramovich, Mr. Abramov, Mr. Frolov and Mr. Shvidler.
** Includes shares held by Gennady Kozovoy, Kadre’s shareholder, both indirectly through Kadre and directly.
*** Verocchio Ltd. is owned by Alexander Vagin.
In October 2012 EVRAZ agreed the terms of
an acquisition of a further 50% interest in
Corber Enterprises Limited, a 82% shareholder
of OJSC Raspadskaya and its subsidiaries,
from Mr Gennady Kozovoy and Mr Alexander
Vagin. On 3 October 2012, i.e. the time at
which the terms of the issue of new shares
and new warrants were fi xed, the closing
market price of the Company’s shares was
247.30 pence per ordinary share. The
acquisition was completed in January 2013
when 132,653,006 new EVRAZ ordinary
shares were issued in equal shares in favour
of the sellers. The new shares were admitted
to the Offi cial List of the Financial Conduct
Authority and began to be traded on the
London Stock Exchange main market.
Pursuant to the terms of the Acquisition,
EVRAZ also issued to Messrs. Kozovoy and
Vagin 33,944,928 new warrants to subscribe
for 33,944,928 new ordinary shares in EVRAZ.
Cash consideration was also agreed to be paid
to the sellers in the amount of approximately
US$202 million, payable in four equal
instalments in Q1 and Q2, Q3 2013 and in
Q1 2014 (two payments).
In February 2013, following an agreement
between EVRAZ’s major shareholder,
Lanebrook, and Messrs. Kozovoy and Vagin,
the latter two shareholders exchanged all their
warrants for Lanebrook’s 33,121,022 EVRAZ
shares. The 33,944,928 warrants, held by
Lanebrook, could be exercised at any time
between 16 January 2014 and 16 April 2014.
In January 2014, Lanebrook Ltd. exercised its
33,944,928 warrants to subscribe for new
ordinary shares in EVRAZ plc. 33,944,928
new ordinary shares of US$1 each fully paid,
Lanebrook Ltd.*
Lanebrook Ltd. Affi liates
Kadre Enterprises Ltd.**
Verocchio Enterprises Ltd.***
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EVRAZ plc Annual Report and Accounts 2013
ranking pari passu with the existing issued
ordinary shares, were issued by the Company
in favour of Lanebrook Ltd. and application was
made to the London Stock Exchange and the
UK Listing Authority of the FCA for their listing.
The new shares were admitted to the Offi cial
List and to trading on the London Stock
Exchange on 28 January 2014.
The Company's issued share capital as of
8 April 2014 is 1,506,527,294 ordinary
shares.
As of 8 April 2014, the following signifi cant
holdings of voting rights in the share capital of
the Company were disclosed to the Company
under Disclosure and Transparency Rule 5.
Number of
Ordinary
Shares
% of Issued
Ordinary
Shares
968,358,484
42,870,614
83,751,827
82,887,014
64.28
2.85
5.56%
5.50%
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As a result of the warrant exercise the following ultimate benefi cial owners had interests in EVRAZ plc share capital (in each case, except for
Mr. Kozovoy, held indirectly) as of 8 April 2014 (being the last practicable date prior to the publication of this document):
Ultimate benefi cial owner
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Alexander Vagin
Eugene Shvidler
Signifi cant contractual arrangements
The Major Shareholder and the Company have
entered into a relationship agreement which
regulates the on-going relationship between
them, ensures that the Company is capable of
carrying on its business independently of the
Major Shareholder and ensures that any
transactions and relationships between the
Company and the Major Shareholder are at
arm’s length and on normal commercial terms.
This agreement terminates if the Major
Shareholder ceases to own or control (directly
or indirectly) at least 30% of the Ordinary
Shares in the Company or if the Major
Shareholder ceases to have a larger interest
in the Company than the interest of any other
shareholder of the Company.
Under the relationship agreement, the Major
Shareholder and the Company agree that: (a)
the Major Shareholder has the right to appoint
the maximum number of Non-Executive
Directors that may be appointed whilst
ensuring that the composition of the Board
remains compliant with the UK Corporate
Governance Code for so long as it holds an
interest in 30% or more of the Company with
each appointee being a “Shareholder Director”;
(b) the Major Shareholder shall, and shall
procure, insofar as it is legally able to do so
that each of its affi liates (excluding the
Company and its subsidiary undertakings) (the
“Major Shareholder Group”) shall, save to the
extent required by law, exercise its powers so
far as it is able so that the Company is
managed in compliance with the requirements
of the Companies Act 2006, the Listing Rules
and the Disclosure and Transparency Rules; (c)
transactions, relationships and agreements
between the Company and/or its subsidiaries
(on the one hand) and the Major Shareholder
or a member of the Major Shareholder Group
(on the other) shall be entered into and
conducted on an arm’s length and normal
commercial basis, unless otherwise agreed by
a committee comprising the Non-Executive
Directors of the Company whom the Board
considers to be independent in accordance
with paragraph B.1.1 of the UK Corporate
Governance Code (the “Independent
Committee”); (d) the Major Shareholder shall
not, and shall procure, insofar as it is legally
able to do so, that each member of the Major
Shareholder Group shall not, take any action
which precludes or inhibits the Company and/
or its subsidiaries from carrying on its
business independently of the Major
shareholder or any member of the Major
Shareholder Group; (e) the quorum for any
Board meeting of the Company shall be two,
of which at least one must be a Director other
than a Shareholder Director and/or a Director
who is (or has, in the 12 months prior to the
relevant date) any business or other
relationship with the Major Shareholder or any
member of the Major Shareholder Group which
could materially interfere with the exercise of
his or her independent judgement in matters
concerning the Company (‘‘Lanebrook
Director’’); (f) the Major Shareholder shall not,
and shall procure, insofar as it is legally able to
do so, that each member of the Major
Shareholder Group shall not, subject to
specifi ed exceptions, take any action (or omit
to take any action) to prejudice the Company’s
status as a listed company or its suitability for
listing or its on-going compliance with the
Listing Rules and Disclosure and Transparency
Rules; (g) the Major Shareholder shall not, and
shall procure, insofar as it is legally able to do
so, that each member of the Major
Shareholder Group shall not, exercise any of its
voting or other rights and powers to procure
any amendment to the Articles which would be
inconsistent with, undermine or breach any of
the provisions of the Relationship Agreement,
and will abstain from voting on, and will procure
that the Lanebrook Directors abstain from
voting on, any resolution to approve a
transaction with a related party (as defi ned in
Number of
ordinary
shares
% of issued
share capital
471,675,808
328,620,382
164,095,485
83,751,827
82,887,014
46,864,423
31.31%
21.81%
10.89%
5.56%
5.50%
3.11%
the Listing Rules) involving the Major
Shareholder or any member of the Major
Shareholder Group; (h) if any matter which, in
the opinion of an independent Director, gives
rise to a potential confl ict of interest between
the Company and/or its subsidiaries (on the
one hand) and the Lanebrook Directors, the
Major Shareholder or any member of the Major
Shareholder Group (on the other), such matter
must be approved at a duly convened meeting
of the Independent Committee or in writing by
a majority of the Independent Committee; and
(i) for so long as the Major Shareholder holds
an interest in 50% or more in the Company, the
Major Shareholder undertakes that it will not
and will use its reasonable endeavours to
procure that no other member of the
Controlling Shareholder Group becomes
involved in any competing business (subject to
certain exceptions) in Russia, the Ukraine or
the CIS without giving the Company the
opportunity to participate in the relevant
competing business.
The Board is satisfi ed that the Company is
capable of carrying on its business
independently of the major shareholder and
makes its decisions in a manner consistent
with its duties to the Company and
stakeholders of EVRAZ plc. Furthermore, the
Independent Non-Executive Directors of the
Company have conducted an annual review to
consider the continued good standing of the
Relationship Agreement and are satisfi ed that
the terms of the Relationship Agreement are
being fully observed.
9.50% notes due 2018, issued by Evraz Group
S.A., contain change of control provisions. If a
change of control occurs under the terms of
these notes, note holders will have the option
to require Evraz Group S.A. to redeem notes
together with interest accrued, if any. At
31 December 2013, the principal amount of
these notes amounted to US$509 million.
EVRAZ plc Annual Report and Accounts 2013
107
DIRECTORS’ REPORT
Continued
Annual General Meeting (AGM)
An annual general meeting shall be held in
each period of six months beginning with the
day following the Company’s annual accounting
reference date, at such place or places, date
and time as may be decided by the Directors.
The 2014 AGM will be held on 12 June 2014 in
London. At the AGM, shareholders will have the
opportunity to put questions to the Board,
including the chairmen of the Board
committees.
Full details of the AGM, including explanatory
notes, are contained in the Notice of AGM
which will be distributed at least 20 working
days before the meeting. The Notice sets out
the resolutions to be proposed at the AGM
and an explanation of each resolution. All
documents relating to the AGM are available
on the Company’s website at www.evraz.com/
investors/information/general_meeting.
Electronic communications
A copy of the 2013 Annual Report, the Notice
of the AGM and other corporate publications,
reports and announcements are available on
the Company’s website at www.evraz.com.
Shareholders may elect to receive notifi cation
by email of the availability of the Annual Report
on the Company’s website instead of receiving
paper copies.
Purchase of own shares
Details of transactions with treasury shares
are provided in Note 20 of the Consolidated
Financial Statements on page 176.
Share capital
As of 31 December 2013 EVRAZ plc
subscribed share capital was represented by
1,472,582,366 ordinary shares with a nominal
value of US$1 each. In connection with an
exercise by Lanebrook Limited (“Lanebrook”),
EVRAZ’s major shareholder, of 33,944,928
warrants to subscribe for new ordinary shares
in EVRAZ plc, the Company issued
33,944,928 new ordinary shares of US$1
each fully paid, ranking pari passu with the
existing issued ordinary shares. The newly
issued shares were admitted to the Offi cial List
and to trading on the London Stock Exchange
on 28 January 2014.
Since 28 January 2014, the Company's issued
share capital has consisted of 1,506,527,294
ordinary shares, and the total number of voting
rights in the Company is 1,506,527,294.
The Company's issued ordinary share capital
ranks pari passu in all respects and carries the
right to receive all dividends and distributions
declared, made or paid on or in respect of the
ordinary shares.
There are currently no redeemable non-voting
preference shares or subscriber shares of the
Company in issue.
Articles of association
The Company’s Articles of Association have
been adopted with effect from Admission on
7 November 2011 and contain among others
provisions on the rights and obligations
attaching to the Company’s shares, including
the redeemable non-voting preference shares
and the subscriber shares. The Articles of
Association may only be amended by special
resolution at a general meeting of the
shareholders.
Share rights
Without prejudice to any rights attached to any
existing shares, the Company may issue
shares with rights or restrictions as determined
by either the Company by ordinary resolution
or, if the Company passes a resolution, the
Directors. The Company may also issue shares
which are, or are liable to be, redeemed at the
option of the Company or the holder and the
directors may determine the terms, conditions
and manner of redemption of any such shares.
Voting rights
There are no other restrictions on voting rights
or transfers of shares in the Articles other than
those described in these paragraphs. Details
of deadlines for exercising voting rights and
proxy appointment will be set out in the 2014
notice of AGM.
At a general meeting, subject to any special
rights or restrictions attached to any class of
shares on a poll, every member present in
person or by proxy has one vote for every share
held by him.
A proxy is not be entitled to vote where the
member appointing the proxy would not have
been entitled to vote on the resolution had he
been present in person. Unless the directors
decide otherwise, no member shall be entitled
to vote either personally or by proxy or to
exercise any other right in relation to general
meetings if any sum due from him to the
Company in respect of that share remains
unpaid.
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EVRAZ plc Annual Report and Accounts 2013
The trustee of the Company's Employee Share
Trust is entitled, under the terms of the trust
deed, to vote as it sees fi t in respect of the
shares held on trust.
Transfer of shares
The Company’s Articles provide that transfers
of certifi cated shares must be effected in
writing, and duly signed by or on behalf of the
transferor and, except in the case of fully paid
shares, by or on behalf of the transferee. The
transferor shall remain the holder of the shares
concerned until the name of the transferee is
entered in the Register of Members in respect
of those shares. As of the date hereof, the
Company does not have certifi cated shares.
Transfers of uncertifi cated shares may be
effected by means of CREST unless the CREST
Regulations provide otherwise.
The directors may refuse to register an
allotment or transfer of shares in favour of
more than four persons jointly.
Auditors
Ernst & Young is the Company’s auditor and
will be proposed at the forthcoming Annual
General Meeting.
Our Directors’ Report as set out on pages 105
to 108 inclusive has been prepared in
accordance with, applicable English company
law and was approved by the Board on
8 April 2014.
By order of the Board
Alexander Frolov
Chief Executive Offi cer
EVRAZ plc
8 April 2014
DIRECTORS’ STATEMENT AS TO DISCLOSURE
OF INFORMATION TO AUDITORS
• each director has taken all the steps a
director might reasonably be expected to
have taken to be aware of relevant audit
information and to establish that the
Company’s auditors are aware of that
information.
The directors who were members of the Board
at the time of approving the directors’ report
are listed on pages 105 to 108. Having made
enquiries of fellow directors and of the
Company’s auditors, each of these directors
confi rms that:
• to the best of each director’s knowledge
and belief, there is no information (that is,
information needed by the Group’s auditors
in connection with preparing their report) of
which the Company’s auditors are unaware;
and
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EVRAZ plc Annual Report and Accounts 2013
109
RESPONSIBILITY STATEMENT UNDER THE
DISCLOSURE AND TRANSPARENCY RULES
Each of the directors whose names and
functions are listed on pages 76 to 77 confi rm
that to the best of their knowledge:
• the consolidated fi nancial statements of
EVRAZ plc, prepared in accordance with
International Financial Reporting Standards
as adopted by the European Union, give a
true and fair view of the assets, liabilities,
fi nancial position and profi t or loss of the
Company and the undertakings included
in the consolidation taken as a whole
(the ‘Group’);
• the Annual Report and Accounts, including
the Strategic Report include a fair review of
the development and performance of the
business and the position of the Company
and the Group, together with a description
of the principal risks and uncertainties that
they face.
DIRECTORS’ STATEMENT UNDER THE UK
CORPORATE GOVERNANCE CODE
The Board considers that the report and
accounts taken as a whole, which incorporates
the Strategic Report and Directors Report, is
fair, balanced and understandable, and that it
provides the information necessary for
shareholders to assess the Company’s
performance, business model and strategy.
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EVRAZ plc Annual Report and Accounts 2013
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RELATION TO THE ANNUAL REPORT AND
THE FINANCIAL STATEMENTS
fi nancial statements comply with the
Companies Act 2006 and, with respect to the
Group fi nancial statements, Article 4 of the IAS
Regulation. They are also responsible for
safeguarding the assets of the Group and
parent company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are also responsible for preparing
the Director’s Report, the Directors’
Remuneration Report and the Corporate
Governance Report in accordance with the
Companies Act 2006 and applicable
regulations, including the requirements of the
Listing Rules and the Disclosure and
Transparency Rules of the United Kingdom
Listing Authority. Legislation in the United
Kingdom governing the preparation and
dissemination of fi nancial statements may
differ from legislation in other jurisdictions.
By order of the Board
Alexander Frolov
Chief Executive Offi cer
EVRAZ plc
8 April 2014
The directors are responsible for preparing the
Annual Report and the Group and parent
company fi nancial statements in accordance
with applicable United Kingdom law and
regulations. Company law requires the
directors to prepare Group and parent
company fi nancial statements for each
fi nancial year. Under the law, the directors are
required to prepare Group fi nancial statements
under IFRSs as adopted by the European Union
and applicable law and have elected to prepare
the parent company fi nancial statements on
the same basis.
Under Company Law the directors must not
approve the Group and parent company
fi nancial statements unless they are satisfi ed
that they give a true and fair view of the state
of affairs of the Group and parent company
and of the profi t or loss of the Group and
parent company for that period. In preparing
each of the Group and parent company
fi nancial statements the directors are
required to:
• Present fairly the fi nancial position, fi nancial
performance and cash fl ows of the Group
and parent company;
• Select suitable accounting policies in
accordance with IAS8:Accounting Policies,
Changes in Accounting Estimates and Errors
and then apply them consistently;
• Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
• Make judgements and estimates that are
reasonable;
• Provide additional disclosures when
compliance with the specifi c requirements
in IFRSs as adopted by the European Union
is insuffi cient to enable users to understand
the impact of particular transactions, other
events and conditions on the Group’s and
parent company’s fi nancial position and
fi nancial performance; and
• State that the Group and parent company
fi nancial statements have been prepared in
accordance with IFRSs as adopted by the
European Union, subject to any material
departures discloses and explained in the
fi nancial statements.
The directors are responsible for keeping
adequate accounting records that are
suffi cient to show and explain the Group’s and
parent company’s transactions and disclose
with reasonable accuracy at any time the
fi nancial position of the Group and parent
company and enable them to ensure that the
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EVRAZ plc Annual Report and Accounts 2013
111
FINANCIAL STATEMENTS
112
EVRAZ plc Annual Report and Accounts 2013
In this section:
Consolidated Financial Statements
114 Independent Auditors’ Report to the Members of EVRAZ plc
116 Consolidated Statement of Operations
117 Consolidated Statement of Comprehensive Income
118 Consolidated Statement of Financial Position
119 Consolidated Statement of Cash Flows
121 Consolidated Statement of Changes in Equity
123 Notes to the Consolidated Financial Statements
Separate Financial Statements
201 Independent Auditors’ Report to the Members of EVRAZ plc
202 Separate Statement of Comprehensive Income
203 Separate Statement of Financial Position
204 Separate Statement of Cash Flows
205 Separate Statement of Changes in Equity
206 Notes to the Separate Financial Statements
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EVRAZ plc Annual Report and Accounts 2013
113
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF EVRAZ PLC
We have audited the Group Financial Statements of EVRAZ plc for the year ended 31 December 2013 which comprise the Consolidated Statement of Operations, the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated
Statement of Changes in Equity and the related notes 1 to 32. The fi nancial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ Responsibilities set out on page 111, the directors are responsible for the preparation of the Group Financial
Statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group Financial Statements in
accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
Scope of the audit of the Group Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Group Financial Statements suffi cient to give reasonable assurance that the Group
Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are
appropriate to the Group circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made
by the directors; and the overall presentation of the Group Financial Statements. In addition, we read all the fi nancial and non-fi nancial information in the Annual Report
to identify material inconsistencies with the audited Group Financial Statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on Group Financial Statements
In our opinion the Group Financial Statements:
• give a true and fair view of the state of the Group’s affairs as at 31 December 2013 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Our assessment of risks of material misstatement
We identifi ed the following risks that have had the greatest effect on the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team:
• Goodwill, investment and non-current asset impairment
• Going concern
• The valuation and classifi cation of assets held for sale
Our application of materiality
We determined materiality for the Group to be $54.7 million, which is 3% of EBITDA. Our materiality amount provided a basis for determining the nature and extent
of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature and extent of further audit procedures.
We assessed our materiality calculation based on the EBITDA of the Group as we considered that to be the most relevant performance measure to the stakeholders
of the entity.
On the basis of our risk assessment, together with our assessment of the Group’s overall control environment, our judgment was that overall performance materiality
(ie, our tolerance for misstatement in an individual account or balance) for the Group should be 50% of materiality, namely $27.3 million. Our objective in adopting this
approach was to ensure that total uncorrected and undetected audit differences in all accounts did not exceed our materiality level.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $2.7 million, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
In assessing the risk of material misstatement to the Group Financial Statements, our Group audit scope focused on the Group’s main operating locations. We selected
16 components covering entities within Russia, Ukraine, Switzerland and the USA, which represent the principal business units within the Group and account for 89%
of the Group’s EBITDA. Six of these were subject to a full scope audit, whilst the remaining 10 were subject to audit procedures on specifi c accounts based on our
assessment of the coverage obtained from full scope audits, the risks of material misstatement and the materiality of the Group’s business operations. These
components were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identifi ed above. The audit work
on the 16 components was executed at levels of materiality applicable to each individual entity, which were lower than Group materiality. For the remaining components,
we performed other procedures to confi rm that there were no signifi cant risks of material misstatement in the Group Financial Statements.
The audit work in respect of the full scope locations was undertaken by separate component teams under the direction and supervision of the Group team. For
components subject to audit procedures on specifi c accounts the work was undertaken either by separate component teams or directly by members of the Group audit
team as appropriate. The senior statutory auditor is based in the UK but, since group management and operations reside in Russia, the Group audit team includes
members from both the UK and Russia. The senior statutory auditor visited Russia three times during the current year’s audit and there was regular interaction between
team members within both jurisdictions.
114
EVRAZ plc Annual Report and Accounts 2013
Visits were undertaken by the Group team to component teams in the USA, Russia and Ukraine. The Group audit team interacts regularly with the component teams
where appropriate during various stages of the audit, reviewed key working papers and were responsible for the scope and direction of the audit process.
Our principal responses to the risks identifi ed above were as follows:
Goodwill, investments and non-current asset impairment
Refer to the Group Audit Committee report on page 83, the estimates and judgments on page 133 to 135 and the disclosures of impairment in Note 6 of the Group Financial
Statements.
Our audit procedures included the challenge of management’s assumptions used in their impairment models. We also tested the integrity of models with the assistance
of our own specialists. We critically assessed the appropriateness of estimates included in the models and we challenged and carried out audit procedures on
management’s sensitivity calculations. We considered the appropriateness of the related disclosures provided in the Group Financial Statements.
Going concern
Refer to the Group Audit Committee report on page 83, the Directors’ report on page 105 and within signifi cant accounting policies on page 123.
With the assistance of our own specialists we performed audit procedures on, and challenged the accuracy and integrity of, management’s cash fl ow projections and the
related assumptions. We assessed the need for and availability of additional fi nance facilities by challenging managements assumptions of discretionary spend and
obtaining evidence of committed and uncommitted facilities and other potential sources of funding. We considered the appropriateness of the disclosures made in the
Group Financial Statements in respect of going concern.
In addition, we challenged management’s consideration of the possible impact of the current political situation in Ukraine and related political sanctions on forecasts
used for going concern modelling and the consideration of the recoverability of assets.
The valuation and classifi cation of assets held for sale
Refer to accounting judgments within signifi cant accounting policies on page 133 in Note 2 and the related Note 12 of the Group Financial Statements.
Our audit procedures included the challenge of management’s assumptions as to the probability of sale completion within a period of 12 months from the balance sheet
date based on the facts in relation to the progress of each sales process. We challenged management’s assumptions as to the valuation of amounts classifi ed as
assets held for sale and the evidence available to support the estimated sales proceeds. We considered the appropriateness of the related disclosures provided in the
Group Financial Statements.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the fi nancial year for which the Group Financial Statements are prepared is
consistent with the Group Financial Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited Group Financial Statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identifi ed any inconsistencies between our knowledge acquired during the audit and the directors’ statement
that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated
to the audit committee which we consider should have been disclosed.
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Under the Companies Act 2006 we are required to report to you if, in our opinion:
• certain disclosures of directors’ remuneration specifi ed by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 105, in relation to going concern; and
• the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code specifi ed for
our review.
Other matter
We have reported separately on the Parent Company Financial Statements of EVRAZ plc for the year ended 31 December 2013 and on the information in the Directors’
Remuneration Report that is described as having been audited.
Ken Williamson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
8 April 2014
Notes:
1. The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the fi nancial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.
EVRAZ plc Annual Report and Accounts 2013
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CONSOLIDATED STATEMENT OF OPERATIONS
(in millions of US dollars, except for per share information)
Continuing operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profi t
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
Profi t from operations
Interest income
Interest expense
Share of profi ts/(losses) of joint ventures and associates
Gain/(loss) on derecognition of equity investments, net
Gain/(loss) on fi nancial assets and liabilities, net
Gain/(loss) on disposal groups classifi ed as held for sale, net
Other non-operating gains/(losses), net
Profi t/(loss) before tax
Income tax benefi t/(expense)
Net profi t/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
basic, for profi t/(loss) attributable to equity holders of the parent entity, US dollars
diluted, for profi t/(loss) attributable to equity holders of the parent entity,
US dollars
Year ended 31 December
Notes
2013
2012
restated*
2011
restated*
3
3
7
7
7
6
7
7
7
11
4
7
12
8
20
20
$14,071
340
14,411
(11,468)
2,943
(1,183)
(877)
(50)
(47)
(446)
(258)
53
(116)
19
23
(699)
8
89
(43)
(25)
15
(613)
41
$14,367
359
14,726
(11,803)
2,923
(1,211)
(839)
(51)
(56)
(413)
(41)
75
(129)
258
23
(654)
1
–
164
18
(6)
(196)
(229)
$(572)
$(425)
$(522)
(50)
$(572)
$(398)
(27)
$(425)
$(0.35)
$(0.30)
$(0.35)
$(0.30)
$16,077
323
16,400
(12,480)
3,920
(1,154)
(903)
(61)
(50)
(104)
269
50
(96)
1,871
17
(715)
55
–
(355)
8
(4)
877
(420)
$457
$465
(8)
$457
$0.36
$0.36
* The amounts shown here do not correspond to the 2012 and 2011 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the
accounting policies and a correction of a prior period error (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
116
EVRAZ plc Annual Report and Accounts 2013
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(in millions of US dollars)
Net profi t/(loss)
Other comprehensive income/(loss)
Other comprehensive income to be reclassifi ed to profi t or loss in
subsequent periods
Exchange differences on translation of foreign operations into
presentation currency
Exchange differences recycled to profi t or loss
Net gains/(losses) on available-for-sale fi nancial assets
Net (gains)/losses on available-for-sale fi nancial assets reclassifi ed to
profi t or loss
Effect of translation to presentation currency of the Group’s joint ventures
and associates
Net gains/(losses) on available-for-sale fi nancial assets of the Group’s joint
ventures and associates
Items not to be reclassifi ed to profi t or loss in subsequent periods
Gains/(losses) on re-measurement of net defi ned benefi t liability
Income tax effect
Gains/(losses) on re-measurement of net defi ned benefi t liability recognised by
the Group’s joint ventures and associates
Decrease in revaluation surplus in connection with the impairment of property,
plant and equipment
Income tax effect
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Notes
4,12
13
13
11
11
23
11
9
8
Year ended 31 December
2013
$(572)
2012
restated*
$(425)
2011
restated*
$457
(198)
(90)
7
–
(281)
(11)
–
(11)
119
(30)
89
–
(9)
2
(7)
(210)
$(782)
$(697)
(85)
$(782)
281
96
4
–
381
44
1
45
(74)
14
(60)
(2)
–
–
–
364
$(61)
$(33)
(28)
$(61)
(615)
–
(20)
20
(615)
(35)
–
(35)
(97)
31
(66)
(1)
(1)
–
(1)
(718)
$(261)
$(235)
(26)
$(261)
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting policies
and a correction of a prior period error (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
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EVRAZ plc Annual Report and Accounts 2013
117
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
(in millions of US dollars)
The fi nancial statements of EVRAZ plc (registered number 7784342) on pages 116 – 200 were approved by the Board of Directors on 8 April 2014 and signed on its
behalf by Alexander Frolov, Chief Executive Offi cer.
31 December
Notes
2013
2012
restated*
2011
restated*
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 fi nancial 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 fi nancial assets
Cash and cash equivalents
Assets of disposal groups classifi ed 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
Other reserves
Unrealised gains and losses
Accumulated profi ts
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Employee benefi ts
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
Provisions
Amounts payable under put options for shares of subsidiaries
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
Liabilities directly associated with disposal groups classifi ed as held for sale
9
10
5
11
8
13
13
14
15
16
17
18
19
12
20
20
20
20
11,13
22
8
23
24
25
26
22
16
27
24
12
$9,251
525
1,988
191
86
140
62
12,243
1,641
873
122
21
13
59
281
71
1,576
4,657
804
5,461
$7,792
586
2,180
551
70
92
64
11,335
1,978
895
143
19
12
59
329
712
1,320
5,467
930
6,397
$8,306
838
2,180
655
82
53
79
12,193
2,188
971
176
44
8
83
412
57
801
4,740
9
4,749
$17,704
$17,732
$16,942
$1,473
(1)
2,326
162
156
12
2,566
(1,687)
5,007
427
5,434
6,039
827
481
194
230
7,771
1,395
179
1,816
458
57
202
39
–
5
4,151
348
4,499
$1,340
(1)
1,820
173
–
5
3,004
(1,424)
4,917
200
5,117
6,373
855
577
257
181
8,243
1,414
157
1,783
257
48
195
32
–
8
3,894
478
4,372
$1,338
(8)
2,289
171
–
–
3,406
(1,846)
5,350
236
5,586
6,593
960
518
285
311
8,667
1,473
154
613
98
92
188
53
9
9
2,689
–
2,689
Total equity and liabilities
$17,704
$17,732
$16,942
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting
policies and a correction of a prior period error (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
118
EVRAZ plc Annual Report and Accounts 2013
CONSOLIDATED STATEMENT
OF CASH FLOWS
(in millions of US dollars)
Cash fl ows from operating activities
Net profi t/(loss)
Adjustments to reconcile net profi t/(loss) to net cash fl ows from operating activities:
Deferred income tax (benefi t)/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 (profi ts)/losses of associates and joint ventures
Gain/(loss) on derecognition of equity investments, net
(Gain)/loss on fi nancial assets and liabilities, net
(Gain)/loss on disposal groups classifi ed as held for sale, net
Other non-operating (gains)/losses, net
Bad debt expense
Changes in provisions, employee benefi ts and other long-term assets and liabilities
Expense arising from equity-settled awards (Note 21)
Share-based payments under cash-settled awards (Note 21)
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 liabilities
Net cash fl ows from operating activities
Cash fl ows 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
Return of capital by a joint venture (Note 11)
Purchases of subsidiaries, net of cash acquired (Note 4)
Purchases of interest in associates/joint ventures (Note 11)
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 classifi ed as held for sale, net of transaction costs
(Note 12)
Dividends received
Other investing activities, net
Net cash fl ows used in investing activities
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Year ended 31 December
2013
2012
restated*
2011
restated*
$(572)
$(425)
$457
(290)
1,051
47
446
258
(23)
699
(8)
(89)
43
25
(15)
8
(68)
25
–
(2)
1,535
229
65
15
131
48
(17)
(135)
30
4
(5)
(38)
1,259
56
413
41
(23)
654
(1)
–
(164)
(18)
6
12
(55)
22
–
(6)
1,733
121
(78)
37
141
120
18
96
(1)
(43)
(1)
12
1,153
50
104
(269)
(17)
715
(55)
–
355
(8)
4
49
(40)
23
(1)
(4)
2,528
(204)
167
(2)
(61)
(123)
(3)
367
(44)
44
(22)
1,900
2,143
2,647
(2)
–
(2)
3
–
31
(61)
(2)
677
(902)
7
1
1
(15)
(264)
(5)
1
–
4
38
(12)
–
–
(656)
(1,261)
9
311
88
(61)
(3)
46
(4)
4
–
(36)
–
(1)
5
(1,281)
23
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5
54
–
S
t
a
t
e
m
e
n
t
s
(1,544)
(1,188)
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting
policies (Note 2).
Continued on the next page
EVRAZ plc Annual Report and Accounts 2013
119
2012
restated*
2011
restated*
CONSOLIDATED STATEMENT
OF CASH FLOWS (CONTINUED)
(in millions of US dollars)
Year ended 31 December
Cash fl ows from fi nancing activities
Purchase of treasury shares in the course of the Group’s reorganisation (Note 20)
Purchase of treasury shares (Note 20)
Sale of treasury shares (Note 20)
Payments relating to conversion of bonds into shares (Note 22)
Proceeds from issue of shares by a subsidiary to non-controlling shareholders
Purchases of non-controlling interests (Note 4)
Dividends paid by the parent entity to its shareholders (Note 20)
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
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest
Payments under covenants reset (Note 22)
Gain on derivatives not designated as hedging instruments (Note 25)
Collateral under swap contracts (Note 18)
Restricted deposits at banks in respect of fi nancing activities
Payments under fi nance leases, including interest
Net cash fl ows used in fi nancing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Add back: decrease/(increase) in cash of disposal groups classifi ed as assets held for sale
(Note 12)
2013
$–
(6)
–
–
–
–
–
(1)
1,976
(3,978)
621
(1)
51
(21)
–
(8)
(1,367)
(48)
221
1,320
35
$(4)
–
–
–
–
(1)
(375)
(1)
2,706
(2,716)
292
(7)
81
10
2
(29)
(42)
32
589
801
(70)
Cash and cash equivalents at the end of the year
$1,576
$1,320
Supplementary cash fl ow information:
Cash fl ows during the year:
Interest paid
Interest received
Income taxes paid by the Group
$(586)
23
(249)
$(559)
7
(298)
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting
policies (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
120
EVRAZ plc Annual Report and Accounts 2013
$–
(22)
3
(161)
1
(51)
(491)
(1)
3,507
(3,815)
(283)
–
66
(10)
(1)
(24)
(1,282)
(59)
118
683
–
$801
$(586)
8
(443)
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
(in millions of US dollars)
Issued
capital
Treasury
shares
At 31 December 2012 (as previously reported)
Correction of a prior period error (Note 2)
Change in accounting policies (Note 2)
At 31 December 2012 (as restated)
Net loss
Other comprehensive income/(loss)
Reclassifi cation of additional paid-in capital to accumulated
profi ts in respect of the disposed subsidiaries
Reclassifi cation of revaluation surplus to accumulated
profi ts in respect of the disposed items of property, plant
and equipment
Total comprehensive income/(loss) for the period
Issue of shares (Note 20)
Acquisition of non-controlling interests in subsidiaries
(Note 4)
Non-controlling interests arising on acquisition of
subsidiaries (Note 4)
Contribution of a non-controlling shareholder to share capital
of the Group’s subsidiary (Note 20)
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plan (Notes 20 and 21)
Share-based payments (Note 21)
Dividends declared by the Group’s subsidiaries to
non-controlling shareholders (Note 20)
$1,340
–
–
$1,340
–
–
–
–
–
133
–
–
–
–
–
–
–
$(1)
–
–
$(1)
–
–
–
–
–
–
–
–
–
(6)
6
–
–
Additional
paid-in
capital
$1,820
–
–
$1,820
–
–
2
–
2
478
1
–
–
–
–
25
–
Attributable to equity holders of the parent entity
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profi ts
Translation
difference
$173
–
–
$173
–
(7)
–
(4)
(11)
–
–
–
–
–
–
–
–
$–
–
–
$–
–
–
–
–
–
156
–
–
–
–
–
–
–
$5
–
–
$5
–
7
–
–
7
–
–
–
–
–
–
–
–
$3,356
(96)
(256)
$3,004
(522)
88
$(1,520)
96
–
$(1,424)
–
(263)
(2)
4
–
–
Total
$5,173
–
(256)
$4,917
(522)
(175)
–
–
(432)
–
(263)
–
(697)
767
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
1
–
–
(6)
–
25
–
Non-
controlling
interests
$200
–
–
$200
(50)
(35)
–
–
(85)
–
(3)
Total
equity
$5,373
–
(256)
$5,117
(572)
(210)
–
–
(782)
767
(2)
314
314
2
–
–
–
(1)
2
(6)
–
25
(1)
At 31 December 2013
$1,473
$(1)
$2,326
$162
$156
$12
$2,566
$(1,687)
$5,007
$427
$5,434
Issued
capital
Treasury
shares
At 31 December 2011 (as previously reported)
Change in accounting policies (Note 2)
At 31 December 2011 (as restated)
Net loss*
Other comprehensive income/(loss)*
Reclassifi cation of revaluation surplus to accumulated
profi ts in respect of the disposed items of property,
plant and equipment
Total comprehensive income/(loss) for the period*
Issue of shares in the course of the Group’s reorganisation
(Note 20)
Acquisition of non-controlling interests in subsidiaries
(Note 4)
Derecognition of non-controlling interests on sale of
subsidiaries (Note 12)
Contribution of a non-controlling shareholder to share
capital of the Group’s subsidiary (Note 20)
Buyback of own shares by a joint venture’s subsidiary
(Note 11)
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plan (Notes 20 and 21)
Share-based payments (Note 21)
Reclassifi cation of distributed dividends to share premium
account (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)
$1,338
–
$1,338
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
$(8)
–
$(8)
–
–
–
–
–
–
–
–
–
(4)
11
–
–
–
–
Additional
paid-in
capital
$2,289
–
$2,289
–
–
–
–
–
–
–
–
–
–
–
22
(491)
–
–
Attributable to equity holders of the parent entity
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profi ts
Translation
difference
$171
–
$171
–
–
2
2
–
–
–
–
–
–
–
–
–
–
–
$–
–
$–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$–
–
$–
–
5
–
5
–
–
–
–
–
–
–
–
–
–
–
$3,606
(200)
$(1,851)
5
$3,406
(398)
(62)
$(1,846)
–
422
(2)
(462)
8
(31)
–
–
(22)
–
(11)
–
491
(375)
–
–
422
–
–
–
–
–
–
–
–
–
–
–
Non-
controlling
interests
$236
–
$236
(27)
(1)
–
(28)
(10)
Total
equity
$5,781
(195)
$5,586
(425)
364
–
(61)
–
(6)
(37)
2
7
–
–
–
–
–
–
2
7
(22)
(4)
–
22
–
(375)
Total
$5,545
(195)
$5,350
(398)
365
–
(33)
10
(31)
–
–
(22)
(4)
–
22
–
(375)
–
(1)
(1)
At 31 December 2012
$1,340
$(1)
$1,820
$173
$–
$5
$3,004
$(1,424)
$4,917
$200
$5,117
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting policies
and a correction of a prior period error (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
EVRAZ plc Annual Report and Accounts 2013
121
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U
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY (CONTINUED)
(in millions of US dollars)
Issued
capital
Treasury
shares
At 31 December 2010 (as previously reported)
Change in accounting policies (Note 2)
At 31 December 2010 (as restated)
Net profi t*
Other comprehensive income/(loss)*
Reclassifi cation of revaluation surplus to accumulated
profi ts in respect of the disposed items of property,
plant and equipment
Total comprehensive income/(loss) for the period*
Conversion of bonds (Notes 20 and 22)
Appropriation of net profi t to legal reserve
Group’s reorganisation (Notes 1 and 20)
Reduction in par value of shares of EVRAZ plc (Note 20)
Acquisition of non-controlling interests in subsidiaries
(Note 4)
Sale of non-controlling interests in subsidiaries (Note 20)
Non-controlling interests arising on establishment
of subsidiaries
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plan (Notes 20 and 21)
Sale of treasury shares (Note 20)
Share-based payments (Note 21)
Dividends declared by the parent entity to its shareholders
(Note 20)
Dividends declared by the Group’s subsidiaries to
non-controlling shareholders (Note 20)
$375
–
$375
–
–
–
–
29
–
2,247
(1,313)
–
–
–
–
–
–
–
–
–
$–
–
$–
–
–
–
–
–
–
–
–
–
–
–
(22)
11
3
–
–
–
Additional
paid-in
capital
$1,742
–
$1,742
–
–
–
–
524
–
–
–
–
–
–
–
–
–
23
–
–
Attributable to equity holders of the parent entity
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profi ts
Translation
difference
$180
–
$180
–
(1)
(8)
(9)
–
–
–
–
–
–
–
–
–
–
–
–
–
$36
–
$36
–
–
–
–
–
3
(39)
–
–
–
–
–
–
–
–
–
–
$–
–
$–
–
–
$4,570
(137)
$(1,214)
–
4,433
465
(67)
$(1,214)
–
(632)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
406
–
(3)
(2,219)
1,313
(18)
–
(4)
–
(11)
–
–
(491)
–
–
(632)
–
–
–
–
–
–
–
–
–
–
–
–
–
Non-
controlling
interests
$247
–
$247
(8)
(18)
Total
equity
$5,936
(137)
$5,799
457
(718)
Total
$5,689
(137)
$5,552
465
(700)
–
(235)
553
–
(11)
–
(18)
–
(4)
(22)
–
3
23
(491)
–
(26)
–
–
11
–
(33)
34
4
–
–
–
–
–
–
(261)
553
–
–
–
(51)
34
–
(22)
–
3
23
(491)
–
(1)
(1)
At 31 December 2011
$1,338
$(8)
$2,289
$171
$–
$–
$3,406
$(1,846)
$5,350
$236
$5,586
* The amounts shown here do not correspond to the 2012 fi nancial statements and refl ect adjustments made in connection with the obligatory change in the accounting
policies (Note 2).
The accompanying notes form an integral part of these consolidated fi nancial statements.
122
EVRAZ plc Annual Report and Accounts 2013
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
year ended 31 December 2013
1. Corporate information
These consolidated fi nancial statements were authorised for issue by the Board of Directors of EVRAZ plc on 8 April 2014.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company under the laws of the United Kingdom
with the registered number 7784342. The Company’s registered offi ce is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom.
As a result of the reorganisation implemented by way of the share exchange offer made by the Company for the shares of Evraz Group S.A. in
November 2011 (Note 20), the Company became a new parent entity of Evraz Group S.A. (Luxembourg), a holding company which owns steel
production, mining and trading companies.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products and coal and
iron ore mining. In addition, the Group produces vanadium products. The Group is one of the largest steel producers globally. Lanebrook Limited
(Cyprus) is the ultimate controlling party of the Group.
The major subsidiaries included in the consolidated fi nancial statements of the Group were as follows at 31 December:
Subsidiary
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Vitkovice Steel a.s.
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya (till 16 January 2013 accounted for under
equity method – Notes 4 and 11)
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated
Works
Evrazruda
EVRAZ Sukha Balka
Effective
ownership interest, %
2013
100.00
100.00
100.00
85.11
96.78
100.00
100.00
81.95
100.00
100.00
100.00
99.42
2012
100.00
100.00
100.00
85.11
96.78
100.00
100.00
40.98
100.00
100.00
100.00
99.42
2011
100.00
100.00
100.00
85.11
96.77
100.00
100.00
40.00
100.00
100.00
100.00
99.42
Business
activity
Steel production
Steel production
Steel production
Steel production
Steel production
Steel mill
Steel mill
Coal mining
Coal mining
Ore mining and
processing
Ore mining
Ore mining
Location
Russia
Russia
Czech Republic
South Africa
Ukraine
USA
Canada
Russia
Russia
Russia
Russia
Ukraine
2. Signifi cant accounting policies
Basis of Preparation
These consolidated fi nancial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”),
as adopted by the European Union.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for
application as of 31 December 2013, but not adopted by the European Union, do not have any impact on the Group’s consolidated
fi nancial statements.
The consolidated fi nancial statements have been prepared under the 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 classifi ed as held for sale measured at the lower of their carrying amount or fair value
less costs to sell and post-employment benefi ts measured at present value.
Going Concern
These consolidated fi nancial statements have been prepared on a going concern basis.
The Group’s activities in all of its operating segments continue to be affected by the uncertainty and instability of the current economic environment.
In response the Group implemented a number of cost cutting initiatives, reduced capital expenditures and signifi cantly reduced the level of debt
subject to fi nancial maintenance covenants.
Based on the currently available facts and circumstances the directors and management have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future.
Group Reorganisation in 2011
As the Group has been formed through a reorganisation in which EVRAZ plc became a new parent entity of the Group (Note 20), these consolidated
fi nancial statements have been prepared as a continuation of the existing group using the pooling of interests method.
EVRAZ plc Annual Report and Accounts 2013
123
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NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements
Correction of a Prior Period Error
According to IAS 21 “The Effects of Changes in Foreign Exchange Rates” on the disposal of a foreign operation, the cumulative amount of the
exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component
of equity, should be reclassifi ed from equity to profi t or loss (as a reclassifi cation adjustment) when the gain or loss on disposal is recognised.
In 2013, the Group discovered that in 2012 it did not reclassify the accumulated exchange losses in the amount of $96 million on the disposal
of its subsidiaries – Dneprodzerzhinsk Coke Chemical Plant and Prichaly Kominterna. As such, the Group corrected this prior period error and has
disclosed the restated consolidated statements of operations and comprehensive income, the statement of fi nancial position and the relevant
extract from the statement of changes in equity for the year ended 31 December 2012 below.
The correction of this error does not affect the Group’s compliance with fi nancial covenants at 31 December 2012.
Obligatory Change in the Accounting Policies Following the Amendments to IAS 19
Amended IAS 19 “Employee Benefi ts”, which is effective for annual periods beginning on or after 1 January 2013, introduced a full recognition of
defi cit/(surplus) of a defi ned benefi t obligation in the statement of fi nancial position, net presentation of interest on the defi ned benefi t liabilities
and assets, new presentation of changes in defi ned benefi t obligations and plan assets and additional disclosure requirements. These amendments
are required to be applied retrospectively. As such, in these consolidated fi nancial statements the Group adjusted the balances starting from the
earliest prior period presented and the results of its operations for the respective periods.
Reclassifi cations
In 2013, the Group applied new accounting policies with respect to certain operating costs previously included in general and administrative
expenses. Consequently, reclassifi cations have been made to the prior years fi nancial statements to conform to the current year presentation:
$21 million (2012) and $18 million (2011) have been reclassifi ed from general and administrative expenses into cost of revenue.
124
EVRAZ plc Annual Report and Accounts 2013
2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
The effects of the restatements on the previously reported amounts are set out below.
Statement of Operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profi t
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
Profi t from operations
Interest income
Interest expense
Share of profi ts/(losses) of joint ventures and associates
Gain/(loss) on fi nancial assets and liabilities, net
Gain/(loss) on disposal groups classifi ed as held for sale, net
Other non-operating gains/(losses), net
Profi t/(loss) before tax
Income tax expense
Net profi t/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
Year ended 31 December 2012
As previously
reported
Reclassifi cation
of accumulated
exchange losses
Change in
accounting
policies
$14,367
359
14,726
(11,797)
2,929
(1,211)
(860)
(51)
(56)
(413)
(41)
75
(129)
243
23
(645)
1
164
114
(6)
(106)
(229)
$(335)
$(308)
(27)
$(335)
$–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(96)
–
(96)
–
$(96)
$(96)
–
$(96)
$–
–
–
(6)
(6)
–
21
–
–
–
–
–
–
15
–
(9)
–
–
–
–
6
–
$6
$6
–
$6
$–
for profi t/(loss) attributable to equity holders of the parent entity, US dollars,
basic and diluted
$(0.23)
$(0.07)
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Restated
$14,367
359
14,726
(11,803)
2,923
(1,211)
(839)
(51)
(56)
(413)
(41)
75
(129)
258
23
(654)
1
164
18
(6)
(196)
(229)
$(425)
$(398)
(27)
$(425)
$(0.30)
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EVRAZ plc Annual Report and Accounts 2013
125
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Comprehensive Income
Net loss
Other comprehensive income/(loss)
Other comprehensive income to be reclassifi ed to profi t or loss in subsequent
periods
Exchange differences on translation of foreign operations into presentation
currency
Exchange differences recycled to profi t or loss
Net gains/(losses) on available-for-sale fi nancial assets
Effect of translation to presentation currency of the Group’s joint ventures and
associates
Net gains/(losses) on available-for-sale fi nancial assets of the Group’s joint
ventures and associates
Items not to be reclassifi ed to profi t or loss in subsequent periods
Gains/(losses) on re-measurement of net defi ned benefi t liability
Income tax effect
Gains/(losses) on re-measurement of net defi ned benefi t liability recognised by
the Group’s joint ventures and associates
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Statement of Changes in Equity
Accumulated profi ts
Translation difference
Year ended 31 December 2012
As previously
reported
Reclassifi cation
of accumulated
exchange losses
Change in
accounting
policies
$(335)
$(96)
$6
Restated
$(425)
286
–
4
290
44
1
45
–
–
–
–
335
$–
$28
(28)
$–
–
96
–
96
–
–
–
–
–
–
–
96
$–
$–
–
$–
(5)
–
–
(5)
–
–
–
(74)
14
(60)
(2)
(67)
$(61)
$(61)
–
$(61)
281
96
4
381
44
1
45
(74)
14
60
(2)
364
$(61)
$(33)
(28)
$(61)
31 December 2012
As previously
reported
$3,356
(1,520)
Reclassifi cation
of accumulated
exchange losses
$(96)
96
Change in
accounting
policies
$(256)
–
Restated
$3,004
(1,424)
126
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position
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 fi nancial 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 fi nancial assets
Cash and cash equivalents
Assets of disposal groups classifi ed 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
Unrealised gains and losses
Accumulated profi ts
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Finance lease liabilities
Employee benefi ts
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 fi nance lease liabilities
Provisions
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
Liabilities directly associated with disposal groups classifi ed as held for sale
31 December 2012
As previously
reported
Reclassifi cation
of accumulated
exchange losses
Change in
accounting
policies
Restated
$7,792
586
2,180
561
66
92
103
11,380
1,978
895
143
19
12
59
329
712
1,320
5,467
930
6,397
$–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$–
–
–
(10)
4
–
(39)
(45)
–
–
–
–
–
–
–
–
–
–
–
–
$7,792
586
2,180
551
70
92
64
11,335
1,978
895
143
19
12
59
329
712
1,320
5,467
930
6,397
$17,777
$–
$(45)
$17,732
$1,340
(1)
1,820
173
5
3,356
(1,520)
5,173
200
5,373
$6,373
927
11
294
257
170
8,032
1,412
157
1,783
257
48
195
2
32
8
3,894
478
4,372
$–
–
–
–
–
(96)
96
–
–
–
$–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(256)
–
(256)
–
(256)
$–
(72)
–
283
–
–
211
–
–
–
–
–
–
–
–
–
–
–
–
$1,340
(1)
1,820
173
5
3,004
(1,424)
4,917
200
5,117
$6,373
855
11
577
257
170
8,243
1,412
157
1,783
257
48
195
2
32
8
3,894
478
4,372
Total equity and liabilities
$17,777
$–
$(45)
$17,732
EVRAZ plc Annual Report and Accounts 2013
127
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profi t
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
Profi t from operations
Interest income
Interest expense
Share of profi ts/(losses) of joint ventures and associates
Gain/(loss) on fi nancial assets and liabilities, net
Gain/(loss) on disposal groups classifi ed as held for sale, net
Other non-operating gains/(losses), net
Profi t before tax
Income tax expense
Net profi t
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
Year ended 31 December 2011
As previously
reported
Change in
accounting
policies
$16,077
323
16,400
(12,473)
3,927
(1,154)
(921)
(61)
(50)
(104)
269
50
(96)
1,860
17
(708)
55
(355)
8
(4)
873
(420)
$453
$461
(8)
$453
Restated
$16,077
323
16,400
(12,480)
3,920
(1,154)
(903)
(61)
(50)
(104)
269
50
(96)
1,871
17
(715)
55
(355)
8
(4)
877
(420)
$457
$465
(8)
$457
$0.36
$–
–
–
(7)
(7)
–
18
–
–
–
–
–
–
11
–
(7)
–
–
–
–
4
–
$4
$4
–
$4
$–
for profi t/(loss) attributable to equity holders of the parent entity, US dollars, basic and diluted
$0.36
128
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2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Comprehensive Income
Net profi t
Other comprehensive income/(loss)
Other comprehensive income to be reclassifi ed to profi t or loss in subsequent periods
Exchange differences on translation of foreign operations into presentation currency
Net gains/(losses) on available-for-sale fi nancial assets
Net gains/(losses) on available-for-sale fi nancial assets reclassifi ed to profi t or loss
Effect of translation to presentation currency of the Group’s joint ventures and associates
Items not to be reclassifi ed to profi t or loss in subsequent periods
Gains/(losses) on re-measurement of net defi ned benefi t liability
Income tax effect
Decrease in revaluation surplus in connection with the impairment of property, plant and
equipment
Gains/(losses) on re-measurement of net defi ned benefi t liability recognised by the Group’s joint
ventures and associates
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Statement of Changes in Equity
Accumulated profi ts
Translation difference
Year ended 31 December 2011
As previously
reported
$453
Change in
accounting
policies
$4
Restated
$457
(620)
(20)
20
(620)
(35)
–
–
–
(1)
–
(656)
$(203)
$(177)
(26)
$(203)
5
–
–
5
–
(97)
31
(66)
–
(1)
(62)
$(58)
$(58)
–
$(58)
(615)
(20)
20
(615)
(35)
(97)
31
(66)
(1)
(1)
(718)
$(261)
$(235)
(26)
$(261)
Year ended 31 December 2011
As previously
reported
$3,606
(1,851)
Change in
accounting
policies
$(200)
5
Restated
$3,406
(1,846)
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EVRAZ plc Annual Report and Accounts 2013
129
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position
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 fi nancial 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 fi nancial assets
Cash and cash equivalents
Assets of disposal groups classifi ed 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
Accumulated profi ts
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Finance lease liabilities
Employee benefi ts
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 fi nance lease liabilities
Provisions
Amounts payable under put options for shares of subsidiaries
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
31 December 2011
As previously
reported
Change in
accounting
policies
$8,306
838
2,180
663
79
53
107
12,226
2,188
971
176
44
8
83
412
57
801
4,740
9
4,749
$–
–
–
(8)
3
–
(28)
(33)
–
–
–
–
–
–
–
–
–
–
–
–
Restated
$8,306
838
2,180
655
82
53
79
12,193
2,188
971
176
44
8
83
412
57
801
4,740
9
4,749
$16,975
$(33)
$16,942
$1,338
(8)
2,289
171
3,606
(1,851)
5,545
236
5,781
6,593
1,020
26
296
285
285
8,505
1,460
154
613
98
92
188
13
53
9
9
2,689
$–
–
–
–
(200)
5
(195)
–
(195)
–
(60)
–
222
–
–
162
–
–
–
–
–
–
–
–
–
–
–
$1,338
(8)
2,289
171
3,406
(1,846)
5,350
236
5,586
6,593
960
26
518
285
285
8,667
1,460
154
613
98
92
188
13
53
9
9
2,689
Total equity and liabilities
$16,975
$(33)
$16,942
130
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position
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 fi nancial 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 fi nancial assets
Cash and cash equivalents
Assets of disposal groups classifi ed as held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Equity attributable to equity holders of the parent entity
Issued capital
Additional paid-in capital
Revaluation surplus
Legal reserve
Accumulated profi ts
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Finance lease liabilities
Employee benefi ts
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 fi nance lease liabilities
Provisions
Amounts payable under put options for shares of subsidiaries
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
31 December 2010
Change in
accounting
policies
As previously
reported
$8,607
1,004
2,219
688
100
118
103
12,839
2,070
1,213
192
1
80
54
353
52
683
4,698
2
4,700
$–
–
–
(7)
–
–
(19)
(26)
–
–
–
–
–
–
–
–
–
–
–
–
Restated
$8,607
1,004
2,219
681
100
118
84
12,813
2,070
1,213
192
1
80
54
353
52
683
4,698
2
4,700
$17,539
$(26)
$17,513
$375
1,742
180
36
4,570
(1,214)
5,689
247
5,936
7,097
1,072
38
315
279
143
8,944
1,173
205
714
217
78
180
19
54
6
13
2,659
$–
–
–
–
(137)
–
(137)
–
(137)
–
(32)
–
143
–
–
111
–
–
–
–
–
–
–
–
–
–
–
$375
1,742
180
36
4,433
(1,214)
5,552
247
5,799
7,097
1,040
38
458
279
143
9,055
1,173
205
714
217
78
180
19
54
6
13
2,659
Total equity and liabilities
$17,539
$(26)
$17,513
EVRAZ plc Annual Report and Accounts 2013
131
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Changes in Accounting Policies
In the preparation of these consolidated fi nancial statements, the Group followed the same accounting policies and methods of computation as
compared with those applied in the previous year, except for the adoption of new standards and interpretations and revision of the existing standards
as of 1 January 2013.
New/Revised Standards and Interpretations Adopted in 2013:
• Amendments to IAS 19 “Employee Benefi ts”
IAS 19 (revised) includes a number of amendments to the accounting for defi ned benefi t plans, including actuarial gains and losses that are now
recognised in other comprehensive income and permanently excluded from profi t and loss; expected returns on plan assets that are no longer
recognised in profi t or loss, instead, there is a requirement to recognise interest on the net defi ned benefi t liability (asset) in profi t or loss, calculated
using the discount rate used to measure the defi ned benefi t obligation, and; unvested past service costs are now recognised in profi t or loss at the
earlier of when the amendment occurs or when the related restructuring or termination costs are recognised. Other amendments include new
disclosures, such as, quantitative sensitivity disclosures. The amended standard is required to be applied retrospectively. The effects of the
application of the revised IAS 19 are disclosed in the Basis of Preparation above.
New/Revised Standards and Interpretations Adopted in 2013: (continued)
• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Offsetting Financial Assets and Financial Liabilities
The amendment requires an entity to disclose information about rights to set-off fi nancial instruments and related arrangements (e.g., collateral
agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s
fi nancial position. The new disclosures are required for all recognised fi nancial instruments that are set off in accordance with IAS 32. The
disclosures also apply to recognised fi nancial instruments that are subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether the fi nancial instruments are set off in accordance with IAS 32.
• IFRS 13 “Fair Value Measurement”
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to
use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 also requires
specifi c disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 “Financial
Instruments: Disclosures”.
• Amendments to IAS 1 “Presentation of Financial Statements” – Changes to the Presentation of Other Comprehensive Income
The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassifi ed
(or recycled) to profi t or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign
operations, net movement on cash fl ow hedges and net loss or gain on available-for-sale fi nancial assets) now have to be presented separately from
items that will never be reclassifi ed (e.g., actuarial gains and losses on defi ned benefi t plans and revaluation of land and buildings).
• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”
This Interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. If the
benefi t from the stripping activity will be realised in the current period, an entity is required to account for the stripping activity costs as part of the
cost of inventory. When the benefi t is the improved access to ore, the entity recognises these costs as a non-current asset, only if certain criteria are
met:
1) it is probable that the future economic benefi t (improved access to the ore body) associated with the stripping activity will fl ow to the Group;
2) the Group can identify the component of the ore body for which access has been improved; and
3) the costs relating to the stripping activity associated with that component can be measured reliably.
This is referred to as the ‘stripping activity asset’. The stripping activity asset is accounted for as an addition to, or as an enhancement of,
an existing asset.
If the costs of the stripping activity asset and the inventory produced are not separately identifi able, the entity allocates the cost between the two
assets using an allocation method based on a relevant production measure.
After initial recognition, the stripping activity asset is carried at its cost or revalued amount less depreciation or amortisation and less impairment
losses, in the same way as the existing asset of which it is a part.
• Amendments to standards following the May 2012 “Improvements to IFRS” project
Except for IAS 19 (revised), the amendments and new standards described above did not have a signifi cant impact on the fi nancial position or
performance of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not
yet effective.
132
EVRAZ plc Annual Report and Accounts 2013
2. Signifi cant accounting policies (continued)
Changes in Accounting Policies (continued)
Standards Issued But Not Yet Effective in the European Union
Standards not yet effective for the fi nancial statements for the year ended 31 December 2013
• IFRS 10 “Consolidated Financial Statements”
• IFRS 11 “Joint Arrangements”
• IFRS 12 “Disclosure of Interests in Other Entities”
• IAS 27 “Separate Financial Statements”
• IAS 28 “Investments in Associates and Joint Ventures”
• Amendments to IAS 32 “Financial Instruments: Presentation” – Offsetting Financial Assets and Financial Liabilities
• Amendments to IAS 36 – Recoverable Amount Disclosures for Non-fi nancial Assets”
• Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting”
• Amendments to IAS 19 – Defi ned Benefi t Plans: Employee Contributions
• IFRS 14 “Regulatory Deferral Accounts”
• IFRIC 21 “Levies”
• IFRS 9 “Financial Instruments”
• Annual Improvements to IFRSs 2010-2012 Cycle
• Annual Improvements to IFRSs 2011-2013 Cycle
Effective for annual
periods beginning
on or after
1 January 2014*
1 January 2014*
1 January 2014*
1 January 2014*
1 January 2014*
1 January 2014
1 January 2014
1 January 2014
not defi ned
not defi ned
not defi ned
not defi ned
not defi ned
not defi ned
* Standards have been endorsed by the European Union from 1 January 2013 but it was allowed by the European Financial Reporting Advisory Group (EFRAG) to apply them from
the commencement date of the fi rst fi nancial year starting on or after 1 January 2014.
The Group expects that the adoption of the pronouncements listed above will not have a signifi cant impact on the Group’s results of operations and
fi nancial position in the period of initial application.
Signifi cant 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 signifi cant effect on the amounts recognised in the consolidated fi nancial statements:
• The Group determined that it obtained control over Corber on 16 January 2013 (Note 11). As of 31 December 2012, certain conditions relating
to acquisition of an additional 50% ownership interest in Corber were not met. As such, the Group did not consolidate Corber in 2012.
• The Group determined that the 51% ownership interest in Timir (Note 11) does not provide control over the entity (Note 11). In April 2013, the
Group concluded a joint venture agreement with Alrosa under which major operating and fi nancial decisions are made by unanimous consent of
the Group and Alrosa, it ensures that no single venturer is in a position to control the activity unilaterally. Consequently, the Group determined
that Timir constitutes a joint controlled entity under IAS 31 “Interests in Joint Ventures”.
• The Group determined that the future sale of EVRAZ Highveld Steel and Vanadium Limited and EVRAZ Vitkovice Steel does not constitute a
discontinued operation as the expected disposal will not lead to the Group abandoning any geographical area of operation or any product line
(Note 12).
• Management concluded that EVRAZ Highveld Steel and Vanadium Limited continues to meet the criteria of being classifi ed as assets held for
sale: it is being actively marketed for sale and management expects to complete the sale within 2014. The carrying value of its assets is based
on management’s best estimate of the proceeds of the sale which takes into account the results of negotiations to date including binding or
non-binding bids where relevant.
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 signifi cant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.
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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 infl ows that are largely
independent of those from other assets or groups 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 fl ows are discounted to
their present value using a pre-tax discount rate that refl ects current market assessment of the time value of money and the risks specifi c to the
assets. In 2013, 2012 and 2011, the Group recognised an impairment loss of $240 million, $404 million and $105 million, respectively (Note 9).
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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 fi nancing, technological obsolescence,
discontinuance of service, current replacement costs and other changes in circumstances that indicate that impairment exists.
EVRAZ plc Annual Report and Accounts 2013
133
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Signifi cant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
Impairment of Property, Plant and Equipment (continued)
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 fl ow-based methods, which require the Group to make an estimate of the expected future cash fl ows from
the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash fl ows. These estimates,
including the methodologies used, may have a material impact on the value in use 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 fi nancial 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.
On 1 January 2013, the Group changed its estimation of useful lives of property, plant and equipment, which resulted in a $43 million decrease in
depreciation expense as compared to the amounts that would have been charged had no change in estimate occurred.
In 2012, the change in estimates of useful lives of property, plant and equipment resulted in an additional depreciation expense of approximately
$5 million. In 2011, the Group changed its estimation of useful lives of property, plant and equipment, which resulted in a $16 million decrease in
depreciation expense as compared to the amounts that would have been charged had no change in estimate occurred.
Fair Values of Assets and Liabilities Acquired in Business Combinations
The Group is required to recognise separately, at the acquisition date, the identifi able 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 fl ows 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
fl ows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash fl ows.
The carrying amount of goodwill at 31 December 2013, 2012 and 2011 was $1,988 million, $2,180 million and $2,180 million, respectively.
In 2013, 2012 and 2011, the Group recognised an impairment loss in respect of goodwill in the amount of $149 million, $Nil and $Nil, respectively.
More details of the assumptions used in estimating the value in use of the cash-generating units to which goodwill is allocated are provided in
Note 5.
Mineral Reserves
Mineral reserves and the associated mine plans are a material factor in the Group’s computation of a depletion 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 the 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. Mine plans are periodically updated which can have a material impact on the depletion charge for the
period. More details on the impact of this on the current year are provided in Note 9.
Site Restoration Provisions
The Group reviews site restoration provisions at each reporting date and adjusts them to refl ect 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 carrying amount
of a provision is the present value of the expected expenditures, i.e. cash outfl ows discounted using pre-tax rates that refl ect current market
assessments of the time value of money and the risks specifi c to the liability.
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 refl ected in the amount of a provision when there is suffi cient objective
evidence that they will occur.
134
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Signifi cant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
Post-Employment Benefi ts
The Group uses an actuarial valuation method for the measurement of the present value of post-employment benefi t 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 benefi ts (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.) as well as fi nancial
assumptions (discount rate, future salary and benefi t levels, expected rate of return on plan assets, etc.). More details are provided in Note 23.
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 specifi c customer conditions may require adjustments to the allowance for doubtful accounts recorded in the
consolidated fi nancial statements. As of 31 December 2013, 2012 and 2011, allowances for doubtful accounts in respect of trade and other
receivables have been made in the amount of $59 million, $101 million and $108 million, respectively (Note 28).
The Group makes an allowance for obsolete and slow-moving raw materials and spare parts. In addition, certain fi nished goods of the Group are
carried at net realisable value (Note 14). Estimates of net realisable value of fi nished goods are based on the most reliable evidence available at the
time the estimates are made. These estimates take into consideration fl uctuations of price or cost directly relating to events occurring subsequent
to the end of the reporting period to the extent that such events confi rm conditions existing at the end of the period.
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 suffi cient taxable profi t will be
available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes judgements 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 plans, 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 fi nancial position, results of operations and cash fl ows 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.
Foreign Currency Transactions
The presentation currency of the Group is the US dollar because presentation in US dollars is convenient for the major current and potential users
of the consolidated fi nancial 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 functional currencies 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 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.
The following exchange rates were used in the consolidated fi nancial statements:
US$/RUB
EUR/RUB
EUR/US$
US$/CAD
EUR/CZK
US$/CZK
US$/ZAR
EUR/ZAR
US$/UAH
RUB/UAH
2013
2012
2011
31 December
average
31 December
average
31 December
32.7292
44.9699
1.3791
1.0636
27.4250
19.8940
10.4675
14.4210
7.9930
0.2450
31.8480
42.3129
1.3281
1.0301
25.9741
19.5648
9.6508
12.8249
7.9930
0.2512
30.3727
40.2286
1.3194
0.9949
25.1400
19.0550
8.4838
11.1902
7.9930
0.2632
31.0930
39.9275
1.2848
0.9994
25.1435
19.5840
8.2137
10.5553
7.9910
0.2574
32.1961
41.6714
1.2939
1.0170
25.8000
19.9400
8.1319
10.5044
7.9898
0.2495
average
29.3874
40.8848
1.3920
0.9893
24.5858
17.6878
7.2579
10.0909
7.9677
0.2717
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.
EVRAZ plc Annual Report and Accounts 2013
135
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
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 the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in
the consolidated statement of fi nancial 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 defi cit balance.
Acquisition of Subsidiaries
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 identifi able 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 profi t 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 profi t or loss
or as a change to other comprehensive income. If the contingent consideration is classifi ed as equity, it should not be remeasured until it is fi nally
settled within equity.
The initial accounting for a business combination involves identifying and determining the fair values to be assigned to the acquiree’s identifi able
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
identifi able 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.
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 profi ts, if negative, in the consolidated
fi nancial 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 fi nancial 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 fi nancial statements.
Any difference between the total book value of net assets, including the Predecessor’s goodwill, and the consideration paid is accounted for in the
consolidated fi nancial statements as an adjustment to the shareholders’ equity.
These fi nancial statements, including corresponding fi gures, are presented as if a subsidiary had been acquired by the Group on the date it was
originally acquired by the Predecessor.
136
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Basis of Consolidation (continued)
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 fi nancial position over the carrying value of the derecognised non-controlling interests is
charged to accumulated profi ts.
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 signifi cant
infl uence, 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 refl ect 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’ profi ts 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 profi ts, the Group resumes recognising its share of those profi ts only after its share of the profi ts 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 refl ects the Group’s share of the results of operations of joint ventures.
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 fi scal 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
Weighted
average
remaining
useful life
(years)
19
11
7
12
Useful lives
(years)
15–60
4–45
7–20
3–15
The Group determines the depreciation charge separately for each signifi cant 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. The depletion calculation, however, does not take into account future development costs for reserves which are not yet
in the production phase.
EVRAZ plc Annual Report and Accounts 2013
137
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Property, Plant and Equipment (continued)
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.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures represent costs incurred by the Group in connection with the exploration for and evaluation of mineral
resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. The expenditures include
acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, activities
in relation to evaluating the technical feasibility and commercial viability of extracting mineral resources. These costs are expensed as incurred.
When the technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Group commences recognition of
expenditures related to the development of mineral resources as assets. These assets are assessed for impairment when facts and circumstances
suggest that the carrying amount of an asset may exceed its recoverable amount.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date as to whether
the fulfi lment of the arrangement is dependent on the use of a specifi c 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 benefi ts 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 fi nance 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 benefi ts of ownership of the asset are classifi ed 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 associate and the amount
recognised for non-controlling interest over the net identifi able 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.
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 benefi t 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 fair values of the operation disposed of and the portion of the cash-generating
unit retained.
138
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Intangible Assets Other Than Goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination
is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and
any accumulated impairment losses. Expenditures on internally generated intangible assets, excluding capitalised development costs, are expensed
as incurred.
The useful lives of intangible assets are assessed to be either fi nite or indefi nite. Intangible assets with fi nite 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 fi nite life are reviewed at least at each year end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefi ts embodied in the asset are treated as changes in accounting estimates.
Intangible assets with indefi nite 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
Contract terms
Other
Weighted
average
remaining
useful life
(years)
12
10
10
Useful lives
(years)
1–15
10
5–19
Certain water rights and environmental permits are considered to have indefi nite lives as management believes that these rights will
continue indefi nitely.
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 the Kyoto protocol. Emission rights (allowances)
for each compliance period (one year) are issued at the beginning of the year, actual emissions are verifi ed 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 fi nancial 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.
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 classifi ed its investments into the following categories: fi nancial assets at fair value through profi t 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 profi t or loss, directly attributable transaction costs. The Group determines the classifi cation of its investments after
initial recognition.
Investments that are acquired principally for the purpose of generating a profi t from short-term fl uctuations in price are classifi ed as held for trading
and included in the category “fi nancial assets at fair value through profi t 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 fi nancial assets with fi xed 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 fi nancial assets with fi xed or determinable payments and fi xed maturity that management has the positive intent and ability to hold to
maturity are classifi ed as held-to-maturity. Held-to-maturity investments are carried at amortised cost using the effective yield method.
EVRAZ plc Annual Report and Accounts 2013
139
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Financial Assets (continued)
Investments intended to be held for an indefi nite period of time, which may be sold in response to needs for liquidity or changes in interest rates,
are classifi ed 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 classifi cation 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 profi t 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 fi nancial 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 fl ow analysis or other generally accepted valuation techniques.
All purchases and sales of fi nancial assets under contracts to purchase or sell fi nancial 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.
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 identifi ed.
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 specifi c loss component that relates to individually signifi cant exposures, and a collective loss component established for
groups of similar receivables in respect of losses that have been incurred but not yet identifi ed. The collective loss allowance is determined based
on historical data of payment statistics for similar fi nancial assets.
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 fi nished 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.
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 apply the 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 if 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, an 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 deposits with an original maturity of three months or less.
Borrowings
Borrowings are initially recognised at 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.
Borrowing costs relating to qualifying assets are capitalised (Note 9).
140
EVRAZ plc Annual Report and Accounts 2013
2. Signifi cant accounting policies (continued)
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 specifi ed 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 classifi ed 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 only if they are declared before or 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
fi nancial 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 outfl ow of
resources embodying economic benefi ts 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 fl ows at a pre-tax rate that
refl ects current market assessments of the time value of money and, where appropriate, the risks specifi c 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.
Employee Benefi ts
Social and Pension Contributions
Defi ned 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 34.2%), based on gross salary payments. The Group has no legal or constructive obligation to pay
further contributions in respect of those benefi ts. Its only obligation is to pay contributions as they fall due. These contributions are expensed
as incurred.
Defi ned Benefi t Plans
The Group companies provide pensions and other benefi ts to their employees (Note 23). The entitlement to these benefi ts is usually conditional on
the completion of a minimum service period. Certain benefi t plans require the employee to remain in service up to retirement age. Other employee
benefi ts consist of various compensations and non-monetary benefi ts. The amounts of benefi ts are stipulated in the collective bargaining
agreements and/or in the plan documents.
The Group involves independent qualifi ed actuaries in the measurement of employee benefi t obligations.
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The cost of providing benefi ts under the defi ned benefi t plan is determined using the projected unit credit method. Re-measurements, comprising of
actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognised
immediately in the statement of fi nancial position with a corresponding debit or credit to retained earnings through other comprehensive income in
the period in which they occur. Re-measurements are not reclassifi ed to profi t or loss in subsequent periods.
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Past service costs are recognised in profi t or loss on the earlier of the date of the plan amendment or curtailment, and the date that the Group
recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defi ned benefi t liability or asset. It is recorded within interest expense in the
consolidated statement of operations.
The Group recognises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements in the consolidated
statement of operations within ‘cost of sales’, ‘general and administrative expenses’ and ‘selling and distribution expenses’.
EVRAZ plc Annual Report and Accounts 2013
141
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
2. Signifi cant accounting policies (continued)
Employee Benefi ts (continued)
Other Costs
The Group incurs employee costs related to the provision of benefi ts 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
The Group has management compensation schemes (Note 21), under which certain senior executives and employees of the Group receive
remuneration in the form of share-based payment transactions, whereby they render services as consideration for equity instruments
(“equity-settled transactions”).
The cost of equity-settled transactions with grantees 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. 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 fulfi lled, 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 refl ects 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 modifi ed, as a minimum an expense is recognised as if the terms had not been modifi ed. In addition,
an expense is recognised for any modifi cation which increases the total fair value of the share-based payment arrangement, or is otherwise
benefi cial to the employee as measured at the date of modifi cation.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the
award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the
date that it is granted, the cancelled and new awards are treated as if they were a modifi cation of the original award, as described in the
previous paragraph.
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 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 refl ected 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 benefi ts will fl ow 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 specifi c recognition criteria must also be met before revenue is recognised:
Sale of Goods
Revenue is recognised when the signifi cant 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.
142
EVRAZ plc Annual Report and Accounts 2013
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2. Signifi cant accounting policies (continued)
Revenue (continued)
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 outside profi t or loss is recognised in other comprehensive income or 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 fi nancial 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 profi t nor taxable profi t or loss.
A deferred tax asset is recorded only to the extent that it is probable that taxable profi t 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.
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 the steel-making
process is also allocated to the vanadium segment.
• Other operations include energy-generating companies, seaports, shipping and railway transportation companies.
Management and investment companies are 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 results of the operating segments 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 fi nancial 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 fi gures 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.
EVRAZ plc Annual Report and Accounts 2013
143
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
3. Segment information (continued)
Segment result is segment revenue less segment expense that is equal to earnings before interest, tax, depreciation and amortisation (“EBITDA”).
Segment EBITDA is determined as a segment’s profi t/(loss) from operations adjusted for impairment of assets, profi t/(loss) on disposal of property,
plant and equipment and intangible assets, foreign exchange gains/(losses) and depreciation, depletion and amortisation expense.
The following tables present measures of segment profi t or loss based on management accounts.
Year ended 31 December 2013
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2012
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2011
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Steel
production
$13,350
492
13,842
$1,114
Steel
production
$13,884
324
14,208
$1,096
Steel
production
$15,622
422
16,044
$1,120
Mining
$907
2,239
3,146
$505
Mining
$258
2,261
2,519
$569
Mining
$420
3,092
3,512
$1,529
Vanadium
products
Other
operations
Eliminations
Total
$283
266
549
$33
$235
468
703
$72
$–
(3,465)
(3,465)
$94
$14,775
–
14,775
$1,818
Vanadium
products
Other
operations
Eliminations
Total
$192
317
509
$54
$200
606
806
$180
$–
(3,508)
(3,508)
$87
$14,534
–
14,534
$1,986
Vanadium
products
Other
operations
Eliminations
Total
$269
364
633
$111
$166
656
822
$176
$–
(4,534)
(4,534)
$17
$16,477
–
16,477
$2,953
144
EVRAZ plc Annual Report and Accounts 2013
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3. Segment information (continued)
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profi t or loss before tax
per the consolidated fi nancial statements prepared under IFRS.
Steel
production
$13,842
(1,301)
$12,541
$1,114
147
–
68
215
$1,329
(549)
(349)
(27)
(73)
$331
Mining
$3,146
(26)
$3,120
$505
43
(1)
99
141
$646
(447)
(86)
(19)
6
$100
Year ended 31 December 2013
US$ million
Revenue
Reclassifi cations and other adjustments
Revenue per IFRS fi nancial statements
EBITDA
Exclusion of management services from
segment result
Unrealised profi ts adjustment
Reclassifi cations and other adjustments
EBITDA based on IFRS fi nancial statements
Unallocated subsidiaries
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profi t/(loss) from operations
Interest income/(expense), net
Share of profi ts/(losses) of joint ventures and
associates
Gain/(loss) on derecognition of equity
investments, net
Gain/(loss) on fi nancial assets and liabilities
Gain/(loss) on disposal groups classifi ed as
held for sale
Other non-operating gains/(losses), net
Profi t/(loss) before tax
Vanadium
products
Other
operations
Eliminations
Total
$549
1
$550
$33
4
(1)
(17)
(14)
$19
(14)
–
(1)
(1)
$3
$703
225
$928
$72
3
–
35
38
$110
(35)
(11)
–
–
$64
$(3,465)
737
$(2,728)
$94
–
(151)
–
(151)
$(57)
–
–
–
–
$(57)
$14,775
(364)
$14,411
$1,818
197
(153)
185
229
$2,047
(226)
$1,821
(1,045)
(446)
(47)
(68)
$215
(196)
$19
$(676)
8
89
(43)
(25)
15
$(613)
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EVRAZ plc Annual Report and Accounts 2013
145
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
3. Segment information (continued)
Year ended 31 December 2012
US$ million
Revenue
Forecasted vs. actual revenue
Reclassifi cations and other adjustments
Revenue per IFRS fi nancial statements
EBITDA
Forecasted vs. actual EBITDA
Exclusion of management services from
segment result
Unrealised profi ts adjustment
Reclassifi cations and other adjustments
EBITDA based on IFRS fi nancial statements
Unallocated subsidiaries
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profi t/(loss) from operations
Interest income/(expense), net
Share of profi ts/(losses) of joint ventures and
associates
Gain/(loss) on fi nancial assets and liabilities
Gain/(loss) on disposal groups classifi ed as
held for sale
Other non-operating gains/(losses), net
Profi t/(loss) before tax
Steel
production
$14,208
96
(761)
$13,543
$1,096
(1)
103
(6)
146
242
Mining
$2,519
2
129
$2,650
$569
3
49
–
4
56
Vanadium
products
Other
operations
Eliminations
$509
(3)
14
$520
$54
7
3
–
(83)
(73)
$806
14
226
$1,046
$180
(12)
4
–
17
9
$(3,508)
–
475
$(3,033)
$87
–
–
6
–
6
$1,338
$625
$(19)
$189
$93
(556)
(58)
(38)
171
$857
(611)
(354)
(17)
(95)
$(452)
(47)
–
(1)
–
(38)
(1)
–
–
–
–
–
–
$(67)
$150
$93
Total
$14,534
109
83
$14,726
$1,986
(3)
159
–
84
240
$2,226
(199)
$2,027
(1,252)
(413)
(56)
76
$382
(124)
$258
$(631)
1
164
18
(6)
$(196)
146
EVRAZ plc Annual Report and Accounts 2013
Vanadium
products
Other
operations
Eliminations
Total
3. Segment information (continued)
Year ended 31 December 2011
US$ million
Revenue
Forecasted vs. actual revenue
Reclassifi cations and other adjustments
Revenue per IFRS fi nancial statements
EBITDA
Forecasted vs. actual EBITDA
Exclusion of management services from
segment result
Unrealised profi ts adjustment
Reclassifi cations and other adjustments
Steel
production
$16,044
134
(1,461)
$14,717
$1,120
(63)
91
(5)
130
153
Mining
$3,512
(1)
273
$3,784
$1,529
(10)
43
–
66
99
EBITDA based on IFRS fi nancial statements
Unallocated subsidiaries
$1,273
$1,628
$633
(5)
37
$665
$111
(5)
3
(3)
(84)
(89)
$22
(34)
–
–
(1)
$822
(4)
148
$966
$176
(1)
2
–
20
21
$197
(40)
5
(1)
1
$(4,534)
–
802
$(3,732)
$17
–
–
15
–
15
$32
–
–
–
–
(546)
(78)
(29)
(29)
(530)
(31)
(20)
103
$591
$1,150
$(13)
$162
$32
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profi t/(loss) from operations
Interest income/(expense), net
Share of profi ts/(losses) of joint ventures
and associates
Gain/(loss) on fi nancial assets and liabilities
Gain/(loss) on disposal groups classifi ed as
held for sale
Other non-operating gains/(losses), net
Profi t/(loss) before tax
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$16,477
124
(201)
$16,400
$2,953
(79)
139
7
132
199
$3,152
(243)
$2,909
(1,150)
(104)
(50)
74
$1,679
192
$1,871
$(698)
55
(355)
8
(4)
$877
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EVRAZ plc Annual Report and Accounts 2013
147
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
3. Segment information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
2013
2012
2011
$4,157
1,776
1,791
1,299
2,028
425
885
71
12,432
389
732
62
22
1,205
46
477
4
2
529
245
245
$4,335
2,321
1,751
1,364
2,066
461
948
87
13,333
347
211
62
15
635
31
465
5
4
505
253
253
$4,435
2,817
1,976
1,411
2,235
556
992
101
14,523
586
392
39
20
1,037
76
558
4
3
641
199
199
$14,411
$14,726
$16,400
US$ million
Steel production
Construction products
Flat-rolled products
Railway products
Tubular products
Semi-fi nished 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
148
EVRAZ plc Annual Report and Accounts 2013
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3. Segment information (continued)
Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended 31 December was as follows:
US$ million
CIS
Russia
Ukraine
Kazakhstan
Others
America
USA
Canada
Others
Asia
Taiwan
Thailand
China
Indonesia
Korea
Philippines
United Arab Emirates
Japan
Jordan
Mongolia
Vietnam
Syria
Others
Europe
Austria
Germany
Italy
Czech Republic
Slovakia
Poland
Other members of the European Union
Turkey
Others
Africa
South Africa
Others
Other countries
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
2013
2012
2011
$6,136
494
456
225
7,311
1,940
1,233
69
3,242
549
332
280
272
135
99
64
62
57
43
13
–
156
$6,191
473
355
168
7,187
2,293
1,234
44
3,571
492
451
178
355
118
87
87
59
64
67
27
10
120
$6,632
623
401
163
7,819
2,172
1,478
91
3,741
360
708
252
212
111
84
315
81
6
43
33
51
94
2,062
2,115
2,350
173
163
157
151
123
100
183
314
21
160
204
224
155
96
131
261
182
37
224
368
267
205
94
221
348
145
69
1,385
1,450
1,941
361
43
404
7
323
74
397
6
472
72
544
5
$14,411
$14,726
$16,400
EVRAZ plc Annual Report and Accounts 2013
149
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
3. Segment information (continued)
Non-current assets other than fi nancial instruments, deferred tax assets and post-employment benefi t assets were located in the following countries
at 31 December:
US$ million
Russia
Canada
USA
Ukraine
Italy
Kazakhstan
Czech Republic
South Africa
Other countries
2013
$7,463
1,837
1,670
652
197
119
40
33
6
2012
$6,062
2,046
2,014
668
204
65
42
43
29
2011
$6,145
2,069
2,047
759
206
22
213
567
30
$12,017
$11,173
$12,058
4. Acquisition of subsidiaries
Acquisitions of Controlling Interests
Corber
In October 2012, EVRAZ plc concluded a preliminary agreement with Adroliv Investments Limited for an acquisition of a 50% ownership interest in
Corber, the parent of a coal mining company Raspadskaya, subject to the receipt of regulatory approvals and fulfi llment of certain other conditions.
On 16 January 2013, all the conditions were met and the Group obtained control over the entity. As a result, Corber became a wholly owned
subsidiary of the Group on 16 January 2013.
Management believes that this acquisition will increase the Group’s coking coal self-coverage and generate substantial operational synergies to the
Group, including the optimal use of various coal grades.
The purchase consideration includes 132,653,006 shares of EVRAZ plc issued on 16 January 2013, warrants to subscribe for an additional
33,944,928 EVRAZ plc shares exercisable at zero price in the period from 17 January to 17 April 2014 and a cash consideration of $202 million to
be paid in equal quarterly installments to 15 January 2014 (Note 32). Fair value of the consideration transferred totalled to $964 million, including
$611 million relating to the shares issued, $156 million representing the fair value of the warrants and $197 million of present value of the cash
component of the purchase consideration. The fair value of shares and warrants was determined by reference to the market value of EVRAZ plc
shares at the date of acquisition.
In accordance with IFRS 3 “Business Combinations” in a business combination achieved in stages, the acquirer shall remeasure its previously held
equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss in the income statement. The fair value of the
equity interest previously held by an acquirer is further added to the purchase consideration in the purchase price calculation. The fair value of the
equity interest previously held by the Group was $658 million. The fair value of the investment in Corber was determined using the market price of
shares of Raspadskaya at the date of acquisition of an additional 50% share in Corber.
The Group recorded a $94 million gain on derecognition of the equity interest in Corber held before the business combination. This gain was
determined as follows:
US$ million
Fair value of shares held before the business combination
Less: carrying value of the investment in the joint venture at the date of business combination based on equity method of
accounting (Note 11)
Less: accumulated foreign exchange losses of the acquiree attributed to the Group’s share in the joint venture
Gain on derecognition of equity investment
16 January
2013
$658
(496)
(68)
$94
150
EVRAZ plc Annual Report and Accounts 2013
Initial estimation
of fair values
Final estimation
of fair values
$2,628
71
102
134
144
3,079
363
614
123
1,100
357
$1,622
$1,622
$2,607
9
94
134
144
2,988
283
649
123
1,055
311
$1,622
$1,622
$144
(101)
$43
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4. Acquisition of subsidiaries (continued)
Acquisitions of Controlling Interests (continued)
Corber (continued)
In the interim consolidated fi nancial statements for the six-month period ended 30 June 2013, the acquisition of Corber was accounted for based
on provisional values as the Group, as of the date of authorisation of issue of the interim fi nancial statements, has not completed purchase price
allocation in accordance with IFRS 3 “Business Combinations”. In these fi nancial statements, the Group fi nalised its purchase price allocation on the
acquisition of Corber and recognised adjustments to the provisional values of identifi able assets, liabilities and contingent liabilities at the date of
acquisition. The table below sets forth the fair values of identifi able assets and liabilities of Corber at 16 January 2013:
US$ million
Mineral reserves and property, plant and equipment
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
Purchase consideration
At the acquisition date the Group measured non-controlling interests at fair value based on the market price of shares of Raspadskaya.
In 2013, cash fl ow on the acquisition was as follows:
US$ million
Net cash acquired with the subsidiary
Cash paid
Net cash infl ow
As of 31 December 2013, the unpaid purchase consideration was $101 million plus $1 million of accrued interest.
For the period from 16 January 2013 to 31 December 2013, Corber reported a net loss amounting to $157 million.
Acquisition of a Controlling Interest in MediaHolding Provincia
In 2013, the Group acquired an additional 45.5% ownership interest in MediaHolding Provincia for a cash consideration of $11 million. The fair value
of the equity interest previously held by the Group (30%) was $4 million. The Group recorded a $5 million loss on derecognition of the equity interest
in MediaHolding Provincia held before the business combination. The Group recognised $4 million of goodwill on the transaction. Subsequently, the
Group acquired all non-controlling interests ($3 million) settled by the transfer of property and recognised the excess of the carrying value of the
acquired non-controlling interests over the amount of consideration amounting to $1 million in additional paid-in capital.
Disclosure of Other Information in Respect of Business Combinations
If these business combinations had occurred as of the beginning of 2013, the revenue and net profi t/(loss) of the combined entity would have been
$14,438 million and $(579) million, respectively.
EVRAZ plc Annual Report and Accounts 2013
151
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
4. Acquisition of subsidiaries (continued)
Acquisitions of Controlling Interests (continued)
Acquisition of Other Controlling Interests
In 2013, the Group paid $1 million to an entity under control of two major shareholders for an acquisition of Telekon, a broadcasting company in
Nizhny Tagil, Russia. An independent appraiser valued that business at $5 million.
On 1 January 2012, the Group obtained control over the operating activities of Kachkanar Heat and Power Plant (Russia), for which the Group paid
$20 million in 2011. This payment was included in other non-current assets as of 31 December 2011 (Note 13). Goodwill arising on this business
combination amounted to $3 million.
In 2012, the Group paid $12 million for the scrap yards located in the USA. Goodwill arising on this acquisition amounted to $1 million.
Other Payments for Acquisition of Subsidiaries
In 2011, the Group purchased a 100% ownership interest in an entity whose assets comprise only land to be used for construction of a rolling mill in
Russia. The cash consideration amounted to $11 million. This purchase did not qualify for a business combination, as the acquired company does
not constitute a business.
In 2011, the Group paid $3 million of synergy payments (Note 25) related to the acquisition of Stratcor in 2006.
Acquisitions of Non-controlling Interests in Subsidiaries
Evraz Group S.A.
On 17 February 2012, the Group purchased the remaining global depository receipts, representing 96,607.67 shares of Evraz Group S.A., for
$4 million and exchanged them for the newly issued shares of EVRAZ plc. Since that date Evraz Group S.A. became a wholly-owned subsidiary of
EVRAZ plc and a non-controlling interest amounting to $10 million was derecognised.
Mezhegey Project
In June 2012, the Group acquired an additional 9.996% ownership interest in Actionfi eld Limited, which holds and operates the Mezhegey coal
fi eld project (Note 20). As a result, the Group increased its share in the project to approximately 60.016%.
The fair value of the consideration amounted to $36 million. It was agreed to settle the liabilities for the purchase by an offset with a loan receivable
by the Group. The excess of the consideration over the carrying value of the acquired non-controlling interest amounting to $30 million was charged
to accumulated profi ts.
Evraztrans
In 2011, the Group acquired an additional non-controlling interest of 24% in Evraztrans (Note 12), a subsidiary, which renders railway transportation
services. The cash consideration amounted to $51 million. The excess of the amounts of consideration over the carrying values of non-controlling
interests acquired amounting to $18 million was charged to accumulated profi ts.
5. Goodwill
The table below presents movements in the carrying amount of goodwill.
US$ million
At 31 December 2010
Adjustment to contingent consideration
Translation difference
At 31 December 2011
Goodwill recognised on acquisition of subsidiaries (Note 4)
Adjustment to contingent consideration
Goodwill allocated to disposal groups classifi ed as held for sale (Note 12)
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2012
Goodwill recognised on acquisition of subsidiaries (Notes 4 and 11)
Impairment
Adjustment to contingent consideration
Sale of subsidiaries (Note 12)
Translation difference
Gross
amount
Impairment
losses
Carrying
amount
3,132
(6)
(35)
3,091
4
(5)
(23)
(72)
24
3,019
18
–
(4)
(14)
(57)
(913)
–
2
(911)
–
–
–
72
–
(839)
–
(149)
–
14
–
2,219
(6)
(33)
2,180
4
(5)
(23)
–
24
2,180
18
(149)
(4)
–
(57)
At 31 December 2013
$2,962
$(974)
$1,988
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5. Goodwill (continued)
Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The carrying amount of
goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
EVRAZ Inc. NA
Oregon Steel Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
Claymont Steel
General Scrap
Others
EVRAZ Inc. NA Canada
Calgary
Red Deer
Regina Steel
Regina Tubular
Others
EVRAZ Palini e Bertoli
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
EVRAZ Highveld Steel and Vanadium Limited (Note 12)
EVRAZ Kachkanar Heat and Power Plant
Provincia
2013
$996
412
410
157
–
16
1
791
217
52
373
128
21
79
62
16
37
–
3
4
$1,988
2012
$1,131
412
410
157
135
16
1
845
232
56
397
137
23
76
66
20
39
–
3
–
$2,180
6. Impairment of assets
The summary of impairment losses recognition and reversals is presented below.
Year ended 31 December 2013
US$ million
Evrazruda
EVRAZ Claymont Steel
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA Canada
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
Kazankovskaya
Shipping companies
Yuzhkuzbassugol
Others, net
Recognised in profi t or loss
Recognised in other comprehensive income
Goodwill and
intangible
assets
Property, plant
and equipment
Inventory
Taxes
receivable
$–
(154)
–
(19)
–
–
(14)
–
–
–
$(187)
(187)
–
$32
(147)
30
(6)
(8)
(20)
(11)
(105)
(5)
$(240)
(231)
(9)
$–
(25)
–
–
–
–
–
–
–
–
$(25)
(25)
–
$–
–
(2)
–
–
–
–
–
–
(1)
$(3)
(3)
–
2011
$1,130
412
410
157
135
16
–
827
227
55
389
134
22
74
63
25
37
24
–
–
$2,180
Total
$32
(326)
28
(25)
(8)
(20)
(14)
(11)
(105)
(6)
$(455)
(446)
(9)
EVRAZ plc Annual Report and Accounts 2013
153
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
6. Impairment of assets (continued)
Year ended 31 December 2012
US$ million
Evrazruda
EVRAZ Dnepropetrovsk Iron and Steel Works
Others, net
Recognised in profi t or loss
Year ended 31 December 2011
US$ million
EVRAZ Dneprodzerzhinsky Coke-chemical Plant
Yuzhkuzbassugol
Others, net
Recognised in profi t or loss
Recognised in other comprehensive income
Goodwill and
intangible
assets
Property, plant
and equipment
Inventory
Taxes
receivable
$(1)
–
–
$(1)
(1)
$(355)
(47)
(2)
$(404)
(404)
$–
–
–
$–
–
$–
(4)
(4)
$(8)
(8)
Goodwill and
intangible
assets
Property, plant
and equipment
Inventory
Taxes
receivable
$–
–
9
$9
9
–
$(59)
(31)
(15)
$(105)
(104)
(1)
$–
–
–
$–
–
–
$(9)
–
–
$(9)
(9)
–
Total
$(356)
(51)
(6)
$(413)
(413)
Total
$(68)
(31)
(6)
$(105)
(104)
(1)
The Group recognised the impairment losses as a result of the impairment testing at the level of cash-generating units. In addition, the Group
made a write-off of certain functionally obsolete items of property, plant and equipment and recorded an impairment relating to VAT with a
long-term recovery.
For the purpose of the impairment testing as of 31 December 2013 the Group assessed the recoverable amount of each cash-generating unit to
which the goodwill was allocated or where indicators of impairment were identifi ed.
The recoverable amounts have been determined based on calculation of either value-in-use or fair value less costs to sell. Both valuation techniques
used cash fl ow projections based on the actual operating results and business plans approved by management and appropriate discount rates
refl ecting time value of money and risks associated with respective cash-generating units. For the periods not covered by management business
plans, cash fl ow projections have been estimated by extrapolating the results of the respective business plans using a zero real growth rate.
In determination of fair value less costs to sell the asset’s value additionally includes the cashfl ows of future projects not started yet and the
associated capital expenditure costs.
The major drivers that led to impairment were the changes in expectations of long-term prices for iron ore and steel products, the increase in
forecasted costs and changes in forecasted production volumes.
In 2013, the Group fully impaired Claymont Steel as it is expected that it will be idled due to soft demand in the market. The melt shop and the rolling
mill ceased operations and were closed at the end of 2013, employees’ contracts were terminated.
In 2013, the Group has divided Evrazruda into several cash-generating units, which were previously considered as one aggregated unit. This was
done, because management has developed separate strategies for certain mines of Evrazruda. These strategies are based on each individual mine
reserves, costs and potential profi tability. The enrichment and service facilities, which cannot be reasonably allocated to each individual mine, were
considered in aggregation in the impairment testing calculations. As a result, in 2013, the Group partially reversed an impairment of 2 mines.
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6. Impairment of assets (continued)
The key assumptions used by management in the value-in-use calculations with respect to the cash-generating units to which the goodwill was
allocated are presented in the table below.
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
EVRAZ Palini e Bertoli
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
Period of
forecast,
years
5
5
5
5
5
5
Pre-tax
discount
rate, %
9.79-12.27
10.99-11.28
14.09
13.69
14.61
12.59
Commodity
steel products
steel products
steel plates
vanadium
products
ferrovanadium
products
ferrovanadium
products
Average
price of
commodity
per tonne
in 2014
$821
$954
€523
$25,837
$25,794
$24,002
Recoverable
amount
of CGU,
US$ million
Carrying
amount
of CGU,
US$ million
2,836
2,216
220
296
129
61
2,097
1,669
194
114
37
41
In addition, the Group determined that there were indicators of impairment in other cash generating units and tested them for impairment using the
following assumptions.
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Caspian Steel
EVRAZ Yuzhny Stan
EVRAZ Bagleykoks
Strategic Minerals Corporation
Yuzhkuzbassugol
Raspadskaya
Mezhegeyugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
EVRAZ Sukha Balka
Evrazruda
EVRAZ Nakhodka Trade Seaport
The calculations of value in use are most sensitive to the following assumptions:
Period of
forecast,
years
Pre-tax
discount
rate, %
5
5
5
5
5
5
5
17
22
29
7
19
20
5
13.58
13.69
13.97
13.14
12.30
12.97
13.57
12.67
13.37
13.72
15.22
15.61
15.22
13.69
Average price
of commodity
per tonne
in 2014
$544
$616
$503
$496
$579
$241
$39,480
$81
$69
$121
$76
$62
$82
$10
Commodity
steel products
steel products
steel products
steel mill under
construction
steel mill under
construction
coke
ferrovanadium
products
coal
coal
undeveloped
coal fi eld
ore
ore
ore
port services
Discount Rates
Discount rates refl ect the current market assessment of the risks specifi c to each cash-generating unit. The discount rates have been determined
using the Capital Asset Pricing Model and analysis of industry peers. Reasonably possible changes in discount rates could lead to an additional
impairment at EVRAZ Consolidated West-Siberian Metallurgical Plant, EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Bagleykoks,
Yuzhkuzbassugol, EVRAZ Palini e Bertoli, EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If discount rates were 10% higher,
this would lead to an additional impairment of $470 million.
EVRAZ plc Annual Report and Accounts 2013
155
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
6. Impairment of assets (continued)
Sales Prices
The prices of the products sold by the Group were estimated using industry research. The Group expects that the nominal prices will grow with a
compound annual growth rate of 0%-6.1% in 2014 – 2018, 3.0% in 2019 and thereafter. Reasonably possible changes in sales prices could lead to
an additional impairment at EVRAZ Consolidated West-Siberian Metallurgical Plant, EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Bagleykoks,
Yuzhkuzbassugol, EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the prices assumed for 2014 and 2015 in the impairment test
were 10% lower, this would lead to an additional impairment of $1,525 million.
Sales Volumes
Management assumed that the sales volumes of steel products would increase by 3% in 2014 and would grow evenly during the following four years
to reach normal asset capacity utilisation thereafter. Reasonably possible changes in sales volumes could lead to an additional impairment at
EVRAZ Consolidated West-Siberian Metallurgical Plant, EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Bagleykoks, Yuzhkuzbassugol and
EVRAZ Inc. NA cash-generating units. If the sales volumes were 10% lower than those assumed for 2014 and 2015 in the impairment test, this
would lead to an additional impairment of $399 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on the business plans approved by management. A reasonably possible deviation
of cost from these plans could lead to an additional impairment at EVRAZ Consolidated West-Siberian Metallurgical Plant, EVRAZ Dnepropetrovsk
Iron and Steel Works, EVRAZ Bagleykoks, EVRAZ Sukha Balka, Yuzhkuzbassugol, and EVRAZ Nikom and EVRAZ Inc. NA cash-generating units.
If the actual costs were 10% higher than those assumed for 2014 and 2015 in the impairment test, this would lead to an additional impairment
of $1,024 million.
The unit’s recoverable amount would become equal to its carrying amount if the assumptions used to measure the recoverable amount changed by
the following percentages:
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Sukha Balka
EVRAZ Bagleykoks
EVRAZ Palini e Bertoli
Yuzhkuzbassugol
EVRAZ Nikom
EVRAZ Inc. NA Canada
Calgary
Red Deer
Regina Steel
Regina Tubular
EVRAZ Inc. NA
Oregon Steel Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
Discount
rates
0.5%
4.6%
–
1.2%
7.3%
1.5%
–
3.6%
–
–
4.3%
0.3%
3.3%
–
Sales
prices
(0.3)%
(3.5)%
–
(2.8)%
–
(2.3)%
–
(1.2)%
(7.4)%
(7.6)%
–
(0.1)%
(0.8)%
(7.3)%
Sales
volumes
Cost control
measures
(0.8)%
(4.6)%
–
(1.1)%
–
(2.4)%
–
(4.1)%
–
–
–
(0.1)%
(2.3)%
–
0.1%
1.1%
5.4%
0.2%
–
3.0%
9.1%
7.5%
–
–
3.1%
0.1%
4.8%
–
7. Income and expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
2013
$(5,673)
(2,617)
(1,051)
2012
$(6,266)
(2,398)
(1,259)
2011
$(7,106)
(2,224)
(1,153)
In 2013, 2012 and 2011, the Group made a net reversal of the allowance for net realisable value in the amount of $33 million, $2 million and
$14 million, respectively.
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7. Income and expenses (continued)
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Post-employment benefi t expense
Share-based awards
Other compensations
The average number of staff employed under contracts of service was as follows:
Steel production
Mining
Vanadium products
Other operations
Unallocated
The major components of other operating expenses were as follows:
US$ million
Idling, reduction and stoppage of production, including termination benefi ts
Restoration works and casualty compensations in connection with accidents
Site restoration provision accrued with respect to Kazankovskaya (Note 11)
Other
Interest expense consisted of the following for the years ended 31 December:
US$ million
Bank interest
Interest on bonds and notes
Finance charges payable under fi nance leases
Net interest expense on employee benefi ts obligations (Note 23)
Discount adjustment on provisions (Note 24)
Discount adjustments and interest relating to liabilities for the purchase of Corber and Timir
Interest on contingent consideration
Other
Interest income consisted of the following for the years ended 31 December:
US$ million
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Interest on loans receivable from related parties
Other
2013
$1,922
488
74
25
108
$2,617
2013
59,874
44,730
1,227
4,212
3,624
2012
$1,766
412
77
22
121
$2,398
2012
63,054
38,878
1,240
3,884
3,404
2011
$1,662
404
55
23
80
$2,224
2011
63,414
37,490
1,212
3,583
3,362
113,667
110,460
109,061
2013
$(73)
(18)
–
(25)
2012
$(77)
(8)
–
(44)
$(116)
$(129)
2013
$(104)
(513)
(1)
(39)
(20)
(13)
(1)
(8)
$(699)
2013
$15
5
–
3
$23
2012
$(103)
(485)
(3)
(37)
(19)
–
(1)
(6)
$(654)
2012
$13
6
–
4
$23
2011
$(40)
(4)
(6)
(46)
$(96)
2011
$(154)
(495)
(5)
(35)
(19)
–
(1)
(6)
$(715)
2011
$6
4
3
4
$17
EVRAZ plc Annual Report and Accounts 2013
157
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
7. Income and expenses (continued)
Gain/(loss) on fi nancial assets and liabilities included the following for the years ended 31 December:
US$ million
Impairment of available-for-sale fi nancial assets (Note 13)
Loss on extinguishment of debts (Note 22)
Loss on conversion of bonds (Note 22)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Other
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
2013
$–
–
–
(55)
12
2012
$–
–
–
177
(13)
2011
$(20)
(71)
(161)
(110)
7
$(43)
$164
$(355)
2013
20.00%
25.54%
12.50%
19.00%
31.40%
28.00%
9.87%
19.00%
2012
20.00%
25.54%
10.00%
19.00%
31.40%
28.00%
9.82%
21.00%
38.90%
38.20%
2011
20.00%
26.50%
10.00%
19.00%
31.40%
28.00%
10.09%
23.00%
and 25.00%
37.95%
Major components of income tax expense for the years ended 31 December were as follows:
US$ million
Current income tax expense
Adjustment in respect of income tax of previous years
Deferred income tax benefi t/(expense) relating to origination and reversal of temporary differences
Income tax expense reported in the consolidated statement of operations
2013
$(243)
(6)
290
$41
2012
$(336)
69
38
$(229)
2011
$(537)
129
(12)
$(420)
The major part of income taxes is paid in the Russian Federation. A reconciliation of income tax expense applicable to profi t before income tax using
the Russian statutory tax rate to income tax expense as reported in the Group’s consolidated fi nancial statements for the years ended 31 December
is as follows:
US$ million
Profi t/(loss) before income tax
At the Russian statutory income tax rate of 20%
Adjustment in respect of income tax of previous years
Deferred income tax expense arising on the adjustment to current income tax of prior periods
and the change in tax base of underlying assets
Effect of non-deductible expenses and other non-temporary differences
Unrecognised temporary differences recognition/reversal
Effect of the difference in tax rates in countries other than the Russian Federation
Tax on dividends distributed by the Group’s subsidiaries to parent company
Share of profi ts in joint ventures and associates
Income tax expense reported in the consolidated statement of operations
2013
$(613)
123
(6)
4
(89)
(84)
93
–
–
$41
2012
$(196)
39
69
(53)
(136)
(165)
31
(14)
–
2011
$877
(175)
129
(116)
(282)
(52)
65
–
11
$(229)
$(420)
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2012
$900
153
73
1,126
101
178
32
30
341
70
$855
8. Income taxes (continued)
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
Year ended 31 December 2013
US$ million
Deferred income tax liabilities:
Valuation and depreciation of
Change
recognised in
statement of
operations
2013
Change
recognised
in other
comprehen-
sive income
Change
due to
business
combinations
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classifi ed as
held for sale
Translation
difference
property, plant and equipment
$1,096
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts
receivable
Other
Net deferred income tax asset
130
69
1,295
270
153
16
115
554
86
Net deferred income tax liability
$827
Year ended 31 December 2012
US$ million
2012
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
$900
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts
receivable
Other
Net deferred income tax asset
153
73
1,126
101
178
32
30
341
70
Net deferred income tax liability
$855
(76)
(20)
(8)
(104)
107
11
(12)
80
186
9
(281)
(2)
–
–
(2)
–
(30)
–
–
(30)
(3)
25
353
4
13
370
69
12
–
(1)
80
3
293
(12)
–
(3)
(15)
–
(16)
(1)
7
(10)
–
(5)
(1)
–
–
(1)
9
3
–
–
12
13
–
(66)
(7)
(6)
(79)
(16)
(5)
(3)
(1)
(25)
(6)
(60)
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change
due to
business
combinations
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classifi ed as
held for sale
Translation
difference
2011
(64)
(30)
(9)
(103)
(37)
26
(2)
(52)
(65)
(5)
(43)
–
–
(3)
(3)
–
11
–
–
11
1
(1)
–
–
(1)
–
–
–
–
–
–
(13)
(1)
(13)
–
(4)
(17)
–
(12)
(1)
–
(13)
–
(4)
(72)
(39)
–
(111)
(17)
(28)
–
(7)
(52)
(13)
(72)
29
1
3
33
4
2
2
2
10
5
28
$1,021
221
86
1,328
151
179
33
87
450
82
$960
EVRAZ plc Annual Report and Accounts 2013
159
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NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
8. Income taxes (continued)
Year ended 31 December 2011
US$ million
2011
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
$ 1,021
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts
receivable
Other
Net deferred income tax asset
221
86
1,328
151
179
33
87
450
82
Net deferred income tax liability
$960
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change
due to
business
combinations
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classifi ed as
held for sale
(1)
(38)
11
(28)
14
(17)
3
(40)
(40)
(17)
(5)
–
–
(2)
(2)
–
29
–
–
29
3
(28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Translation
difference
2010
(52)
$1,074
(15)
(7)
(74)
(13)
(13)
(3)
(2)
(31)
(4)
(47)
274
84
1,432
150
180
33
129
492
100
$1,040
As of 31 December 2013, 2012 and 2011, deferred income taxes in respect of undistributed earnings of the Group’s subsidiaries have not been
provided for, as either management does not intend to distribute accumulated earnings in the foreseeable future or the distribution is tax exempt.
The current tax rate on intra-group dividend income varies from 0% to 10%.
At 31 December 2013, 2012 and 2011, the Group has not recognised deferred tax liabilities and deferred tax assets in respect of temporary
differences associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and
does not intend to reverse them in the foreseeable future.
In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set off against current tax
liabilities and taxable profi ts of other companies, except for the companies registered in Russia, Cyprus and the United Kingdom where group relief
can be applied.
The Group recognised deferred tax assets in respect of unused tax losses where it is probable that suffi cient taxable profi ts will be available in the
foreseeable future to offset these losses.
Tax losses for which deferred tax asset was not recognised arose in companies registered in Belgium, Cyprus, Czech Republic, Italy, Luxembourg,
the Republic of South Africa, Russia, Ukraine, the United Kingdom and the USA.
160
EVRAZ plc Annual Report and Accounts 2013
9. Property, plant and equipment
Property, plant and equipment consisted of the following as of 31 December:
US$ million
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
The movement in property, plant and equipment for the year ended 31 December 2013 was as follows:
2013
2012
2011
$156
2,749
6,502
386
4,276
53
986
$181
2,825
5,894
402
3,074
51
1,177
$187
2,594
5,798
508
2,631
75
1,027
15,108
13,604
12,820
(1,195)
(2,835)
(199)
(1,597)
(31)
(5,857)
(1,218)
(2,706)
(225)
(1,628)
(35)
(5,812)
(954)
(2,358)
(227)
(923)
(52)
(4,514)
$9,251
$7,792
$8,306
US$ million
At 31 December 2012, cost, net of
accumulated depreciation
Assets acquired in business combination
Additions
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 assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2013, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
$1,607
203
1
147
(12)
(154)
$3,188
539
4
847
(33)
(552)
$177
61
3
34
(3)
(46)
Mining
assets
$1,446
1,527
34
155
(1)
(194)
(47)
(127)
(13)
(80)
21
(4)
(103)
4
(109)
31
(1)
(26)
7
(210)
–
–
(15)
–
(11)
56
(2)
(57)
(6)
(199)
Land
$181
–
3
–
–
–
(27)
1
–
(11)
15
(6)
Other
assets
Assets
under
construction
Total
$7,792
2,613
903
–
(51)
(951)
$1,177
275
858
(1,191)
(2)
–
(49)
(343)
3
(2)
(1)
–
(82)
112
(9)
(215)
20
(620)
$16
8
–
8
–
(5)
–
–
–
(2)
–
(3)
$156
$1,554
$3,667
$187
$2,679
$22
$986
$9,251
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EVRAZ plc Annual Report and Accounts 2013
161
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
9. Property, plant and equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2012 was as follows:
US$ million
At 31 December 2011, cost, net of
accumulated depreciation
Assets acquired in business combination
Additions
Assets put into operation
Disposals
Depreciation and depletion charge
Impairment losses recognised in
statement of operations
Impairment losses reversed through
statement of operations
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2012, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
$1,640
7
2
210
(12)
(152)
$3,440
14
4
590
(43)
(534)
$281
–
8
59
(3)
(42)
Mining
assets
$1,708
–
35
254
(3)
(467)
(96)
2
(72)
4
74
(81)
(15)
(199)
10
(318)
(3)
109
–
(125)
–
14
6
(16)
52
76
Land
$187
3
1
–
(1)
–
(3)
–
(10)
–
4
Other
assets
Assets
under
construction
$23
–
1
4
–
(7)
–
–
(5)
–
–
$1,027
–
1,268
(1,117)
(5)
–
(28)
–
(21)
–
53
Total
$8,306
24
1,319
–
(67)
(1,202)
(422)
18
(567)
53
330
$181
$1,607
$3,188
$177
$1,446
$16
$1,177
$7,792
The movement in property, plant and equipment for the year ended 31 December 2011 was as follows:
US$ million
At 31 December 2010, cost, net of
accumulated depreciation
Reclassifi cations between categories
Additions
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 assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2011, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
$1,682
16
7
193
(17)
(151)
$3,688
(25)
5
522
(44)
(485)
$280
(1)
–
66
(4)
(43)
Mining
assets
$2,049
–
28
101
(3)
(379)
(14)
(47)
(3)
(29)
6
–
(4)
(3)
(75)
3
(1)
–
–
–
–
–
–
–
4
(180)
–
(14)
16
(75)
Land
$177
–
16
–
–
–
–
–
–
–
–
(6)
Other
assets
Assets
under
construction
Total
$8,607
–
1,352
–
(72)
(1,064)
$702
15
1,293
(889)
(3)
–
(21)
(114)
1
–
(5)
–
(66)
10
(1)
(9)
17
(420)
$29
(5)
3
7
(1)
(6)
–
–
–
–
–
(4)
$187
$1,640
$3,440
$281
$1,708
$23
$1,027
$8,306
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $29 million,
$92 million and $287 million as of 31 December 2013, 2012 and 2011, respectively.
On 1 January 2013, the Group changed its estimation of useful lives of property, plant and equipment, which resulted in a $43 million decrease in
depreciation expense as compared to the amounts that would have been charged had no change in estimate occurred. In addition, in 2013, the
Group updated its mining plans relating mostly to the extraction of coking coal reserves. Consequently, the depletion charge in 2013 is lower by
$189 million compared to the amount that would have been charged in accordance with the previous mining plans.
Impairment losses were identifi ed 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 (Note 6).
162
EVRAZ plc Annual Report and Accounts 2013
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9. Property, plant and equipment (continued)
The amount of borrowing costs capitalised during the year ended 31 December 2013 was $11 million (2012: $16 million, 2011: $13 million). In 2013,
the rate used to determine the amount of borrowing costs eligible for capitalisation was 5.3% (2012: 4.8%, 2011: 4.6%), which is the effective interest
rate of borrowings that were outstanding during the period, other than borrowings made specifi cally for the purpose of obtaining qualifying assets.
10. Intangible assets other than goodwill
Intangible assets consisted of the following as of 31 December:
US$ million
Cost:
Customer relationships
Water rights and environmental permits
Contract terms
Other
Accumulated amortisation:
Customer relationships
Water rights and environmental permits
Contract terms
Other
2013
2012
2011
$773
57
45
90
965
(388)
–
(1)
(51)
(440)
$525
$878
57
–
72
1,007
(373)
–
–
(48)
(421)
$586
$1,230
64
16
64
1,374
(480)
(7)
(4)
(45)
(536)
$838
As of 31 December 2013, 2012 and 2011, water rights and environmental permits with a carrying value of $57 million had an indefi nite useful life.
The movement in intangible assets for the year ended 31 December 2013 was as follows:
US$ million
At 31 December 2012, cost, net of accumulated amortisation
Assets acquired in business combination
Additions
Amortisation charge
Impairment loss recognised in statement of operations
Translation difference
At 31 December 2013, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract
terms
$505
–
–
(56)
(37)
(27)
$385
$57
–
–
–
–
–
$57
$–
–
47
(1)
–
(2)
$44
The movement in intangible assets for the year ended 31 December 2012 was as follows:
US$ million
At 31 December 2011, cost, net of accumulated amortisation
Assets acquired in business combination
Additions
Amortisation charge
Emission allowances granted
Emission allowances used/sold/purchased for the period
Impairment loss recognised in statement of operations
Transfer to assets held for sale
Translation difference
At 31 December 2012, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract
terms
$750
1
–
(99)
–
–
–
(149)
2
$505
$57
–
–
–
–
–
–
–
–
$57
$12
–
–
–
–
–
–
(12)
–
$–
Other
$24
19
5
(7)
(1)
(1)
$39
Other
$19
–
13
(4)
4
(7)
(1)
–
–
$24
Total
$586
19
52
(64)
(38)
(30)
$525
Total
$838
1
13
(103)
4
(7)
(1)
(161)
2
$586
EVRAZ plc Annual Report and Accounts 2013
163
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
10. Intangible assets other than goodwill (continued)
The movement in intangible assets for the year ended 31 December 2011 was as follows:
US$ million
At 31 December 2010, 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 31 December 2011, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract terms
Other
$912
–
(111)
–
–
–
6
(57)
$750
$58
–
(1)
–
–
–
–
–
$57
$8
–
–
–
–
–
5
(1)
$12
$26
4
(11)
7
(4)
(2)
–
(1)
$19
Total
$1,004
4
(123)
7
(4)
(2)
11
(59)
$838
11. Investments in joint ventures and associates
The Group accounted for investments in joint ventures and associates under the equity method.
The movement in investments in joint ventures and associates was as follows:
US$ million
Investment at 31 December 2010
Additional investments
Write-off of loan receivable
Share of profi t/(loss)
Reversal of impairment of investments
Dividends paid
Gains/(losses) on re-measurement of net defi ned benefi t liability
Translation difference
Investment at 31 December 2011
Additional investments
Write-off of loan receivable (Note 16)
Share of profi t/(loss)
Reversal of impairment of investments
Dividends paid
Acquisition of non-controlling interests
Return of capital
Unrealised gains on fi nancial assets
Gains/(losses) on re-measurement of net defi ned benefi t liability
Translation difference
Investment at 31 December 2012
Additional investments
Share of profi t/(loss)
Dividends paid
Acquisition of controlling interests (Note 4)
Translation difference
Investment at 31 December 2013
Corber
Timir
Streamcore
Other
associates
$649
–
–
50
–
(52)
(1)
(33)
$613
–
–
(11)
–
(86)
(22)
(38)
1
(2)
42
$497
–
–
–
(496)
(1)
$–
$–
–
–
–
–
–
–
–
$–
–
–
–
–
–
–
–
–
–
–
$–
149
(1)
–
–
(7)
$141
$21
–
–
–
4
–
–
(1)
$24
–
–
7
5
(2)
–
–
–
–
2
$36
–
7
–
–
(3)
$40
$11
12
(3)
1
–
(2)
–
(1)
$18
5
(5)
–
–
–
–
–
–
–
–
$18
–
2
(1)
(9)
–
$10
Share of profi t/(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
US$ million
Share of profi t/(loss), net
Reversal of impairment/(impairment) of investments
Share of profi ts/(losses) of joint ventures and associates recognised in the consolidated
statement of operations
2013
$8
–
$8
2012
$(4)
5
$1
164
EVRAZ plc Annual Report and Accounts 2013
Total
$681
12
(3)
51
4
(54)
(1)
(35)
$655
5
(5)
(4)
5
(88)
(22)
(38)
1
(2)
44
$551
149
8
(1)
(505)
(11)
$191
2011
$51
4
$55
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11. Investments in joint ventures and associates (continued)
Corber Enterprises Limited
Corber Enterprises Limited (“Corber”) was a joint venture established in 2004 for the purpose of exercising joint control over economic activities of
Raspadskaya Mining Group. Corber is registered in Cyprus. The Group had a 50% share in the joint venture, i.e. at 31 December 2012 it effectively
owned approximately 41% in JSC Raspadskaya (2011: 40%). On 16 January 2013, the Group acquired a controlling interest in Corber (Note 4) and
the joint venture accounting and disclosures ceased to apply from that date.
The table below sets forth Corber’s assets and liabilities as of 31 December:
US$ 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
Group’s share of net assets
Add: cost of guarantee
Less: unrealised profi ts in inventory balance
Investment
The table below sets forth Corber’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profi t/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Net profi t/(loss)
50% of unrealised profi ts on transactions with the joint venture
Group’s share of profi ts/(losses) of the joint venture
2012
$742
924
70
111
252
8
2,107
617
172
106
895
223
$989
495
2
–
$497
2012
$542
(460)
(112)
$(30)
$(23)
(7)
$(30)
1
$(11)
2011
$733
901
54
84
198
180
2,150
59
174
455
688
239
$1,223
612
2
(1)
$613
2011
$726
(361)
(246)
$119
$93
26
$119
4
$50
Period from
1 to 16 January
2013
$32
(26)
(6)
$–
$–
–
$–
–
$–
Buyback of Shares by Raspadskaya
In 2012, Raspadskaya, a subsidiary of Corber, the Group’s joint venture, made a buyback of 9.94% of its shares from shareholders. At the end of
February 2012, Corber sold 48,351,712 shares back to Raspadskaya for $248 million. As a result of the buyback, Corber effectively acquired an
additional 1.95% share in Raspadskaya and its ownership interest increased to 81.95%.
The Group’s share in the excess of the amounts of consideration over the carrying values of non-controlling interests acquired amounting to
$22 million was charged to accumulated profi ts of the Group.
Return of Capital
In September 2012, the Board of directors of Corber decided to reduce its additional paid-in capital by $76 million by the return of funds to its
shareholders. The Group received $38 million in cash.
EVRAZ plc Annual Report and Accounts 2013
165
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
11. Investments in joint ventures and associates (continued)
Timir Iron Ore Project
On 3 April 2013, the Group acquired a 51% ownership interest in the joint venture with Alrosa for the development of 4 iron ore deposits in the
southern part of the Yakutia region in Russia. Total investments in the fi rst phase of the Timir project are estimated at $180 million during the period
from 2014 to 2016, with major investments starting from 2015.
The Group’s consideration for this stake amounted to 4,950 million roubles ($159 million at the exchange rate as of the date of the transaction)
payable in installments till 15 July 2014. The consideration was measured as the present value of the expected cash outfl ows. In 2013, the Group
paid 1,980 million roubles ($61 million) of purchase consideration.
The Group accounted for its interest in Timir under the equity method (Note 2 – Accounting Judgements).
The table below sets forth the fair values of Timir’s consolidated identifi able assets and liabilities at 3 April 2013:
Final estimation
of fair values
$358
2
2
362
37
7
25
69
293
149
$149
2013
$343
1
–
344
36
7
25
68
276
141
US$ million
Mineral reserves and property, plant and equipment
Accounts and notes receivable
Cash
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 51% ownership interest
Purchase consideration
The table below sets forth Timir’s assets and liabilities as of 31 December:
US$ million
Mineral reserves and property, plant and equipment
Accounts and notes receivable
Cash
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 51% ownership interest
In 2013, Timir’s income and expenses comprised $1 million of other expenses.
166
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11. Investments in joint ventures and associates (continued)
Kazankovskaya
ZAO Kazankovskaya (“Kazankovskaya”) is a Russian coal mining company that was acquired as part of the purchase of Yuzhkuzbassugol in 2007.
The Group owned 50% in Kazankovskaya.
The table below sets forth Kazankovskaya’s assets and liabilities as of 31 December:
US$ million
Accounts receivable
Other current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net liabilities
At 31 December the accumulated unrecognised losses in respect of Kazankovskaya amounted to:
US$ million
Unrecognised losses
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
2012
$–
2
2
–
9
116
125
2011
$1
2
3
3
69
25
97
$(123)
$(94)
2012
$(39)
2011
$(27)
2012
2011
$–
–
(23)
(23)
$(12)
$–
(1)
(10)
(11)
$(6)
In January 2013, the Group acquired an additional 50% in Kazankovskaya from Magnitogorsk Steel Plant for a cash consideration of 167 US dollars.
The primary reason for the business combination was a preparation for the subsequent sale of the mine. The Group fully impaired $14 million
goodwill, which arose on this acquisition. In August 2013, Kazankovskaya was sold (Note 12).
Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for scrap
procurement and processing in Siberia, Russia.
The table below sets forth Streamcore’s assets and liabilities as of 31 December:
US$ million
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Group’s share of net assets
Investment
2013
2012
$49
8
131
188
2
31
75
108
$80
40
$40
$55
9
50
114
3
39
42
$72
36
$36
2011
$40
11
51
1
1
2
$49
24
$24
EVRAZ plc Annual Report and Accounts 2013
167
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
11. Investments in joint ventures and associates (continued)
Streamcore (continued)
The table below sets forth Streamcore’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profi t
Group’s share of profi t of the joint venture
2013
$477
(440)
(23)
$14
$7
2012
$504
(472)
(18)
$14
$7
2011
$9
(6)
(3)
$–
$–
12. Disposal groups held for sale
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs to sell were as
follows as of 31 December:
US$ million
Property, plant and equipment
Intangible assets
Goodwill
Other non-current assets
Inventory
Accounts receivable
Cash and cash equivalents
Assets classifi ed as held for sale
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Liabilities directly associated with assets classifi ed as held for sale
Non-controlling interests
Net assets classifi ed as held for sale
2013
$417
73
–
21
164
94
35
804
62
75
211
348
20
2012
$368
149
18
35
102
188
70
930
75
125
278
478
49
2011
$9
–
–
–
–
–
9
–
–
–
–
–
$436
$403
$9
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12. Disposal groups held for sale (continued)
The net assets of disposal groups classifi ed as held for sale at 31 December related to the following reportable segments:
US$ million
Assets classifi ed as held for sale
Steel production
Mining
Vanadium products
Other operations
Liabilities directly associated with assets classifi ed as held for sale
Steel production
Mining
Vanadium products
Other operations
Non-controlling interests
Steel production
Vanadium products
2013
$804
652
–
33
119
348
335
–
9
4
20
16
4
2012
$930
843
16
71
–
478
429
41
8
–
49
40
9
2011
$9
8
1
–
–
–
–
–
–
–
–
–
–
At 31 December 2013 and 2012, the disposal groups held for sale relating to the steel and vanadium segments consisted mostly of the assets
and liabilities of EVRAZ Highveld Steel and Vanadium Limited, which the Group plans to sell in 2014, and EVRAZ Vitkovice Steel sold in April 2014
(Note 32). The difference between the carrying value of the net assets of these subsidiaries and the expected consideration amounting to $78
million (2013) and $83 million (2012) was recognised as a loss on disposal groups classifi ed as held for sale. At 31 December 2013, the disposal
groups held for sale relating to the other segment include an offi ce building for the administrative staff in Moscow ($106 million).
The table below demonstrates the carrying values of assets and liabilities, at the dates of disposal, of the subsidiaries and other business units
disposed of during 2011–2013.
US$ million
Property, plant and equipment
Other non-current assets
Inventory
Accounts receivable
Cash and cash equivalents
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
The net assets of disposal groups sold in 2011–2013 related to the following reportable segments:
US$ million
Assets classifi ed as held for sale
Steel production
Mining
Other operations
Liabilities directly associated with assets classifi ed as held for sale
Steel production
Mining
Other operations
Non-controlling interests
Steel production
2013
$113
16
17
49
23
218
7
114
84
205
–
$13
2013
$218
18
164
36
205
–
173
32
–
–
2012
$130
13
10
70
2
225
12
7
99
118
(2)
$109
2012
$225
75
3
147
118
86
2
30
(2)
(2)
2011
$1
–
–
–
–
1
–
–
–
–
–
$1
2011
$1
–
1
–
–
–
–
–
–
–
EVRAZ plc Annual Report and Accounts 2013
169
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
12. Disposal groups held for sale (continued)
Cash fl ows on disposal of subsidiaries and other business units were as follows:
US$ million
Net cash disposed of with subsidiaries
Cash received
Net cash infl ow
The disposal groups sold during 2011–2013 are described below.
2013
$(23)
24
$1
2012
$(2)
313
$311
2011
$–
5
$5
VGOK
In October 2013, the Group sold a wholly-owned subsidiary EVRAZ Vysokogorsky Iron Ore Mining and Processing Plant (“VGOK”) to NPRO URAL.
The consideration comprised $20 million cash with a net present value of $18 million and the fair value of a 10-year agreement for the processing
by VGOK of certain EVRAZ NTMK’s waste products. The fair value of this contract was measured based on an incremental income to the Group and
approximated $47 million. It was recognised as an intangible asset within the Contract terms category.
The Group recognised a $2 million loss on the sale of VGOK, including $23 million of cumulative exchange losses reclassifi ed from other
comprehensive income to the consolidated statement of operations.
Central Heat and Power Plant
In September 2013, the Group sold Central Heat and Power Plant located in the Kemerovo region (Russia) for 300 US dollars. The Group recognised
a $1 million loss on this transaction.
Mines of Yuzhkuzbassugol
In 2013, the Group sold 3 coal mines in the Kemerovo region of Russia: Yubileinaya, Gramoteinskaya and Kazankovskaya. The aggregate
consideration amounted to 630 US dollars. The Group recognised a gain of $34 million on these transactions, including $1 million cumulative
exchange gains reclassifi ed from other comprehensive income to the consolidated statement of operations.
Assets of Evrazruda
In 2013, the Group sold 2 iron ore mines, ore processing plant and 2 electricity generating companies located in the Khakassia region of Russia.
The gain on these transactions amounted to $21 million.
Evraztrans
In December 2012, the Group sold to a third party a business of its wholly owned subsidiary Evraztrans, which renders long-distance railway
transportation services using own and rented railcars. Cash consideration amounted to $306 million. The Group recognised a gain of $190 million
on this transaction.
Dneprodzerzhinsky Coke-chemical Plant
In August 2012, the Group sold to its parent a controlling interest in a loss-making coke-chemical plant located in Ukraine. Cash consideration
amounted to $4. The Group recognised a $68 million loss on this sale, including a $82 million of cumulative exchange losses reclassifi ed from other
comprehensive income to the consolidated statement of operations.
Frotora Holdings Ltd.
In April 2012, the Group sold its ownership interest in a subsidiary whose assets comprised only rights under a long-term lease of land to be used
for a construction of a commercial seaport in Ukraine. These rights were 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. In 2012, the Group
recognised a $20 million loss on sale of this subsidiary, including a $14 million of cumulative exchange losses reclassifi ed from other comprehensive
income to the consolidated statement of operations.
Other Disposal Groups Held for Sale
Other disposal groups held for sale included a few small subsidiaries involved in non-core activities (construction business, trading activity and
recreational services) and other non-current assets.
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13. Other non-current assets
Non-current Financial Assets
US$ million
Available-for-sale fi nancial assets
Derivatives not designated as hedging instruments (Note 25)
Restricted deposits
Receivables from related parties
Loans receivable
Trade and other receivables
Other
Other Non-current Assets
US$ million
Income tax receivable
Input VAT
Prepayments for purchases of subsidiaries (Note 4)
Other
2013
$30
–
6
3
10
22
69
$140
2013
$20
23
–
19
$62
2012
$21
2
4
–
12
4
49
$92
2012
$33
17
–
14
$64
2011
$17
–
15
–
18
3
–
$53
2011
$26
11
20
22
$79
Available-for-Sale Financial Assets
The Group holds approximately 15% in Delong Holdings Limited (“Delong”), a fl at steel producer headquartered in Beijing (China). The investments
in Delong are measured at fair value based on market quotations ($28 million, $21 million and $17 million at 31 December 2013, 2012 and 2011,
respectively). The change in the fair value of these shares is initially recorded in other comprehensive income.
In 2013 and 2012, the Group recognised a gain of $7 million and $4 million, respectively, on the increase in market quotations in other
comprehensive income. In 2011, a $20 million impairment loss relating to the prolonged decline in quotations of Delong shares was recognised in
the statement of operations within the gain/(loss) on fi nancial assets and liabilities caption.
Impairment of Long-Term Taxes
In 2013, 2012 and 2011, the Group recognised an impairment relating to VAT with a long-term recovery in the amount of $3 million, $8 million and
$9 million, respectively. This loss was included in the impairment of assets caption of the consolidated statement of operations.
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2013
$764
291
586
2012
$959
397
622
2011
$975
466
747
$1,641
$1,978
$2,188
As of 31 December 2013, 2012 and 2011, the net realisable value allowance was $50 million, $90 million and $90 million, respectively.
As of 31 December 2013, 2012 and 2011, certain items of inventory with an approximate carrying amount of $63 million, $319 million and
$250 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
EVRAZ plc Annual Report and Accounts 2013
171
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
15. Trade and other receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
2013
$867
62
929
(56)
$873
2012
$939
32
971
(76)
$895
2011
$1,002
56
1,058
(87)
$971
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.
16. Related party disclosures
Related parties of the Group include associates and joint venture partners, key management personnel and other entities that are under the control
or signifi cant infl uence of the key management personnel, the Group’s ultimate parent or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as follows:
US$ million
Kazankovskaya
Raspadsky Ugol
Vtorresource-Pererabotka
Yuzhny GOK
Liability to management of Raspadskaya for the
acquisition of Corber (Note 4)
Other entities
Less: allowance for doubtful accounts
Amounts due from
related parties
Amounts due to
related parties
2013
$–
–
4
5
–
7
16
(3)
$13
2012
$23
2
3
4
–
14
46
(34)
$12
2011
$21
2
–
5
–
9
37
(29)
$8
2013
$–
–
13
336
102
7
458
–
$458
2012
$–
42
45
163
–
7
257
–
$257
2011
$–
39
–
46
–
13
98
–
$98
In 2013, 2012 and 2011, the Group recognised an expense for bad and doubtful debts of related parties in the amount of $Nil, $4 million and
$7 million, respectively.
Transactions with related parties were as follows for the years ended 31 December:
US$ million
Genalta Recycling Inc.
Interlock Security Services
Kazankovskaya
Raspadsky Ugol
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Sales to related parties
Purchases from related parties
2013
2012
2011
$–
1
–
–
16
62
7
$–
1
1
8
14
66
9
$–
1
1
8
–
42
8
$86
$99
$60
2013
$22
51
–
5
462
150
38
$728
2012
$14
48
1
127
485
124
31
$830
2011
$10
43
5
207
–
165
27
$457
In addition to the disclosures presented in this note, some of the balances and transactions with related parties are disclosed in Notes 4, 11, 13
and 25.
Genalta Recycling Inc. is a joint venture of a Canadian subsidiary of the Group. It sells scrap metal to the Group.
Interlock Security Services is a group of entities controlled by a member of the key management personnel, which provide security services to the
Russian subsidiaries of the Group.
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EVRAZ plc Annual Report and Accounts 2013
16. Related party disclosures (continued)
Kazankovskaya was an associate of the Group (Note 11). The Group purchased coal from the entity and sold mining equipment and inventory to
Kazankovskaya. In 2012 and 2011, the Group issued short-term loans to Kazankovskaya bearing an interest rate ranging from 8.1% to 8.5% per
annum. At the reporting dates, the Group assessed the recoverability of these loans and recognised a loss, which was included in the other
non-operating expenses caption of the consolidated statement of operations (2012: $5 million, 2011: $3 million). In 2013, the Group acquired a
controlling interest in Kazankovskaya (Note 11) and subsequently sold the subsidiary to a third party (Note 12), consequently, this entity ceased to
be a related party to the Group.
Lanebrook Limited is a controlling shareholder of the Company. In 2008, the Group acquired from Lanebrook 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. In January 2014, the Group sold 0.14% of the shares to Lanebrook Limited for
$5 million. The put option for the remaining shares expires on 31 December 2014.
In addition, in 2012 the Group sold one of its subsidiaries to Lanebrook (Note 12).
OOO Raspadsky Ugol (“Raspadsky Ugol”), a subsidiary of Raspadskaya (Note 11), sold coal to the Group and the Group sold steel products and
rendered services to Raspadsky Ugol. In 2013, Raspadsky Ugol ceased to be a related party as the Group obtained control over the entity (Note 4).
Vtorresource-Pererabotka is a subsidiary of Streamcore, the Group’s joint venture, acquired in 2012. It sells scrap metal to the Group and provides
scrap processing and other services. In 2013 and 2012, the purchases of scrap metal from Vtorresource-Pererabotka amounted to $370 million
(1,420,990 tonnes) and $399 million (1,366,423 tonnes), respectively.
Yuzhny GOK, an ore mining and processing plant, is an associate of Lanebrook Limited. The Group sold steel products to Yuzhny GOK and purchased
sinter from the entity. In 2013, the volume of purchases achieved 1,549,958 tonnes.
In addition to the purchase transactions disclosed above, in July 2011 the Group acquired an offi ce building for its administrative staff in Moscow
from OOO Zapadnye Vorota, an entity under the control of the ultimate principal shareholders of the Group. The cash consideration (including VAT)
amounted to $102 million.
The transactions with related parties were based on market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
• directors of the Company,
• vice presidents,
• top managers of major subsidiaries.
In 2013, 2012 and 2011, key management personnel totalled 57, 55 and 55 people, respectively. Total compensation to key management
personnel were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefi ts
Other benefi ts
2013
$24
13
3
11
–
1
$52
2012
$21
14
3
10
–
1
$49
2011
$20
12
1
13
3
1
$50
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Other disclosures on directors’ remuneration required by the Companies Act 2006 and those specifi ed for audit by the Directors’ Remuneration
Report Regulations 2002 are included in the Directors’ Remuneration Report.
S
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EVRAZ plc Annual Report and Accounts 2013
173
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
17. Other taxes recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2013
$207
74
$281
2012
$206
123
$329
2011
$287
125
$412
Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax
authorities on the Group’s revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the balance
of input value added tax and believes it is fully recoverable within one year.
18. Other current fi nancial assets
Other current assets included the following as of 31 December:
US$ million
Investments in Yuzhny GOK (Note 16)
Bank deposits
Restricted deposits at banks
Collateral under swap agreements (Note 25)
2013
$38
–
12
21
$71
2012
$38
674
–
–
$712
19. Cash and cash equivalents
Cash and cash equivalents, mainly consisting of cash at banks, were denominated in the following currencies as of 31 December:
US$ million
US dollar
Russian rouble
Canadian dollar
Euro
South African rand
Ukrainian hryvnia
Czech koruna
Other
2013
$1,298
195
50
3
12
17
–
1
$1,576
2012
$855
347
80
17
10
9
–
2
$1,320
2011
$38
2
7
10
$57
2011
$314
262
21
89
80
25
6
4
$801
At 31 December 2013 and 31 December 2012, the assets of disposal groups classifi ed as held for sale included cash amounting to $35 million and
$70 million, respectively.
20. Equity
Share Capital
Prior to the reorganisation on 7 November 2011, in which substantially all shares of Evraz Group S.A. were converted into shares of EVRAZ plc, the
share capital of the Group comprised the share capital of Evraz Group S.A.
Share Capital of Evraz Group S.A. before Reorganisation
Number of shares
Ordinary shares of €2 each, issued and fully paid
7 November
2011
31 December
2010
156,214,373
145,957,121
The issued and fully paid share capital of Evraz Group S.A. included 7,333,333 shares which were issued at zero consideration in 2009.
174
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20. Equity (continued)
Share Capital (continued)
Share Capital of Evraz Group S.A. before Reorganisation (continued)
Conversion of Bonds into Shares
In July and August 2011, Evraz Group S.A. issued 30,771,756 GDRs representing 10,257,252 ordinary shares to bondholders which had accepted
the offer to convert 7.25% convertible bonds due 2014 (Note 22).
Share Capital of EVRAZ plc
Number of shares
31 December
2013
2012
2011
Ordinary shares of $1 each, issued and fully paid
1,472,582,366
1,339,929,360
1,337,560,713
On 17 October 2011, following the decision of the Board of directors, Evraz Group S.A. commenced the Group’s reorganisation and re-domiciliation
to the United Kingdom. This was implemented by means of the share exchange offer made by the Company to the shareholders of Evraz Group S.A.
which were entitled to receive 9 shares of EVRAZ plc for each share of Evraz Group S.A.
The fi rst share exchange was performed on 7 November 2011: EVRAZ plc issued 1,313,258,883 ordinary shares with par value of $2 each and
exchanged them for approximately 98.01% interest in Evraz Group S.A. The new shares were admitted to the premium listing segment of the Offi cial
List of the UK Listing Authority and to trading on the London Stock Exchange’s main market for listed securities.
On 24 November 2011, the par value of the shares was reduced to $1, and $1,313 million representing distributable reserves were transferred to
accumulated profi ts. All subsequent shares were issued with par value of $1 each. The exchange offer was fi nally closed on 7 February 2012.
Information about the share exchange is summarised below.
Date of exchange
7 November 2011
28 November 2011
16 December 2011
Total at 31 December 2011
30 January 2012
8 February 2012
Total at closing of the offer
Number of
shares issued
by EVRAZ plc
1,313,258,883
23,212,353
1,089,477
Number of
shares of
Evraz Group S.A.
exchanged
145,917,653.67
2,579,150.33
121,053.00
1,337,560,713
148,617,857.00
839,388
659,790
93,265.33
73,310.00
1,339,059,891
148,784,432.33
Ownership
interest
exchanged
98.01%
1.73%
0.08%
99.82%
0.06%
0.05%
99.93%
Upon the closure of the offer, the admission of the global depository receipts of Evraz Group S.A. to trading on the London Stock Exchange has
been cancelled.
At 31 December 2011, there were shareholders which did not accept the share exchange offer. Accordingly, the Group recognised non-controlling
interests of $11 million representing these shareholders. On 17 February 2012, the Group purchased the remaining GDRs, representing 96,607.67
shares of Evraz Group S.A., for $4 million and exchanged them for 869,469 newly issued shares of EVRAZ plc. Since that date Evraz Group S.A.
became a wholly-owned subsidiary of EVRAZ plc.
2013 Share Issue
On 16 January 2013, EVRAZ plc issued 132,653,006 shares in connection with the acquisition of a controlling interest in Corber (Note 4).
These shares were valued at their market quotation at the date of acquisition of Corber. The excess of the market value of shares issued over their
nominal value in the amount of $478 million was recognised in a merger reserve within additional paid-in capital under section 612 of the
Companies Act 2006 as all of the criteria for merger relief have been satisfi ed.
The purchase consideration for Corber includes warrants to subscribe for an additional 33,944,928 EVRAZ plc shares exercisable at zero price in
the period from 17 January to 17 April 2014. The number of the shares to be issued under these warrants is adjustable for dividends that could
be paid during the period from the date of issue of the warrants until the date of their exercise. The fair value of warrants issued amounting to
$156 million was credited to a separate reserve within equity. In January 2014, the warrants were exercised (Note 32).
EVRAZ plc Annual Report and Accounts 2013
175
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
20. Equity (continued)
Treasury Shares
Number of treasury shares
31 December
2013
2012
2011
302,717
146,731
775,410
In 2013, the Group purchased 3,720,298 shares of EVRAZ plc for $6 million and transferred 3,564,312 shares to participants of Incentive Plans
(Note 21). The cost of treasury shares gifted under Incentive Plans, amounting to $6 million, was charged to accumulated profi ts.
In 2012, the Group purchased 869,469 shares of EVRAZ plc for $4 million and transferred 1,498,148 shares to participants of Incentive Plans
(Note 21). The cost of treasury shares gifted under Incentive Plans, amounting to $11 million, was charged to accumulated profi ts.
In 2011, the Group purchased 235,878 shares of Evraz Group S.A. for $22 million, sold 34,332 shares for $3 million and transferred 115,389
shares to participants of Incentive Plans (Note 21). The outstanding balance of the treasury shares has been exchanged into the shares of EVRAZ
plc during the Group reorganisation described above. The cost of treasury shares gifted under Incentive Plans, amounting to $11 million, was
charged to accumulated profi ts.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares
in issue during the period. Diluted earnings per share amounts are calculated by dividing the net profi t attributable to ordinary equity holders by the
weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following refl ects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution: share-based awards
1,499,457,909
–
1,339,027,567
–
1,293,795,125
2,689,622
Weighted average number of ordinary shares adjusted for the effect
of dilution
1,499,457,909
1,339,027,567
1,296,484,747
Profi t/(loss) for the year attributable to equity holders of the parent,
US$ million
Basic earnings/(losses) per share
Diluted earnings/(losses) per share
$(522)
$(0.35)
$(0.35)
$(398)
$(0.30)
$(0.30)
$465
$0.36
$0.36
2013
2012
2011
In 2011, share-based awards (Note 21) had a dilutive effect. In 2012 and 2013, they were antidilutive as the Group reported net loss.
In 2011, the weighted average number of ordinary shares outstanding from 1 January 2011 to the date of the fi rst share exchange (“the
reorganisation date”) was computed on the basis of the weighted average number of ordinary shares of Evraz Group S.A. outstanding during the
period multiplied by the share exchange ratio. The number of ordinary shares outstanding from the reorganisation date to the end of 2011 was the
actual number of ordinary shares of EVRAZ plc outstanding during that period. In addition, the weighted average number of ordinary shares for basic
earnings per share does not include 7,333,333 shares of Evraz Group S.A. issued in 2009 to Lanebrook in exchange for the right to receive
7,333,333 shares lent under the shares lending transactions. These transactions had no impact on equity, as the Group’s net assets did not change
as a result of these transactions.
The warrants issued in connection with the acquisition of a controlling interest in Corber (2013 Share Issue above) are included in the calculation of
basic earnings per share starting from the date of their issue.
Dividends
Dividends declared by the parent company during 2011–2013 were as follows:
Declared by Evraz Group S.A.
Interim for 2011
Declared by EVRAZ plc
Final for 2011
Interim for 2012
176
EVRAZ plc Annual Report and Accounts 2013
Date of
declaration
To holders
registered at
Dividends
declared,
US$ million
10/10/2011
28/10/2011
18/06/2012
29/08/2012
08/06/2012
07/09/2012
491
228
147
US$ per
share
3.30
0.17
0.11
20. Equity (continued)
Dividends (continued)
In 2011, prior to the Group’s reorganisation, Evraz Group S.A. declared interim dividends of $3.30 per share, including special dividends of $2.70 per
share. In the consolidated fi nancial statements of the Group for 2011 these dividends were charged against accumulated profi ts. At a meeting held
on 15 May 2012, the shareholders of Evraz Group S.A. approved the distribution of those dividends from share premium of Evraz Group S.A.
Consequently, in 2012, the Group decreased its additional paid-in capital and increased accumulated profi ts by $491 million.
The Board of directors decided not to declare a fi nal dividend for 2012 and this decision was approved by the Annual General Meeting of
shareholders of EVRAZ plc in June 2013.
Subsequent to the reporting date the Board of directors proposed special dividends (Note 32).
In addition, certain subsidiaries of the Group declared dividends. The share of non-controlling shareholders in those dividends was $1 million in
2013, 2012 and 2011.
Other Movements in Equity
Non-controlling Interests in Subsidiaries
In 2013, as a result of the acquisition of a controlling interest in Raspadskaya (Note 4), the Group recognised $311 million representing non-
controlling shareholders owning approximately 18% in the entity.
In 2012 and 2011, the Group acquired non-controlling interests in certain subsidiaries (Note 4). The excess of consideration over the carrying value
of non-controlling interests amounting to $30 million and $18 million, respectively, was charged to accumulated profi ts.
In 2012, as a result of the completion of the Group’s reorganisation, in which the remaining global depository receipts of Evraz Group S.A. were
converted into the newly issued shares of EVRAZ plc, a 0.18% non-controlling interest in Evraz Group S.A. was derecognised (Note 4). This increased
the shareholders’ equity by $6 million.
In 2011, the Group sold a 49.98% share in the Mezhegey coal fi eld project to a third party for a non-cash consideration of $34 million, which
approximated the carrying value of a non-controlling interest arose on the transaction. In June 2012, the Group acquired an additional 9.996%
ownership interest and its share in the project increased to approximately 60.016% (Note 4). During 2012 the non-controlling shareholder
contributed $7 million to the Mezhegey coal fi eld project.
21. Share-based payments
On 14 December 2010, 13 October 2011, 6 September 2012 and 24 September 2013 the Group adopted Incentive Plans under which certain
senior executives and employees (“participants”) could be gifted shares of the parent company upon vesting.
The vesting date for each tranche occurs within the 90-day period after announcement of the annual results. The expected vesting dates of the
awards outstanding at 31 December 2013 are presented below:
Number of Shares of EVRAZ plc
11 April 2014
11 April 2015
11 April 2016
11 April 2017
Total
Incentive Plan
2013
Incentive Plan
2012
Incentive Plan
2011
Incentive Plan
2010
7,671,126
7,572,876
6,223,882
6,224,178
4,149,261
4,149,261
6,223,882
6,224,178
2,567,519
3,423,615
–
–
27,692,062
20,746,582
5,991,134
948,862
–
–
–
948,862
5,484
–
–
–
5,484
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The plans are administrated by the Board of Directors of EVRAZ plc. The Board of Directors has the right to accelerate vesting of the grant. In the
event of a participant’s employment termination, 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.
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There have been no modifi cations or cancellations to the plans during 2011–2013. In 2011, after the Group’s reorganisation (Notes 1 and 20),
the shares of Evraz Group S.A., which were granted to the participants, have been substituted by the shares of EVRAZ plc.
EVRAZ plc Annual Report and Accounts 2013
177
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
21. Share-based payments (continued)
The Group accounted for share-based compensation at fair value pursuant to the requirements of IFRS 2 “Share-based Payment”. The weighted
average fair value of share-based awards granted in 2013 and 2012 was $1.89 and $3.41 per share of EVRAZ plc, respectively (in 2011 and 2010
$48.26 and $102.07 per share of Evraz Group S.A., respectively). The fair value of these awards was estimated at the date of grant and measured
at the market price of the shares of a parent company reduced by the present value of dividends expected to be paid during the vesting period.
The following inputs, including assumptions, were used in the valuation:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc (2011 and 2010: Evraz Group S.A.)
Incentive Plan
2013
Incentive Plan
2012
Incentive Plan
2011
Incentive Plan
2010
4.0 – 8.8
0.6 – 3.6
1.9 – 5.4
0.6 – 2.6
3.6 – 4.8
0.5 – 2.5
1.2 – 1.5
0.5 – 2.5
at the grant dates
$2.13
$3.61
$51.57
$103.83
The following table illustrates the number of, and movements in, share-based awards during the years.
Outstanding at 1 January
Granted during the year
Forfeited during the year
Vested during the year
Exchange into shares of EVRAZ plc
Outstanding at 31 December
Vested, not exercised
2013
2012
2011
12,069,571
20,832,297
(1,221,683)
(3,988,123)
–
4,460,547
9,892,313
(785,141)
(1,498,148)
–
321,898
335,069
(45,960)
(115,389)
3,964,929
27,692,062
12,069,571
4,460,547
98,647
–
–
The actual quantity of the vested shares transferred by EVRAZ plc to the participants was reduced by 325,164 shares that represent withholding
taxes and other deductions.
The weighted average share price at the dates of exercise was $1.52, $4.31 and $97.46 in 2013, 2012 and 2011, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2013, 2012 and 2011 was 1.7, 1.2 and
1.2 years, respectively.
In the years ended 31 December 2013, 2012 and 2011, expense arising from the equity-settled share-based compensations was as follows:
US$ million
Expense arising from equity-settled share-based payment transactions
2013
$25
2012
$22
2011
$23
In 2011, the Group paid $1 million relating to the cash-settled share-based awards under the incentive plans which were in place before 2010.
178
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22. Loans and borrowings
As of 31 December 2013, 2012 and 2011, total interest-bearing loans and borrowings consisted of short-term loans and borrowings in the amount
of $1,069 million, $527 million and $339 million, respectively, and long-term loans and borrowings in the amount of $6,737 million, $7,652 million
and $6,919 million, respectively, including the current portion of long-term liabilities of $660 million, $1,164 million and $193 million, respectively.
Short-term and long-term loans and borrowings were as follows as of 31 December:
US$ million
Bank loans
European commercial papers
8.875 per cent notes due 2013
8.25 per cent notes due 2015
7.40 per cent notes due 2017
9.5 per cent notes due 2018
6.75 per cent notes due 2018
6.50 per cent notes due 2020
9.25 per cent bonds due 2013
13.5 per cent bonds due 2014
8.75 per cent bonds due 2015
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
Liabilities under 7.75 per cent bonds due 2017 assumed in business combination (Note 4)
Fair value adjustment to liabilities assumed in business combination
Other liabilities
Unamortised debt issue costs
Interest payable
2013
$2,065
–
–
577
600
509
850
1,000
–
611
119
458
611
400
27
6
(68)
90
$7,855
2012
$2,562
242
534
577
600
509
850
–
494
658
–
494
658
–
–
1
(116)
93
$8,156
2011
$2,613
–
534
577
–
509
850
–
466
621
–
466
621
–
–
1
(133)
81
$7,206
At 31 December 2013 and 2012, the loans relating to the subsidiaries classifi ed as held for sale (Note 12) amounted to $78 million and $79 million,
respectively, including $76 million and $77 million, respectively, of short-term loans. In the statement of fi nancial position they were included in
liabilities directly associated with the assets held for disposal.
The average effective annual interest rates were as follows at 31 December:
Long-term borrowings
Short-term borrowings
US dollar
Russian rouble
Euro
Canadian dollar
Czech koruna
2013
7.33%
10.49%
3.60%
3.30%
–
2012
7.13%
10.51%
3.93%
3.85%
–
2011
6.96%
10.37%
4.66%
–
–
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Canadian dollar
Czech koruna
Unamortised debt issue costs
2013
1.56%
7.21%
3.75%
–
–
2013
$5,808
1,837
268
10
–
(68)
$7,855
2012
3.00%
11.52%
2.75%
–
–
2012
$5,434
2,349
381
108
–
(116)
$8,156
2011
2.89%
10.83%
3.64%
–
3.38%
2011
$4,790
2,215
328
–
6
(133)
$7,206
EVRAZ plc Annual Report and Accounts 2013
179
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
22. Loans and borrowings (continued)
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 31 December 2013, 2012 and 2011, the Group had inventory with a carrying value of $63 million, $319 million and $250 million, respectively,
pledged as collateral under the loan agreements.
At 31 December 2013, 100% shares of Mezhegeyugol and EVRAZ Caspian Steel were pledged as collateral under bank loans with a carrying value of
$140 million. These subsidiaries represented 1.5% of the consolidated assets at 31 December 2013 and did not generate revenues in 2013.
Extension of the 9.25% Notes Due 2013
In March 2013, the holders of 9.25% rouble-denominated notes received an option to accept a new coupon of 8.75% per annum till 20 March 2015
or put the notes back to the Group at a nominal value. By 26 March 2013, the date of the expiration of the option, the Group re-purchased back
notes totalling 12,265 million roubles ($399 million at the exchange rate as of the date of the transaction). The remaining notes with the
aggregate principal amount of 2,735 million roubles ($84 million at the exchange rate as of 31 December 2013) continue to be traded on the
Moscow Exchange.
The Group has a right to resell the repurchased notes on the market at any time and at its own discretion. In April and May 2013, the Group resold
part of the notes for 1,000 roubles each and received 1,150 million roubles ($35 million at the exchange rate as of 31 December 2013).
Issue of Notes and Bonds
In April 2013, the Group issued notes for the amount of $1,000 million due in 2020. The notes bear semi-annual coupon at the annual rate of 6.50%
and must be redeemed at their principal amount on 22 April 2020. The proceeds from the issue of the notes were used for the repayment of the
8.875% notes maturing on 24 April 2013, as well as certain bank loans.
In April 2012, the Group issued notes in the amount of $600 million due in 2017. The notes bear semi-annual coupon at the annual rate of 7.40%
and must be redeemed at their principal amount on 24 April 2017. The proceeds from the issue of the notes were used for the repayment of certain
bank loans.
In December 2012, the Group issued European commercial papers in the amount of $80 million and $170 million bearing an interest rate of 3.50%
and 3.75%, respectively, and maturing on 6 September 2013 and 4 December 2013, respectively. The liabilities were fully settled upon maturity.
In 2011, the Group issued notes for the amount of $850 million due in 2018. The notes bear semi-annual coupon at the annual rate of 6.75% and
must be redeemed at their principal amount on 27 April 2018. The proceeds from the issue of the notes were used for the partial repurchase of
8.875% notes due 2013 and repayment of certain bank loans.
In 2009, the Group issued convertible bonds in the amount of $650 million, which bore interest of 7.25% per annum with maturity on 13 July 2014
(Note 20). These bonds were converted into shares in 2011 (Note 20).
Repurchase of Notes and Bonds
In 2011, the Group repurchased $622 million of 8.875% notes due 2013 for a cash consideration of $693 million. As a result, the Group recognised
a loss on extinguishment of debts in the amount of $71 million within gain/(loss) on fi nancial assets and liabilities caption of the consolidated
statement of operations for the year ended 31 December 2011 (Note 7).
On 22 June 2011, Evraz Group S.A. made an incentive offer to the holders of 7.25% convertible bonds due 2014 to convert these bonds into GDRs
at $21.12 per GDR. In addition, the holders were offered an incentive payment (“conversion premium”) of $24,443.89 per bond with the principal
amount of $100,000 each. The bondholders owning 6,478 bonds accepted the incentivised conversion. In July and August 2011, Evraz Group S.A.
additionally converted 21 bonds and settled 1 bond by cash. The conversion premium paid by Evraz Group S.A. in the amount of $158 million
together with $3 million of transaction costs were recognised as a loss (Note 7). Evraz Group S.A. issued 30,771,756 GDRs representing
10,257,252 ordinary shares. As such, the carrying amount of liability amounting to $553 million was reclassifi ed into equity.
Compliance with Financial Covenants
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 fi nancial ratios, including restrictions in respect of indebtedness
and profi tability.
Notes due in 2015, 2017, 2018 and 2020 totalling $3,536 million issued by Evraz Group S.A., a holding company directly wholly owned by EVRAZ
Plc, have covenants restricting the incurrence of indebtedness by the issuer and its consolidated subsidiaries conditional on a gross leverage ratio.
While the ratio level itself does not constitute a breach of covenants, exceeding the threshold triggers a restriction on incurrence of consolidated
indebtedness, which is removed once the ratio goes back below the threshold. The effect of the restriction is such that Evraz Group S.A. and its
subsidiaries are not allowed to increase the consolidated indebtedness at the level of Evraz Group S.A., but are allowed to refi nance existing
indebtedness subject to certain conditions.
180
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22. Loans and borrowings (continued)
Compliance with Financial Covenants (continued)
The $400 million notes due 2017 issued by Raspadskaya in 2012 have covenants similar to those of Evraz Group S.A., but with the ratio calculation
based on the consolidated numbers of OAO Raspadskaya and the restrictions applying only to OAO Raspadskaya and its subsidiaries. These
restrictions have the same effect on Raspadskaya, but no effect on EVRAZ plc and its other subsidiaries that are not part of the Raspadskaya Group.
OOO UK Mezhegeyugol, which is a direct subsidiary of EVRAZ plc, is not subject to restrictions imposed by the above mentioned covenants.
However, as a borrower of a $195 million project loan by Gazprombank, it is restricted from incurring any additional indebtedness without the
consent of the lender.
The incurrence covenants are in line with the Group’s fi nancial strategy and, therefore, do not constitute any excessive restriction on its operations.
In addition to the incurrence covenants mentioned above, at 31 December 2013 the Group had loans with an aggregate principal amount of
$251 million, which are subject to fi nancial maintenance covenants. These covenants require Evraz Group S.A. to maintain two key ratios,
consolidated net indebtedness to 12-month consolidated EBITDA and 12-month consolidated EBITDA to adjusted 12-month consolidated interest
expense, within certain limits. According to the respective facility agreements, as amended in June 2013, these ratios are tested semi-annually
on the basis of consolidated fi nancial statements of Evraz Group S.A. starting from 30 June 2014. A breach of one or both of the ratios would
constitute an event of default under the above mentioned facility agreements, which in its turn may trigger cross default events under other debt
instruments of Evraz Group S.A. and its subsidiaries.
In June 2013, the Group entered into amendments to certain loan agreements with a total outstanding principal amount of approximately
EUR 194 million. According to these amendments, the testing of fi nancial maintenance covenants under the loan agreements was suspended in
respect of the fi nancial year 2013. If such amendments had not been signed, the Group would have been in breach of the fi nancial covenants.
The Group paid bank fees and legal costs of approximately $1 million in connection with these amendments.
At 30 June 2013, the Group had $404 million liabilities under loan agreements which contained fi nancial restrictions which could have been
breached upon the issue of the interim consolidated fi nancial statements. The Group repaid these liabilities in full and terminated the loan
agreements in July 2013.
In September 2013, Raspadskaya repaid a $150 million bank loan to remove the risk of a technical default in relation to this debt, which could
cause a cross-default under 7.75% bonds issued by Raspadskaya.
In 2012, the lenders under certain bank facilities and the holders of the 8.25% guaranteed notes due 2015 approved the requested amendments
to the loan agreements and notes removing certain fi nancial restrictions. The Group incurred $7 million with respect to this covenants reset.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of
loans and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
2013
437
811
2012
421
725
2011
560
762
$1,248
$1,146
$1,322
23. Employee benefi ts
Russian Plans
Certain Russian subsidiaries of the Group provide regular lifetime pension payments and lump-sum amounts payable at retirement date. These
benefi ts generally depend on years of service, level of remuneration and amount of pension payment under the collective bargaining agreements.
Other post-employment benefi ts consist of various compensations and certain non-cash benefi ts. The Group funds the benefi ts when the amounts
of benefi ts fall due for payment.
In addition, some subsidiaries have defi ned benefi t plans under which contributions are made to a separately administered non-state pension fund.
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.
Defi ned 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 benefi ts.
EVRAZ plc Annual Report and Accounts 2013
181
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
23. Employee benefi ts (continued)
Ukrainian Plans
The Ukrainian subsidiaries make regular contributions to the State Pension Fund thereby 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.
In 2011 and before, these preferential pensions were partially funded by the State Pension Fund. The Ukrainian subsidiaries gradually increased
these contributions and starting from 2012 they pay 100% of preferential pensions. In addition, employees receive lump-sum payments on
retirement and other benefi ts under collective labour agreements. These benefi ts are based on years of service and level of compensation. All these
payments are considered as defi ned benefi t plans.
In 2013, the amended pension legislation introduced annual indexation of pensions, at least up to the level of CPI. The indexation of pensions
in a particular year depends on the availability of fi nancial resources in the State pension fund. The subsidiaries are obliged to pay preferential
pensions indexed according to the government’s decision. The Group determined the amount of defi ned benefi t obligations based on the assumption
that pensions will be indexed despite possible insuffi ciency of money in the State pension fund, which would result in a non-fulfi lment of this law by
the fund itself and, consequently, would cancel the obligations of Ukrainian enterprises to pay higher pensions.
US and Canadian Plans
The Group’s subsidiaries in the USA and Canada have defi ned benefi t pension plans that cover specifi ed eligible employees. Benefi ts 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 specifi ed dates are no longer eligible to participate in the defi ned benefi t plans. Those employees are instead enrolled in defi ned
contribution plans and receive a contribution funded by the Group’s subsidiaries equal to 2–7% of annual wages, including applicable bonuses.
The defi ned contribution plans are funded annually, and participants’ benefi ts vest after three years of service. The subsidiaries also offer qualifi ed
Thrift (401(k)) plans to all of their eligible employees.
Other Plans
Defi ned benefi t pension plans and defi ned contribution plans are maintained by the subsidiaries located in South Africa, Italy and the
Czech Republic.
Defi ned Contribution Plans
The Group’s expenses under defi ned contribution plans were as follows:
US$ million
Expense under defi ned contribution plans
2013
$488
2012
$412
2011
$404
Defi ned Benefi t Plans
The Russian, Ukrainian and other defi ned benefi t plans are mostly unfunded and the US and Canadian plans are partially funded.
In 2013, there were no signifi cant plan amendments, curtailments, or settlements.
The Group’s defi ned benefi t plans are exposed to the risks of unexpected growth in benefi t payments as a result of increases in life expectancy,
infl ation, and salaries. As the plan assets include signifi cant investments in quoted and unquoted equity shares, corporate and governmental bonds
and notes, the Group is also exposed to equity market risk.
182
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23. Employee benefi ts (continued)
The components of net benefi t expense recognised in the consolidated statement of operations for the years ended 31 December 2013, 2012 and
2011 and amounts recognised in the consolidated statement of fi nancial position as of 31 December 2013, 2012 and 2011 for the defi ned benefi t
plans were as follows:
Net benefi t expense (recognised in the statement of operations within cost of sales and selling, general and administrative expenses and
interest expense)
Year ended 31 December 2013
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefi ts obligation
Past service cost
Curtailment gain
Net benefi t expense
Year ended 31 December 2012
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefi ts obligation
Past service cost
Net benefi t expense
Year ended 31 December 2011
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefi ts obligation
Past service cost
Net benefi t expense
Russian
plans
$(12)
(20)
7
(7)
2
Ukrainian
plans
$(4)
(9)
–
–
–
US
& Canadian
plans
$(23)
(9)
–
–
2
Other
plans
$(1)
(1)
1
–
–
Total
$(40)
(39)
8
(7)
4
$(30)
$(13)
$(30)
$(1)
$(74)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$(6)
(17)
(5)
(5)
$(3)
(8)
–
–
$(33)
$(11)
$(20)
(10)
–
(1)
$(31)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$(7)
(16)
(12)
(1)
$(36)
$(5)
(9)
–
24
$10
$(17)
(8)
–
(2)
$(27)
Other
plans
$–
(2)
–
–
$(2)
Other
plans
$–
(2)
–
–
$(2)
Total
$(29)
(37)
(5)
(6)
$(77)
Total
$(29)
(35)
(12)
21
$(55)
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
EVRAZ plc Annual Report and Accounts 2013
183
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
23. Employee benefi ts (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2013
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefi t
obligation
Year ended 31 December 2012
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment
benefi t obligation
Year ended 31 December 2011
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment
benefi t obligation
Actual return on plan assets was as follows:
US$ million
Actual return on plan assets including:
US & Canadian plans
Russian plans
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$(1)
52
$51
$–
(11)
$(11)
$30
48
$78
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$–
(20)
$(20)
$–
(5)
$(5)
$27
(75)
$(48)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$–
(2)
$(2)
$–
(5)
$(5)
$(24)
(66)
$(90)
2013
$51
52
(1)
Other
plans
$–
1
$1
Other
plans
$–
(1)
$(1)
Other
Plans
$–
–
$–
2012
$50
50
–
Total
$29
90
$119
Total
$27
(101)
$(74)
Total
$(24)
(73)
$(97)
2011
$1
1
–
184
EVRAZ plc Annual Report and Accounts 2013
23. Employee benefi ts (continued)
Net defi ned benefi t liability
31 December 2013
US$ million
Benefi t obligation
Plan assets
31 December 2012
US$ million
Benefi t obligation
Plan assets
31 December 2011
US$ million
Benefi t obligation
Plan assets
Russian
Plans
$232
(1)
231
Russian
Plans
$251
(1)
250
Russian
Plans
$203
(1)
202
Ukrainian
plans
$83
–
83
Ukrainian
plans
$68
–
68
Ukrainian
plans
$65
–
65
US
& Canadian
plans
$728
(564)
164
US
& Canadian
plans
$793
(537)
256
US
& Canadian
plans
$700
(470)
230
Other
plans
$3
–
3
Other
plans
$3
–
3
Other
plans
$21
–
21
Total
$1,046
(565)
481
Total
$1,115
(538)
577
Total
$989
(471)
518
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
B
u
s
i
n
e
s
s
U
n
i
t
s
’
R
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
EVRAZ plc Annual Report and Accounts 2013
185
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
23. Employee benefi ts (continued)
Movements in net defi ned benefi t liability/(asset)
US$ million
At 31 December 2010
Net benefi t expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Translation difference
At 31 December 2011
Net benefi t expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Disposal of subsidiaries
Reclassifi cation to liabilities directly associated with disposal
groups classifi ed as held for sale
Translation difference
At 31 December 2012
Change in net benefi t liability due to business combination
Net benefi t expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Disposal of subsidiaries
Reclassifi cation to liabilities directly associated with disposal
groups classifi ed as held for sale
Translation difference
At 31 December 2013
Russian
plans
$191
36
(15)
2
(12)
202
33
(16)
20
(1)
–
12
250
58
30
(25)
(51)
(10)
–
(21)
$231
Ukrainian
plans
US
& Canadian
plans
Other
plans
$77
(10)
(7)
5
–
65
11
(8)
5
(5)
–
–
68
–
13
(9)
11
–
–
–
$83
$166
27
(52)
90
(1)
230
31
(54)
48
–
–
1
256
–
30
(40)
(78)
–
–
(4)
$164
$24
2
(1)
–
(4)
21
2
(2)
1
–
(18)
(1)
3
–
1
(1)
(1)
–
5
(4)
$3
Total
$458
55
(75)
97
(17)
518
77
(80)
74
(6)
(18)
12
577
58
74
(75)
(119)
(10)
5
(29)
$481
186
EVRAZ plc Annual Report and Accounts 2013
23. Employee benefi ts (continued)
Movements in benefi t obligation
US$ million
At 31 December 2010
Interest cost on benefi t obligation
Current service cost
Past service cost
Benefi ts paid
Actuarial (gains)/losses on benefi t obligation related to changes
in demographic assumptions
Actuarial (gains)/losses on benefi t obligation related to changes
in fi nancial assumptions
Actuarial (gains)/losses on benefi t obligation related to
experience adjustments
Translation difference
At 31 December 2011
Interest cost on benefi t obligation
Current service cost
Past service cost
Benefi ts paid
Actuarial (gains)/losses on benefi t obligation related to changes
in demographic assumptions
Actuarial (gains)/losses on benefi t obligation related to changes
in fi nancial assumptions
Actuarial (gains)/losses on benefi t obligation related to
experience adjustments
Disposal of subsidiaries
Reclassifi cation to liabilities directly associated with disposal
groups classifi ed as held for sale
Translation difference
At 31 December 2012
Change in benefi t obligation due to business combination
Interest cost on benefi t obligation
Current service cost
Past service cost
Benefi ts paid
Actuarial (gains)/losses on benefi t obligation related to changes
in demographic assumptions
Actuarial (gains)/losses on benefi t obligation related to changes
in fi nancial assumptions
Actuarial (gains)/losses on benefi t obligation related to
experience adjustments
Curtailment gain
Disposal of subsidiaries
Reclassifi cation to liabilities directly associated with disposal
groups classifi ed as held for sale
Translation difference
At 31 December 2013
The weighted average duration of the defi ned benefi t obligation was as follows:
Years
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
Russian
plans
$192
16
7
1
(15)
Ukrainian
plans
US
& Canadian
plans
$77
9
5
(24)
(7)
$629
33
17
2
(39)
(15)
(7)
36
(12)
203
17
6
5
(16)
2
25
(2)
(1)
–
12
251
58
20
12
7
(24)
25
(81)
(3)
(2)
(10)
–
(21)
3
(4)
6
–
65
8
3
–
(8)
–
3
2
(5)
–
–
68
–
9
4
–
(9)
–
11
–
–
–
–
–
$232
$83
1
62
3
(8)
700
33
20
1
(44)
1
72
2
–
–
8
793
–
31
23
–
(43)
23
(71)
–
(2)
–
–
(26)
$728
2013
10.0
10.0
14.4
10.0
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
B
u
s
i
n
e
s
s
U
n
i
t
s
’
R
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Other
plans
$24
2
–
–
(1)
–
–
–
(4)
21
2
–
–
(2)
–
–
1
–
(18)
(1)
3
–
1
1
–
(1)
–
(2)
–
–
–
5
(4)
$3
2012
11.8
9.9
15.8
10.7
Total
$922
60
29
(21)
(62)
(11)
51
45
(24)
989
60
29
6
(70)
3
100
3
(6)
(18)
19
1,115
58
61
40
7
(77)
48
(143)
(3)
(4)
(10)
5
(51)
$1,046
2011
10.4
9.9
13.8
11.9
EVRAZ plc Annual Report and Accounts 2013
187
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
23. Employee benefi ts (continued)
Changes in the fair value of plan assets
US$ million
At 31 December 2010
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefi ts paid
Translation difference
At 31 December 2011
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefi ts paid
Translation difference
At 31 December 2012
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefi ts paid
Translation difference
At 31 December 2013
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$463
25
Other
plans
$–
–
(24)
52
(39)
(7)
470
23
27
54
(44)
7
537
22
30
40
(43)
(22)
–
1
(1)
–
–
–
–
2
(2)
–
–
–
–
1
(1)
–
Total
$464
25
(24)
75
(62)
(7)
471
23
27
80
(70)
7
538
22
29
75
(77)
(22)
$–
–
–
7
(7)
–
–
–
–
8
(8)
–
–
–
–
9
(9)
–
$–
$564
$–
$565
$1
–
–
15
(15)
–
1
–
–
16
(16)
–
1
–
(1)
25
(24)
–
$1
The amount of contributions expected to be paid to the defi ned benefi t plans during 2014 approximates $78 million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
2013
2012
2011
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
US & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Governmental bonds and notes
Property
Cash
42%
15%
–
–
–
57%
38%
1%
–
2%
2%
43%
43%
12%
–
–
–
55%
18%
12%
8%
2%
5%
45%
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
2013
2012
18%
14%
10%
3%
7%
52%
38%
10%
–
–
–
48%
2011
Discount rate
Future benefi ts increases
Future salary increase
Average life expectation, male, years
Average life expectation, female,
years
Healthcare costs increase rate
8%
6%
6%
67.5
78.3
–
Russian
plans
Ukrainian
plans
Other
plans
Russian
plans
Ukrainian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
4.3-4.9%
–
3.1-4%
82.5-85.2
14.0%
6%
7%
64.2
3-8.3%
3%
–
76.6-81
US &
Canadian
plans
3.9-5.1%
–
3.1-3.5%
83.0-84.7
14.0%
8%
8%
64.2
2.0-8.8%
2%
3%
73.3-81.1
US &
Canadian
plans
4.0-5.3%
–
3.0-3.1%
83.0-83.5
Other
plans
4.0-8.8%
3%
2.0-6.3%
72.7-81.1
14.0%
8%
8%
64.2
74.7
–
86.7-87.7
6.1-7%
74.2-87
7.9%
74.7
–
84.7-85.9
6-7%
68.2-86.9
7.0-7.3%
74.7
–
85.5-85.8
6.5-7%
71.1-86.9
7.3-7.5%
8%
8%
8%
65.8
74.3
–
7%
8%
8%
65.8
74.3
–
188
EVRAZ plc Annual Report and Accounts 2013
23. Employee benefi ts (continued)
Changes in the fair value of plan assets (continued)
The following table demonstrates the sensitivity analysis of reasonable changes in the signifi cant assumptions used for the measurement of the
defi ned benefi t obligations, with all other variables held constant.
Discount rate
Future benefi ts increases
Future salary increase
Average life expectation, male, years
Average life expectation, female, years
Healthcare costs increase rate
Impact on the defi ned benefi t obligation, US$ million
Reasonable
change in
assumption
Russian
plans
Ukrainian
plans
US &
Canadian
plans
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
$(16)
19
12
(11)
2
(2)
2
(2)
2
(2)
–
–
$(8)
10
2
(2)
2
(2)
1
(1)
–
–
–
–
$(45)
52
–
–
2
(2)
14
(15)
4
(5)
1
(1)
Other
plans
$(2)
2
–
–
–
–
–
–
–
–
–
–
The following table shows the effects of application of the revised IAS 19 in 2013: an increase/(decrease) in the amounts recognised in the
consolidated fi nancial statements as of 31 December 2013 and for the year then ended as compared to the amounts that would have been reported
in accordance with the previous accounting policies.
US$ million
Statement of Operations
Cost of sales
Interest expense
Statement of Financial Position
Other non-current assets
Employee benefi ts
Accumulated profi ts
Translation difference
Non-controlling interests
2013
$(12)
13
(44)
258
90
8
(1)
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
B
u
s
i
n
e
s
s
U
n
i
t
s
’
R
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
EVRAZ plc Annual Report and Accounts 2013
189
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
24. Provisions
At 31 December the provisions were as follows:
US$ million
Non-current
Current
Non-current
Current
Non-current
Current
2013
2012
2011
Site restoration and decommissioning costs
Legal claims
Other provisions
$191
–
3
$194
$24
8
7
$39
$252
–
5
$257
$14
12
6
$32
$283
–
2
$285
In the years ended 31 December 2013, 2012 and 2011, the movement in provisions was as follows:
US$ million
At 31 December 2010
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 31 December 2011
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
Reclassifi cation to liabilities directly associated with disposal groups classifi ed as
held for sale
Translation difference
At 31 December 2012
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
Change in provisions due to business combinations
Reclassifi cation to liabilities directly associated with disposal groups classifi ed as
held for sale
Translation difference
At 31 December 2013
Site restoration
and decom-
missioning
costs
Legal
claims
Other
provisions
$305
45
19
(8)
(9)
(12)
(2)
(28)
310
27
19
35
(1)
(7)
(6)
(120)
9
266
49
17
(31)
3
(9)
(7)
16
(72)
(17)
$215
$17
20
–
–
(1)
(12)
(8)
(1)
15
18
–
–
(4)
(11)
(6)
(1)
1
12
6
–
–
(2)
(3)
(5)
–
–
–
$8
$11
19
–
–
–
(14)
(2)
(1)
13
21
–
–
–
(20)
(1)
(2)
–
11
24
–
–
–
(20)
(5)
1
–
(1)
$10
$27
15
11
$53
Total
$333
84
19
(8)
(10)
(38)
(12)
(30)
338
66
19
35
(5)
(38)
(13)
(123)
10
289
79
17
(31)
1
(32)
(17)
17
(72)
(18)
$233
Site Restoration Costs
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The respective liabilities
were measured based on estimates of restoration costs which are expected to be incurred in the future discounted at the annual rate ranging from
1.1% to 14% in 2013 (2012 and 2011: from 3.7% to 14%). The majority of costs are expected to be paid between 2061 and 2090.
190
EVRAZ plc Annual Report and Accounts 2013
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
B
u
s
i
n
e
s
s
U
n
i
t
s
’
R
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v
i
e
w
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
25. Other long-term liabilities
Other long-term liabilities consisted of the following as of 31 December:
US$ million
Derivatives not designated as hedging instruments (Note 22)
Contingent consideration payable for the acquisition of Stratcor
Deferred consideration payable for the acquisition of Inprom
Dividends payable under cumulative preference shares of a subsidiary to a related party
Employee income participation plans and compensations
Tax liabilities
Finance lease liabilities
Other liabilities to related parties
Other liabilities
Less: current portion (Note 26)
2013
$219
8
–
14
5
9
6
2
51
314
(84)
$230
2012
$115
12
10
14
7
18
13
–
16
205
(24)
$181
2011
$209
16
11
14
2
26
39
–
16
333
(22)
$311
Derivatives Not Designated as Hedging Instruments
To manage the currency exposure on the rouble-denominated bonds, the Group partially economically hedged these transactions: the Group
concluded currency and interest rate swap contracts under which it agreed to deliver US dollar-denominated interest payments at the rates ranging
from 3.06% to 8.90% per annum plus the US dollar notional amount, in exchange for rouble-denominated interest payments plus the rouble notional
amount. The exchange is exercised on approximately the same dates as the payments under the bonds.
The swap contracts are summarised in the table below.
9.25 per cent bonds due 2013
13.5 per cent bonds due 2014
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
8.75 per cent bonds due 2015
Year
of issue
2010
2009
2010
2011
2013
Bonds
principal,
millions of
roubles
15,000
20,000
15,000
20,000
3,885
Hedged
amount,
millions of
roubles
14,778
14,019
14,997
19,996
3,735
Swap
amount,
US$ million
$500
475
491
711
121
Interest rates on
the swap amount
5.75% – 5.90%
7.50% – 8.90%
5.65% – 5.88%
4.45% – 4.60%
3.06% – 3.33%
The aggregate amounts under swap contracts translated at the year end exchange rates are summarised in the table below.
US$ million
At 31 December 2011, US$ million
At 31 December 2012, US$ million
At 31 December 2013, US$ million
Bonds
principal
2,174
2,305
1,799
Hedged
amount
1,981
2,101
1,612
Swap
amount
2,177
2,177
1,798
These swap contracts were not designated as cash fl ow or fair value hedges. The Group accounted for these derivatives at fair value which was
determined using valuation techniques.
The fair value was calculated as the present value of the expected cashfl ows under the contracts at the reporting dates. Future rouble-denominated
cashfl ows were translated into US dollars using the US$/RUR forward rate curve. The discount rates used in the valuation were the non-deliverable
forward rate curve and the interest rate swap curve for US dollar at the reporting dates.
In 2013, 2012 and 2011, the change in fair value of the derivatives of $(106) million, $96 million and $(176) million, respectively, together with a
realised gain on the swap transactions, amounting to $51 million, $81 million and $66 million, respectively, was recognised within gain/(loss) on
fi nancial assets and liabilities in the consolidated statement of operations (Note 7).
In March 2013, upon repayment of the 9.25% bonds, the related swap contracts matured.
Contingent Consideration Payable
Contingent consideration represents additional payments for the acquisition of Stratcor in 2006. This consideration could be paid each year up 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. In 2013 and 2012, the Group was not required to pay this consideration due to the movements in the
vanadium pentoxide market relative to the levels set in the agreement. In 2011, the Group paid $3 million.
EVRAZ plc Annual Report and Accounts 2013
191
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
26. Trade and other payables
Trade and other payables consisted of the following as of 31 December:
US$ million
Trade accounts payable
Accrued payroll
Other long-term obligations with current maturities (Note 25)
Other payables
The maturity profi le of the accounts payable is shown in Note 28.
27. Other taxes payable
Taxes payable were mainly denominated in roubles and consisted of the following as of 31 December:
US$ million
VAT
Social insurance taxes
Property tax
Land tax
Personal income tax
Other taxes, fi nes and penalties
2013
$969
225
84
117
$1,395
2012
$1,100
249
24
41
$1,414
2011
$1,147
254
22
50
$1,473
2013
$88
64
14
10
14
12
$202
2012
$87
61
11
11
14
11
$195
2011
$81
53
17
10
12
15
$188
28. Financial risk management objectives and policies
Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial 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
signifi cant concentrations of credit risk within the Group. The Group defi nes counterparties as having similar characteristics if they are related
entities. In 2013, the major customers were Russian Railways and Enbridge Inc. (3.7% and 3.2% of total sales, respectively).
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 applies for credit terms which are longer than normal. In this
case, the Group requires bank guarantees or other collateral. The Group has developed standard credit 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 fi nancial diffi culties. The signifi cant 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.
At 31 December the maximum exposure to credit risk is equal to the carrying amount of fi nancial assets, which is disclosed below.
US$ million
Restricted deposits at banks (Notes 13 and 18)
Financial instruments included in other non-current and current assets (Notes 13 and 18)
Long-term and short-term investments (Notes 13 and 18)
Trade and other receivables (Notes 13 and 15)
Loans receivable
Receivables from related parties (Notes 13 and 16)
Cash and cash equivalents (Note 19)
2013
$18
90
68
895
31
13
1,576
2012
$4
51
733
899
31
12
1,320
2011
$22
10
57
974
62
8
801
$2,691
$3,050
$1,934
192
EVRAZ plc Annual Report and Accounts 2013
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28. Financial risk management objectives and policies (continued)
Credit Risk (continued)
Receivables from related parties in the table above do not include prepayments in the amount of $3 million, $Nil and $Nil as of 31 December 2013,
2012 and 2011, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the
table below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2013
2012
2011
Gross
amount
$604
394
324
21
49
$998
Impairment
$(1)
(58)
(3)
(8)
(47)
Gross
amount
$759
284
198
20
66
Impairment
$(16)
(85)
(11)
(11)
(63)
Gross
amount
$846
306
204
30
72
Impairment
$(5)
(103)
(24)
(16)
(63)
$(59)
$1,043
$(101)
$1,152
$(108)
In the years ended 31 December 2013, 2012 and 2011, the movement in allowance for doubtful accounts was as follows:
US$ million
At 1 January
Charge for the year
Utilised
Disposal of subsidiaries
Translation difference
At 31 December
2013
$(101)
(8)
36
7
7
$(59)
2012
$(108)
(14)
25
–
(4)
$(101)
2011
$(117)
(45)
47
–
7
$(108)
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its fi nancial obligations as they fall due. The Group’s approach to managing liquidity
is to ensure that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual
cash fl ows and matching the maturity profi les of fi nancial assets and liabilities.
The Group prepares a rolling 12-month fi nancial plan which ensures that the Group has suffi cient cash on demand to meet expected operational
expenses, fi nancial obligations and investing activities as they arise. The Group exercises a daily monitoring of cash proceeds and payments. The
Group maintains credit lines and overdraft facilities that can be drawn down to meet short-term fi nancing needs. If necessary, the Group refi nances
its short-term debt by long-term borrowings. The Group also uses forecasts to monitor potential and actual fi nancial covenants compliance issues
(Note 22). Where compliance is at risk, the Group considers options including debt repayment, refi nancing or covenant reset. The Group has
developed standard payment periods in respect of trade accounts payable and monitors the timeliness of payments to its suppliers and contractors.
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EVRAZ plc Annual Report and Accounts 2013
193
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
28. Financial risk management objectives and policies (continued)
Liquidity Risk (continued)
The following tables summarise the maturity profi le of the Group’s fi nancial liabilities based on contractual undiscounted payments, including
interest payments.
Year ended 31 December 2013
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fi xed-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
Dividends payable
Total non-interest bearing debt
Year ended 31 December 2012
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fi xed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
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
$–
–
–
–
–
81
–
–
81
–
236
326
5
567
$847
7
–
29
883
148
10
–
158
–
734
125
–
859
$635
492
–
53
1,180
18
25
1
44
1
116
6
–
123
$1,186
412
–
72
1,670
$3,075
627
1
152
3,855
$1,053
106
3
28
1,190
25
33
1
59
2
–
–
–
2
672
31
2
705
2
–
–
–
2
66
5
–
71
2
–
–
–
2
Total
$6,796
1,644
4
334
8,778
1,010
104
4
1,118
7
1,086
457
5
1,555
$648
$1,900
$1,347
$1,731
$4,562
$1,263
$11,451
On
demand
Less than
3 months
3 to 12
months
$7
–
–
–
7
158
–
158
–
266
218
–
8
492
$657
$501
23
1
14
539
119
22
141
1
809
39
–
–
849
$1,529
$795
404
2
3
1,204
112
68
180
–
66
–
4
–
70
1 to 2
years
$678
396
4
21
1,099
359
84
443
3
–
–
6
–
9
2 to 5
years
After
5 years
$2,393
647
8
100
3,148
1,601
121
1,722
2
–
–
–
–
2
$1,380
58
3
24
1,465
76
7
83
2
–
–
–
–
2
Total
$5,754
1,528
18
162
7,462
2,425
302
2,727
8
1,141
257
10
8
1,424
194
EVRAZ plc Annual Report and Accounts 2013
$1,454
$1,551
$4,872
$1,550
$11,613
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Total
$4,763
1,738
21
262
6,784
2,495
328
27
2,850
4
1,197
98
20
9
1,328
28. Financial risk management objectives and policies (continued)
Liquidity Risk (continued)
Year ended 31 December 2011
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fi xed-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
$4
–
–
1
5
158
–
–
158
–
238
67
9
9
323
$486
$1
23
1
1
26
213
22
4
239
–
949
31
–
–
980
$1,245
$27
420
3
6
456
129
68
8
205
–
10
–
–
–
10
$1,019
395
4
53
1,471
268
82
7
357
–
–
–
–
–
–
$2,338
741
10
178
3,267
1,671
148
8
1,827
–
–
–
11
–
11
$1,374
159
3
23
1,559
56
8
–
64
4
–
–
–
–
4
$671
$1,828
$5,105
$1,627
$10,962
Payables to related parties in the tables above do not include advances received in the amount of $1 million, $Nil and $Nil as of 31 December 2013,
2012 and 2011, respectively.
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 fi nancial 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 fi xed and variable rate basis and has other interest-bearing liabilities, such as fi nance 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 fi xed or variable interest rates management may consider the refi nancing of a particular debt on more favourable terms.
The Group does not have any fi nancial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fi xed rate fi nancial assets or liabilities at fair value through profi t or loss. Therefore, a change in interest rates at
the reporting date would not affect the Group’s profi ts.
The Group does not account for any fi xed rate fi nancial assets as assets available for sale. Therefore, a change in interest rates at the reporting date
would not affect the Group’s equity.
EVRAZ plc Annual Report and Accounts 2013
195
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NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
28. Financial risk management objectives and policies (continued)
Market Risk (continued)
Interest Rate Risk (continued)
Based on the analysis of exposure during the years presented, reasonably possible changes in fl oating interest rates at the reporting date would
affect profi t 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.
Liabilities denominated in US dollars
Decrease in LIBOR
Increase in LIBOR
Liabilities denominated in euro
Decrease in EURIBOR
Increase in EURIBOR
2013
Basis
points
(2)
2
(5)
5
Effect on
PBT
US$
millions
$–
–
–
$–
2012
Basis
points
(2)
2
(4)
4
Effect on
PBT
US$
millions
$–
–
–
$–
2011
Basis
points
(6)
6
(15)
15
Effect on
PBT
US$
millions
$1
(1)
–
$–
Currency Risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in currencies other than the functional currencies of
the respective Group’s subsidiaries. The currencies in which these transactions are denominated are primarily US dollars, Canadian dollars and euro.
The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, management believes that the Group is
partly secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency denominated borrowings.
The Group’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ million
US$/RUB
EUR/RUB
EUR/US$
US$/CAD
EUR/CZK
US$/CZK
US$/ZAR
EUR/ZAR
US$/UAH
RUB/UAH
2013
$(2,686)
(337)
108
(209)
(18)
(155)
(32)
26
(48)
15
2012
$(1,478)
(382)
109
(24)
4
(176)
(9)
69
(168)
28
2011
$4,402
(321)
127
(995)
35
(229)
14
77
(156)
(1)
196
EVRAZ plc Annual Report and Accounts 2013
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28. Financial risk management objectives and policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant,
of the Group’s profi t before tax. In estimating reasonably possible changes the Group assessed the volatility of foreign exchange rates during the
reporting periods.
US$/RUB
EUR/RUB
EUR/US$
US$/CAD
EUR/CZK
US$/CZK
US$/ZAR
EUR/ZAR
US$/UAH
RUB/UAH
2013
2012
2011
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
%
US$ millions
%
US$ millions
%
US$ millions
(10.10)
15.00
(7.79)
15.00
(7.76)
7.76
(5.83)
5.83
(5.85)
5.85
(10.82)
10.82
(16.21)
16.21
(15.17)
15.17
–
30
–
13
271
(403)
26
(51)
(8)
8
12
(12)
1
(1)
17
(17)
5
(5)
(4)
4
–
(14)
–
2
(11.09)
11.09
(8.12)
8.12
(8.45)
8.45
(6.69)
6.69
(6.38)
6.38
(12.64)
12.64
(19.27)
19.27
(12.09)
12.09
(0.08)
0.08
(11.07)
11.07
164
(164)
31
(31)
(9)
9
2
(2)
–
–
22
(22)
2
(2)
(8)
8
–
–
(3)
3
(11.36)
11.36
(8.27)
8.27
(11.37)
11.37
(9.75)
9.75
(5.87)
5.87
(13.96)
13.96
(17.34)
17.34
(13.14)
13.14
(0.33)
0.33
(11.33)
11.33
(500)
500
27
(27)
(15)
15
97
(97)
(2)
2
32
(32)
(2)
2
(10)
10
1
(1)
–
–
Except for the effects of changes in the exchange rates disclosed above, the Group is exposed to currency risk on derivatives not designated as
hedging instruments (Note 25). The impact of currency risk on the fair value of these derivatives is disclosed below.
2013
2012
2011
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
%
US$ millions
%
US$ millions
%
US$ millions
(10.10)
15.00
183
(213)
(11.09)
11.09
271
(217)
(11.36)
11.36
252
(201)
US$/RUB
Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of fi nancial instruments by valuation technique:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: other techniques for which all inputs which have a signifi cant effect on the recorded fair value are observable, either directly or
indirectly; and
• Level 3: techniques which use inputs which have a signifi cant effect on the recorded fair value that are not based on observable market data
(unobservable inputs).
The carrying amounts of fi nancial instruments, such as cash, short-term and long-term investments, short-term accounts receivable and payable,
short-term loans receivable and payable and promissory notes, approximate their fair value.
EVRAZ plc Annual Report and Accounts 2013
197
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
28. Financial risk management objectives and policies (continued)
Fair Value of Financial Instruments (continued)
At 31 December the Group held the following fi nancial instruments measured at fair value:
US$ million
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2013
2012
2011
Assets measured at fair value
Available-for-sale fi nancial assets
Derivatives not designated as hedging
instruments
Liabilities measured at fair value
Derivatives not designated as hedging
instruments (Note 25)
Deferred consideration payable for
the acquisition of Inprom (Note 25)
Contingent consideration payable for
the acquisition of Stratcor (Note 25)
Amounts payable under put options for
shares of subsidiaries
30
–
–
–
–
–
–
–
219
–
–
–
–
–
–
–
8
–
21
–
–
10
–
–
–
2
115
–
–
–
–
–
–
–
12
–
17
–
–
11
–
–
–
–
209
–
–
–
–
–
–
–
16
9
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 fi nancial instruments which carrying amounts differ from fair values at 31 December.
US$ million
Long-term fi xed-rate bank loans
Long-term variable-rate bank loans
8.875 per cent notes due 2013
8.25 per cent notes due 2015
7.40 per cent notes due 2017
9.5 per cent notes due 2018
6.75 per cent notes due 2018
6.50 per cent notes due 2020
9.25 per cent bonds due 2013
13.5 per cent bonds due 2014
8.75 per cent bonds due 2015
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
Liabilities under 7.75 per cent bonds due 2017
assumed in business combination (Note 4)
Other liabilities
2013
Carrying
amount
$209
776
–
569
605
505
855
1,007
–
627
122
466
614
431
–
Fair
value
$249
814
–
621
634
568
858
951
–
645
121
464
592
417
–
2012
2011
Carrying
amount
$105
2,115
542
562
604
503
854
–
506
675
–
501
661
–
1
Fair
value
$131
1,956
554
643
642
591
889
–
508
728
–
511
630
–
1
Carrying
amount
$104
2,109
535
560
–
501
853
–
476
635
–
472
623
–
1
Fair
value
$115
1,943
567
588
–
529
769
–
480
693
–
485
563
–
1
$6,786
$6,934
$7,629
$7,784
$6,869
$6,733
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1). The fair value of convertible bonds and
long-term bank loans was calculated based on the present value of future principal and interest cash fl ows, discounted at the Group’s market rates
of interest at the reporting dates (Level 3). The discount rates used for valuation of fi nancial instruments were as follows:
Currency in which fi nancial instruments are denominated
US$
EUR
RUB
2013
2012
2011
4.5 – 8.2%
2.7%
10.4%
7.5 – 8.6%
2.9%
9.2%
8.2 – 9.1%
3.2%
9.7%
Capital Management
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.
198
EVRAZ plc Annual Report and Accounts 2013
28. Financial risk management objectives and policies (continued)
Capital Management (continued)
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. There were no changes in the objectives, policies and processes during 2013.
The Group manages its capital structure and makes adjustments to it by the issue of new shares, dividend payments to shareholders, and the
purchase of treasury shares. In addition, the Group monitors distributable profi ts on a regular basis and determines the amounts and timing of
dividend payments.
The capital requirements imposed by certain loan agreements included a $2,000 million minimum representing consolidated equity of Evraz Group
S.A. less goodwill. In 2011–2013, the Group was in compliance with this requirement. In June 2013, this covenant was abolished.
29. Non-cash Transactions
Transactions that did not require the use of cash or cash equivalents were as follows in the years ended 31 December:
US$ million
Liabilities for purchases of property, plant and equipment
Purchases of property, plant and equipment settled by an offset with accounts receivable
Loan issued to a partner of the Mezhegey coal fi eld project
Purchase of a non-controlling interest in the Mezhegey coal fi eld project settled by an offset with a
loan due to the Group (Note 4)
Carrying amount of convertible bonds transferred to equity upon debt conversion (Note 22)
2013
$148
–
2
–
–
2012
$144
–
7
40
–
2011
$93
10
36
–
553
30. 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, Ukraine and the Republic of South
Africa are considered to be emerging markets with higher economic and political risks.
Steel consumption is affected by the cyclical nature of demand for steel products and the sensitivity of that demand to worldwide general economic
conditions. The global economic recession resulted in a signifi cantly lower demand for steel products and decreased profi tability.
The global economic climate continues to be unstable and this may negatively affect the Group’s results and fi nancial 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. 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 for additional taxes, penalties and
interest. 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.
Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities based
on management’s best estimate of the probable outfl ow of resources embodying economic benefi ts, which will be required to settle these liabilities.
Possible liabilities which were identifi ed 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 fi nancial statements could be up to approximately $60 million.
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Contractual Commitments
At 31 December 2013, the Group had contractual commitments for the purchase of production equipment and construction works for an
approximate amount of $348 million.
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In 2010, the Group concluded an agreement for the supply of oxygen, nitrogen and argon by a third party for a period of 20 years. The contractual
price comprises a fi xed component and a variable component. The total amount of the fi xed component approximates 256 million euro. The
agreement is within the scope of IFRIC 4 “Determining whether an Arrangement Contains a Lease”. At 31 December 2013, the lease had
not commenced.
Social Commitments
The Group is involved in a number of social programmes aimed to support education, healthcare and social infrastructure development in towns
where the Group’s assets are located. The Group budgeted to spend approximately $114 million under these programmes in 2014.
EVRAZ plc Annual Report and Accounts 2013
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NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
year ended 31 December 2013
30. 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 quantifi cation 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 specifi c sites, the assessment stage of each site investigation, preliminary fi ndings 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 fi nancial position and results of operations.
In addition, the Group has committed to various environmental protection programmes covering periods from 2014 to 2022, under which the Group
will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2013, the costs of implementing these
programmes are estimated at $262 million.
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 signifi cant effect on
the Group’s operations or fi nancial position.
The Group exercises judgement 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 fi nal 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 signifi cantly affect future operating results.
Possible liabilities which were identifi ed by the Group at the end of the reporting period as those that can be subject to different interpretations of
legislation or contracts and are not accrued in these fi nancial statements could be up to approximately $6 million.
31. Auditor’s remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ million
Audit of the parent company of the Group
Audit of the subsidiaries
Total assurance services
Services in connection with capital market transactions
Other non-audit services
Total other services
2013
$2
5
7
–
1
1
$8
2012
$2
5
7
–
1
1
$8
2011
$4
7
11
3
2
5
$16
32. Subsequent events
Issue of Shares
On 27 January 2014, EVRAZ plc issued 33,944,928 shares in connection with the exercise of the warrants included in the purchase consideration
for Raspadskaya (Note 4).
Sale of EVRAZ Vitkovice Steel
On 3 April 2014, the Group sold its wholly-owned subsidiary EVRAZ Vitkovice Steel (“EVS”) to a third party. This rolling mill located in the Czech
Republic was included in the steel segment of the Group’s operations and classifi ed as an asset held for sale during 2013 (Note 12).
The cash consideration is equal to $287 million for a business on a net debt free basis with a normalised working capital of $75 million. As of
31 December 2013, the actual third party net debt of EVS was $69 million, the intercompany debt was $127 million and the working capital was
$55 million.
As a result of the sale of the subsidiary, the accumulated exchange gains of EVS, which were $61 million as of 31 December 2013, will be
reclassifi ed from equity to the consolidated profi ts of the Group in the 2014 fi nancial statements.
Dividends
On 8 April 2014, the Board of directors of EVRAZ plc proposed to declare special dividends in the amount of $90.4 million, which represent $0.06
per share. The dividends will be paid out of the sale proceeds for EVRAZ Vitkovice Steel.
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EVRAZ plc Annual Report and Accounts 2013
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF EVRAZ PLC
We have audited the fi nancial statements of EVRAZ plc for the year ended 31 December 2013 which comprise the Separate Statement of Comprehensive Income,
the Separate Statement of Financial Position, the Separate Statement of Cash Flows, the Separate Statement of Changes in Equity and the related notes 1 to 9.
The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement on page 111, the directors are responsible for the preparation of the fi nancial statements and for
being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the fi nancial statements
An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements
are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s
and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made
by the directors; and the overall presentation of the fi nancial statements. In addition, we read all the fi nancial and non-fi nancial information in the Annual Report to
identify material inconsistencies with the audited fi nancial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on fi nancial statements
In our opinion the parent company fi nancial statements:
• give a true and fair view of the state of the parent company’s affairs as at 31 December 2013 and of the parent company’s profi t for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for the fi nancial year for which the fi nancial statements are prepared is consistent with the
fi nancial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited fi nancial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have identifi ed any inconsistencies between our knowledge acquired during the audit and the directors’ statement
that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated
to the audit committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company fi nancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and
returns; or
• certain disclosures of directors’ remuneration specifi ed by law are not made; or
• we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the group fi nancial statements of EVRAZ plc for the year ended 31 December 2013. As described in the audit report on the group
fi nancial statements, the risk of assessing the carrying value of investments also relates to the parent company.
Ken Williamson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
8 April 2014
Notes:
1. The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the fi nancial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.
EVRAZ plc Annual Report and Accounts 2013
201
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SEPARATE STATEMENT OF
COMPREHENSIVE INCOME
(In millions of US dollars)
General and administrative expenses
Impairment of investments
Foreign exchange gain
Interest expense
Dividend income
Net profi t for the year
Total comprehensive income for the year
The accompanying notes form an integral part of these separate fi nancial statements.
Notes
3
3,6,7
8
31 December
2013
$(14)
(181)
7
(21)
715
506
$506
2012
$(11)
–
–
(1)
390
378
$378
202
EVRAZ plc Annual Report and Accounts 2013
SEPARATE STATEMENT
OF FINANCIAL POSITION
(In millions of US dollars)
The Financial Statements on pages 202 to 209 were approved by the Board of Directors on 8 April 2014 and signed on its behalf by Alexander
Frolov, Chief Executive Offi cer.
ASSETS
Non–current assets
Investments in subsidiaries
Investments in joint ventures
Current assets
Dividends receivable
Current income tax receivable
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves
Issued capital
Reorganisation reserve
Merger reserve
Warrants reserve
Share-based payments
Accumulated profi ts
LIABILITIES
Current liabilities
Short-term loans
Payables to related parties
Trade and other payables
31 December
Notes
2013
2012
3
3
8
3
4
4
4
4
5
4
7
6
3
$3,318
139
3,457
$2,343
–
2,343
113
14
127
–
–
–
3,584
2,343
1,473
(584)
478
156
51
1,819
3,393
–
103
88
191
1,340
(584)
–
–
26
1,315
2,097
242
1
3
246
TOTAL EQUITY AND LIABILITIES
$3,584
$2,343
The accompanying notes form an integral part of these separate fi nancial statements.
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203
SEPARATE STATEMENT
OF CASH FLOWS
(In millions of US dollars)
Cash fl ows from operating activities
Net profi t
Adjustments to reconcile net profi t to net cash fl ows from operating activities:
Impairment of investments
Foreign exchange gain
Interest expense
Dividend income
Changes in working capital:
Receivables from/payables to related parties
Taxes receivable
Trade and other payables
Net cash fl ow used in operating activities
Cash fl ows from investing activities
Investments in subsidiaries
Payments to acquire shares in joint ventures
Dividends received
Return of funds by subsidiaries
Net cash fl ow from investing activities
Cash fl ows from fi nancing activities
Purchase of treasury shares
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Dividends paid to shareholders
Net cash fl ow used in fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of these separate fi nancial statements.
Notes
2013
2012
$506
$378
3
7
8
6
3
3
3
8
3
5
7
7
4
181
(7)
21
(715)
(14)
–
(14)
(3)
(31)
(558)
(61)
602
300
283
(2)
–
(250)
–
(252)
–
–
$–
–
–
1
(390)
(11)
1
–
2
(8)
(248)
–
390
–
142
–
241
–
(375)
(134)
–
–
$–
204
EVRAZ plc Annual Report and Accounts 2013
SEPARATE STATEMENT
OF CHANGES IN EQUITY
(In millions of US dollars)
Notes
Issued
capital
$1,338
Treasury
shares
Reorganisation
reserve
$–
$(582)
Merger
reserve
$–
At 31 December 2011
Total comprehensive
income for the year
Share-based payment
Issue of share capital
in exchange for the
shares of Evraz Group
S.A.
Dividends declared
At 31 December 2012
Total comprehensive
income for the year
Share-based payment
Issue of share capital
Purchase of
treasury shares
Exercise of options
–
–
2
–
$1,340
–
–
133
–
–
5
4
4
5
4
5
5
Warrants
reserve
Share-based
payments
Accumulated
profi ts
Total
$–
–
–
–
–
$–
–
–
156
–
–
$4
–
22
–
–
$1,312
$2,072
378
–
378
22
–
(375)
–
(375)
$26
$1,315
$2,097
–
25
–
–
–
506
–
–
–
(2)
506
25
767
(2)
–
–
–
–
–
$–
–
–
–
(2)
2
$–
–
–
(2)
–
$(584)
–
–
–
–
–
–
–
–
–
$–
–
–
478
–
–
At 31 December 2013
$1,473
$(584)
$478
$156
$51
$1,819
$3,393
The accompanying notes form an integral part of these separate fi nancial statements.
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EVRAZ plc Annual Report and Accounts 2013
205
NOTES TO THE SEPARATE
FINANCIAL STATEMENTS
For the year ended 31 December 2013
1. Corporate information
These separate fi nancial statements of EVRAZ plc were authorised for issue in accordance with a resolution of the directors on 8 April 2014.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company under the laws of the United Kingdom.
The company was incorporated under the Companies Act 2006 with the registered number 7784342. The Company’s registered offi ce is at 5th
Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom.
As a result of the reorganisation implemented by way of the share exchange offer made by the Company for the shares of Evraz Group S.A., on
7 November 2011, the Company became a new parent entity of Evraz Group S.A., a joint stock company registered in Luxembourg in 2004.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products and coal and
iron ore mining. In addition, the Group produces vanadium products. The Group is one of the largest steel producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of the Group.
2. Signifi cant accounting policies
Basis of Preparation
These fi nancial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European
Union and applicable requirements of the UK law.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for
application as of 31 December 2013, but not adopted by the European Union, do not have any impact on the Company’s fi nancial statements.
These fi nancial statements have been prepared on a going concern basis as the directors believe there are no material uncertainties that lead to
signifi cant doubt the entity can continue as a going concern in the foreseeable future.
Foreign Currency Transactions
The presentation and measurement currency of the Company is US dollar. Transactions in foreign currencies are initially recorded in US dollar at the
rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the
balance sheet date. Exchange gains and losses are recognised in profi t or loss.
Investments
Participations in subsidiaries, associates or joint ventures are initially stated at acquisition cost. Write–downs are recorded if, in the opinion of the
management, there is any permanent impairment in value.
The cost of investment in Evraz Group S.A. was measured at the carrying amount of the equity items of Evraz Group S.A. as a separate legal entity
at the date of the reorganisation (Note 3).
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.
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 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.
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 outfl ow of resources embodying economic benefi ts 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.
206
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3. Investments in subsidiaries and joint ventures
Investments in subsidiaries and joint ventures consisted of the following as of 31 December 2013 and 2012:
Subsidiaries
Evraz Group S.A.
EVRAZ Greenfi eld Development S.A.
Corber Enterprises Limited
Joint Ventures
OJSC Mining and Metallurgical Company Timir
Ownership interest
Cost,
US$ million
2013
2012
2013
2012
100%
100%
50%
100%
100%
–
2,220
134
964
3,318
2,095
248
–
2,343
51.00001%
–
139
–
Evraz Group S.A.
The Company acquired Evraz Group S.A. in 2011 by means of the share exchange offer made by the Company to the shareholders of Evraz Group
S.A., which were entitled to receive 9 shares of EVRAZ plc for each share of Evraz Group S.A. The cost of investments in Evraz Group S.A. was
measured at the carrying amount of the equity items shown in the separate accounts of Evraz Group S.A. at the dates of share exchange.
In 2013, the Company made a cash contribution to the share capital of Evraz Group S.A. for a total amount of $100 million.
In addition, the Company recognises share-based payments made to employees of subsidiaries under control of Evraz Group S.A. as an addition to
the cost of its investments in Evraz Group S.A. (Note 5). In 2013 and 2012, share-based compensations amounted to $25 million and $22 million,
respectively.
EVRAZ Greenfi eld Development S.A.
In 2012, the Company acquired 100% of Susurrus Finance S.A. (Luxembourg) for a consideration of 36,000 euro. In May 2012, the name of the
subsidiary was changed to EVRAZ Greenfi eld Development S.A. (“EGD”). Subsequently, the Company made a cash contribution to the share capital
of EGD for a total amount of $248 million. This contribution was used by EGD for the purchase of a 60.016% share in the Mezhegey coal fi eld project
from Mastercroft Limited, an indirect subsidiary of the Company, for $245 million.
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In 2013, the Company made cash contributions to the share capital of EGD for a total amount of $357 million. Subsequently, when external
fi nancing was received, EGD decreased the share capital by $300 million and returned this amount to the Company in cash.
At 31 December 2013, the Company assessed the recoverability of its investment in EGD. The recoverable amount of the asset was based on
a value-in-use calculation using cash fl ow projections based on the business plans approved by management and an appropriate discount rate
refl ecting time value of money and risks associated with the asset. The discount rates were 13.72% and 14% in 2013 and 2012, respectively.
As a result, the Company recognised an impairment loss of $171 million. The major drivers that led to impairment were the changes in expectations
of long-term prices for coal and the decrease in the sales volumes.
Corber Enterprises Limited
On 16 January 2013, EVRAZ plc acquired a 50% ownership interest in Corber Enterprises Limited (“Corber”), the parent of a coal mining company
Raspadskaya, and, consequently, the Group obtained control over the entity (the other 50% share in Corber is held by an indirect subsidiary of Evraz
Group S.A.). The sellers were Adroliv Investments Limited, Verocchio Enterprises Limited and Kadre Enterprises Limited, entities under control of key
management persons of Raspadskaya.
The purchase consideration includes 132,653,006 shares of EVRAZ plc issued on 16 January 2013, warrants to subscribe for an additional
33,944,928 EVRAZ plc shares exercisable at zero price in the period from 17 January to 17 April 2014 and a cash consideration of $202 million to
be paid in equal quarterly installments to 15 January 2014. Fair value of the consideration transferred totalled to $964 million, including $611 million
relating to the shares issued, $156 million representing the fair value of the warrants and $197 million of present value of the cash component of
the purchase consideration. The fair value of shares and warrants was determined by reference to the market value of EVRAZ plc shares at the date
of acquisition. In 2013, the Company paid $101 million relating to this acquisition. As of 31 December 2013, the unpaid purchase consideration was
$101 million plus $1 million of accrued interest.
In 2013, the Company paid $14 million of corporate tax in connection with the issue of warrants. As these warrants were exercised in 2014, the
Company received reimbursement of payments made.
EVRAZ plc Annual Report and Accounts 2013
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NOTES TO THE SEPARATE
FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2013
3. Investments in subsidiaries and joint ventures (continued)
OJSC Mining and Metallurgical Company Timir
On 3 April 2013, the Company acquired a 51% ownership interest in the joint venture with Alrosa for the development of 4 iron ore deposits in the
southern part of the Yakutia region in Russia. The Company’s consideration for this stake amounted to $149 million being the present value of the
expected cash outfl ows at the exchange rate as of 31 December 2013. The consideration denominated in roubles is payable in installments till
15 July 2014. In 2013, the Company recognised within interest expense $7 million representing a discount adjustment to this liability. In 2013,
the Company paid 1,980 million roubles ($61 million) of purchase consideration. At 31 December 2013, trade and other accounts payable included
$88 million liabilities relating to this acquisition.
At 31 December 2013, the Company assessed the recoverability of its investment in Timir. The recoverable amount of the asset was based on
a value-in-use calculation using cash fl ow projections based on the business plans approved by management and an appropriate discount rate
refl ecting time value of money and risks associated with the asset (16.21%). As a result, the Company recognised an impairment loss of $10 million.
The major driver that led to impairment was the change in expectations of long-term prices for iron ore.
4. Equity
Share Capital
Number of shares
Ordinary shares of $1 each, issued and fully paid
EVRAZ plc does not have an authorised limit on its share capital.
31 December
2013
2012
1,472,582,366 1,339,929,360
At 31 December 2013, the Company held 159,649 own shares. In addition, Mastercroft Finance Limited, an indirect subsidiary, had 143,068 and
146,731 shares of the Company at 31 December 2013 and 2012, respectively.
In January 2013, the Company issued 132,653,006 shares as part of consideration paid for acquisition of Corber (Note 3). These shares were
valued at their market quotation at the date of acquisition of Corber. The excess of the market value of shares issued over their nominal value in the
amount of $478 million was recognised in a merger reserve under section 612 of the Companies Act 2006 as all of the criteria for merger relief have
been satisfi ed. Any future impairments of the carrying value of the investment in Corber can be transferred to the merger reserve, thus protecting
distributable reserves.
In addition, the Company issued warrants to subscribe for an additional 33,944,928 EVRAZ plc shares exercisable at zero price in the period from
17 January to 17 April 2014. The fair value of warrants issued amounting to $156 million was credited to a separate reserve within equity (“Warrant
reserve”).The warrants were exercised on 27 January 2014.
Reorganisation Reserve
Reorganisation reserve represents the difference between the net assets of Evraz Group S.A. at the date of the Group’s reorganisation
(7 November 2011) and the par value of the issued shares of EVRAZ plc. This charge to equity reduced the amount of distributable reserves.
At 31 December 2011, there were shareholders which did not accept the share exchange offer. On 17 February 2012, Mastercroft Finance Limited,
an indirect subsidiary of EVRAZ plc, purchased the remaining GDRs of Evraz Group S.A. and exchanged them for 869,469 newly issued shares of
EVRAZ plc. This transaction increased the Company’s share capital by $2 million with a corresponding charge to the reorganisation reserve.
Date of
declaration
To holders
registered at
Dividends
declared, US$
million
18/06/2012
29/08/2012
08/06/2012
07/09/2012
228
147
US$ per share
0.17
0.11
Dividends
In 2012, the Company declared dividends as follows:
Final for 2011
Interim for 2012
No dividends were declared in 2013.
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EVRAZ plc Annual Report and Accounts 2013
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5. Share-based payments
As disclosed in Note 21 of the consolidated fi nancial statements, the Group has incentive plans under which certain employees (“participants”) can
be gifted shares of the Company.
In 2013, the Company spent $2 million for the purchase of its shares on the market for the subsequent transfer of these shares to participants.
This loss was recognised in equity.
In 2013 and 2012, the Company recognised a $25 million and a $22 million expense, respectively, under the share-based compensations as a cost
of investments in Evraz Group S.A. with a corresponding increase in equity.
The share-based awards which were not exercised at 31 December 2013 and 2012 amounted to 27,692,062 and 12,069,571 shares of EVRAZ plc,
respectively. These awards included 98,647 vested shares at 31 December 2013, all others were unvested. More details are provided in Note 21 of
the consolidated fi nancial statements.
6. Related party transactions
Related parties of the Company include its direct and indirect subsidiaries, associates and joint venture partners, key management personnel and
other entities that are under the control or signifi cant infl uence of the key management personnel, the Company’s parent or its shareholders.
In 2013 and 2012, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services in the amount of $6 million and
$2 million, respectively. At 31 December 2013 and 2012, the balances with related parties included accounts payable to OOO Evrazholding in the
amount of $1 million.
As at December 2013, liabilities to related parties included $102 million payable for Corber’s shares to Adroliv Investments Limited, Verocchio
Enterprises Limited and Kadre Enterprises Limited. In 2013, the Company recognised within interest expense $6 million representing a discount
adjustment to the liability and an interest on a tranche, which payment was postponed.
Other disclosures on directors’ remuneration required by the Companies Act 2006 and those specifi ed for audit by the Directors’ Remuneration
Report Regulations 2002 are included in the Directors’ Remuneration Report.
7. Short–term loans
In December 2012, the Group issued European commercial papers with a nominal amount of $80 million and $170 million. These commercial
papers bore an interest rate of 3.50% and 3.75%, respectively, and matured on 6 September 2013 and 4 December 2013, respectively.
The proceeds from this issue amounted to $242 million.
In 2013 and 2012, the Company accrued $8 million and $1 million of interest expense in respect to these borrowings.
The European commercial papers were fully repaid by the Company in 2013.
At 31 December 2012, the fair value of the European commercial papers approximated their carrying amount.
8. Dividend income
In 2012, the Company received dividends from Evraz Group S.A. in the amount of $390 million.
In 2013, Evraz Group S.A. declared dividends to the Company in the amount of $715 million. The Company received $602 million in cash and
$113 million were unpaid as of 31 December 2013.
9. Subsequent events
Issue of Shares
On 27 January 2014, EVRAZ plc issued 33,944,928 shares in connection with the exercise of the warrants included in the purchase consideration
for Raspadskaya (Note 3).
Dividends
On 8 April 2014, the Board of directors of EVRAZ plc proposed to declare special dividends in the amount of $90.4 million, which represent $0.06
per share. The dividends will be paid out of the sale proceeds for EVRAZ Vitkovice Steel.
EVRAZ plc Annual Report and Accounts 2013
209
ADDITIONAL INFORMATION
EVRAZ’S CORPORATE STRUCTURE
EVRAZ plc*
STEEL
IRON ORE
COAL
VANADIUM
OTHER BUSINESS
EVRAZ ZSMK, Russia 100%
EVRAZ KGOK, Russia 100%
Yuzhkuzbassugol,
Russia
100%
EVRAZ Vanady Tula,
Russia
100%
EVRAZ NMTP, Russia 100%
EVRAZ NTMK, Russia 100%
Evrazruda, Russia
100%
Raspadskaya,
Russia
81.95%
EVRAZ Nikom,
Czech Republic
100%
Sinano Shipmanagement
Limited, Cyprus
100%
EVRAZ Inc NA, USA
100%
EVRAZ Sukha Balka,
Ukraine
99.42%
Mezhegeyugol,
Russia
60.02%
EVRAZ Stratcor, USA 78.76%
TC EvrazHolding,
Russia
100%
EVRAZ Vametco***,
South Africa
66.95%
EVRAZ Metall Inprom,
Russia
100%
East Metals AG,
Switzerland
100%
Metallenergofi nance,
Russia
100%
EVRAZEnergoTrans,
Russia
100%
EVRAZ Inc NA, Canada 100%
EVRAZ DMZ,
Petrovskogo, Ukraine 96.78%
EVRAZ Bagliykoks,
Ukraine
94.87%
EVRAZ Palini e Bertoli,
Italy
100%
EVRAZ Vitkovice Steel,
Czech Republic**
100%
EVRAZ Highveld,
South Africa**
85.11%
* As at 31 December 2013
** Assets classifi ed as held for sale
*** Effective interest
210
EVRAZ plc Annual Report and Accounts 2013
ADDITIONAL INFORMATION
DATA ON MINERAL RESOURCES
Yuzhkuzbassugol JORC Equivalent Coal Reserves and Resources as at 1 July 2013
Mineral Resources
Ore Reserves
Mine
Abashevskaya
Underground Mine
LOM 40 Years
Kusheyakovskaya
Underground Mine
LOM 1 Year
Alardinskaya
Underground Mine
LOM 49 Years
Gramoteinskaya
Underground Mine
LOM 0 Years
Yesaulskaya
Underground Mine
LOM 37 Years
Osinnikovskaya
Underground Mine
LOM 49 Years
Uskovskaya
Underground Mine
LOM 84 Years
Yerunakovskaya VIII
Underground Mine
LOM 63 Years
Yuzkuzbassugol
Total
Category
'000t
Category
Measured
63,977
Proved
Indicated
147,774
Probable
Total
211,751
Measured
162,852
Total
Proved
Indicated
99,475
Probable
Total
262,327
Measured
384,471
Total
Proved
Indicated
261,514
Probable
Total
645,985
Measured
44,945
Total
Proved
Indicated
34,367
Probable
Total
Measured
79,312
61,756
Total
Proved
Indicated
51,890
Probable
Total
113,646
Measured
86,216
Total
Proved
Indicated
304,515
Probable
Total
390,731
Total
'000t
37,173
20,866
58,039
1,580
0
1,580
82,341
10,341
92,682
11,116
31,995
43,111
16,728
40,125
56,853
Measured
149,369
Proved
127,117
Indicated
44,674
Probable
4,813
Total
194,043
Total
131,930
Measured
106,504
Proved
106,504
Indicated
119,049
Probable
13,164
Total
225,553
Total
119,668
Measured
1,060,090
Proved
382,559
Indicated
1,063,258
Probable
121,304
Total
2,123,348
Total
503,863
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Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
LOM refers relates to Reserves.
Reserves and Resources are in-situ or ROM (Run of Mine) tonnes.
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EVRAZ plc Annual Report and Accounts 2013
211
ADDITIONAL INFORMATION
DATA ON MINERAL RESOURCES
Continued
Raspadskaya JORC Equivalent Coal Reserves and Resources as at 1 July 2013
Mine
Raspadskaya
LOM 98 Years
MUK 96
LOM 97 Years
Raspadskaya Koksovaya
LOM 70 Years
Raspadsky
LOM 28 Years
Raspadskaya
Total
Mineral Resources
Ore Reserves
Category
'000t
Category
'000t
Measured
1,133,900
Proved
234,106
Indicated
0
Probable
624,493
Total
1,133,900
Total
858,599
Measured
300,733
Proved
83,744
Indicated
0
Probable
112,822
Total
300,733
Total
196,566
Measured
426,580
Proved
83,389
Indicated
0
Probable
106,505
Total
426,580
Total
189,894
Measured
138,117
Proved
Indicated
0
Probable
75,743
44,444
Total
138,117
Total
120,187
Measured
1,999,330
Proved
476,982
Indicated
0
Probable
888,264
Total
1,999,330
Total
1,365,246
Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
EVRAZ Total JORC Equivalent Coal Reserves and Resources as at 1 July 2013
Mineral Resources
Ore Reserves
Category
'000t
Category
'000t
Measured
1,060,090
Proved
382,559
Indicated
1,063,258
Probable
121,304
Total
2,123,348
Total
503,863
Measured
1,999,330
Indicated
0
476,982
888,264
Total
1,999,330
Total
1,365,246
Measured
3,059,420
Proved
859,541
Indicated
1,063,258
Probable
1,009,568
Total
4,122,678
Total
1,869,109
Enterprise
Yuzkuzbassugol
Raspadskaya
EVRAZ
Total
Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
212
EVRAZ plc Annual Report and Accounts 2013
Evrazruda JORC Equivalent Iron Ore Reserves and Resources as at 1 July 2013
Mineral Resources
Ore Reserves
Mine
Teia
Category
‘000t
Measured
111,575
LOM 1 Year
Indicated
22,627
Total
134,202
Irbra
Measured
30,672
LOM 0 Years
Indicated
Total
Tashtagol
Measured
LOM 5 Years
Indicated
2,303
32,975
59,698
750
Total
60,448
Sheregesh
Measured
142,679
(Gorno-
Shorsky)
LOM 20+
years
Kaz
LOM 20+
Years
Indicated
7,234
Total
149,913
Measured
Indicated
50,390
12,680
Total
63,070
Abakan
Measured
101,833
LOM 3 Years
Indicated
4,363
Total
106,196
Evrazruda
Measured
496,847
Total
Indicated
49,957
Total
546,804
Fe %
30.6
30.4
30.5
39.5
40.9
39.6
40.8
31.5
40.7
35.9
35.7
35.9
41.9
41.5
41.9
40.9
38.3
40.8
37.1
35.2
37.0
Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
LOM refers relates to Reserves.
Reserves and Resources are in-situ or ROM (Run of Mine) tonnes.
S %
1.0
1.1
1.1
1.4
1.7
1.4
1.2
2.2
1.2
1.2
1.2
1.2
1.3
1.3
1.3
2.5
2.5
2.6
1.5
1.3
1.5
Category
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
‘000t
1,247
0
1,247
0
0
0
8,624
0
Total
8,624
Proved
67,887
Probable
5,441
Total
73,328
Proved
11,477
Probable
0
Total
11,477
Proved
Probable
Total
5,455
46
5,501
Proved
94,690
Probable
5,487
Total
100,177
Fe %
32.1
0.0
32.1
0.0
0.0
0.0
38
0
38
29.8
27.9
29.7
32.9
0.0
32.9
32.4
32.8
32.4
31.1
28.0
30.9
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0.0
1.0
0.0
0.0
0.0
1
0
1
0.9
0.8
0.9
0.9
0.0
0.9
1.0
1.7
1.0
0.9
0.8
0.9
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213
ADDITIONAL INFORMATION
DATA ON MINERAL RESOURCES
Continued
Kachkanarsky GOK (EVRAZ KGOK) JORC Equivalent Iron Ore Reserves and Resources
as at 1 July 2013
Mineral Resources
Ore Reserves
Fe %
16.18
16.18
16.18
16.66
16.66
16.66
V2O5 %
Category
'000 t
0.14
0.14
0.14
0.16
0.16
0.16
Proved
437,130
Probable
8,210
Total
445,340
Proved
21,020
Probable
Total
39,020
60,040
Measured
653,250
15.7
0.12
Proved
638,310
Mine
Main
Category
'000 t
Measured
441,450
Open Pit
Indicated
8,300
LOM 29 Years
Total
449,750
Measured
Indicated
Total
21,260
39,460
60,720
South
Open Pit
LOM include in
Main
North
Open Pit
Indicated
LOM 26 Years
Total
653,250
West
Open Pit
Measured
178,450
Indicated
LOM 15 Years
Total
178,450
Measured
5,113,120
Kachkanar
Proper
(Sobstvenno-
Kachkanarskoye
deposit)
Open Pit
Indicated
1,720,850
LOM 100 Years
Total
6,833,970
Total
Measured
6,407,530
Indicated
1,768,610
Total
8,176,140
15.7
16.1
16.1
16.7
16.7
16.7
16.5
16.7
16.5
Probable
Total
638,310
Proved
176,930
Probable
Total
176,930
Proved
5,165,830
Probable
1,738,590
Total
6,904,420
Proved
6,439,220
Probable
1,785,820
Total
8,225,040
0.12
0.16
0.16
0.15
0.15
0.15
0.14
0.15
0.14
Fe %
16.1
16.1
16.1
16.6
16.6
16.6
15.6
15.6
16.1
16.1
16.5
16.5
16.5
16.4
16.5
16.4
V2O5 %
0.14
0.14
0.14
0.16
0.16
0.16
0.12
0.12
0.16
0.16
0.14
0.14
0.14
0.14
0.14
0.14
Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
LOM refers relates to Reserves.
Figures are based on the combined Measured and Indicated resources and assume mining loss and dilution factors. Reserves and Resources are in-situ or ROM tonnes.
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EVRAZ plc Annual Report and Accounts 2013
EVRAZ Total JORC Equivalent Iron Ore Reserves and Resources as at 1 July 2013
Mineral Resources
Ore Reserves
Enterprise
Evrazruda
Kachkanarsky
EVRAZ
Total
Category
'000t
Measured
496,847
Indicated
49,957
Total
546,804
Measured
6,407,530
Indicated
1,768,610
Total
8,176,140
Measured
6,904,377
Indicated
1,818,567
Total
8,722,944
Fe%
37.1
35.2
37.0
16.5
16.7
16.5
18.0
17.2
17.8
Category
Proved
Probable
'000t
94,690
5,487
Total
100,177
Proved
6,439,220
Probable
1,785,820
Total
8,225,040
Proved
6,533,910
Probable
1,791,307
Total
8,325,217
Fe%
31.1
28.0
30.9
16.4
16.5
16.4
16.6
16.5
16.6
Note
Resources include undiscounted reserves.
Reserves include adjustments for loss and dilution modifying factors.
Reserves and Resources are in-situ or ROM (Run of Mine) tonnes.
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EVRAZ plc Annual Report and Accounts 2013
215
ADDITIONAL INFORMATION
TERMS AND ABBREVIATIONS
Term
Beam
Billet
Blast furnace
By-product
Capex
CFR
Channel
Coal washing
Coke
Coke battery
Coking coal
Concentrate
Defi nition
A structural element. Beams are characterised by their profi le (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-fl ange 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
A usually square, semi-fi nished steel product obtained by continuous casting or rolling of blooms.
Sections, rails, wire rod and other rolled products are made from billets
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 effi ciency 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
A secondary product which results from a manufacturing process or chemical reaction
Capital expenditure
Cost and freight, the seller must pay the costs and freight to bring the goods to the port of
destination. However, risk is transferred to the buyer once the goods are loaded on the vessel.
Insurance for the goods is not included
U-shaped section for construction
The process of removing mineral matter from coal usually through density separation, for coarser
coal and using surface chemistry for fi ner particles
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
A group of coke ovens operating as a unit and connected by common walls
Highly volatile coal used to manufacture coke
A product resulting from iron ore / coal enrichment, with a high grade of extracted mineral
Construction products
Include beams, channels, angles, rebars, wire rods, wire and other goods
Converter
A type of furnace that uses pure oxygen in the process of producing steel from cast iron or dry mix
Continuous casting machine
Process whereby molten metal is solidifi ed into a “semi-fi nished” billet, bloom, or slab for
subsequent rolling in the fi nishing mills
Crude steel
Debottlenecking
Deposit
Electric arc furnace
Feasibility study
Finished products
Steel in its solidifi ed state directly after casting. This is then further processed by rolling or other
treatments, which can change its properties
Increasing capacity of a supply or production chain through the modifi cation of existing equipment
or infrastructure to improve effi ciency
An area of coal resources or reserves identifi ed by surface mapping, drilling or development
A furnace used in the steelmaking process which heats charged material via an electric arc
A comprehensive engineering estimate of all costs, revenues, equipment requirements and
production levels likely to be achieved if a mine is developed. The study is used to defi ne the
technical and economic viability of a project and to support the search for project fi nancing
Products that have completed the manufacturing process but have not yet been sold or distributed
to the end user
Flat products or Flat-rolled steel products
Include commodity plate, specialty plate and other products in fl at shape such as sheet, strip and
tin plate
Greenfi eld
Grinding balls
The development or exploration of a new project not previously examined
Balls used to grind material by impact and pressure
216
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Term
Defi nition
Head-hardened rails
Heat-treatment
Iron ore
ISO 14001
ISO 9001:2008
JORC Code
Kt
Ladle furnace
Lean
Long products
Longwall
LTIFR
Lumpy ore
Mt
Mtpa
Open pit mine
OCTG pipe
Pellet
Pig iron
Pipe blank
Plate
Pulverised coal injection (PCI)
Railway products
Rebar
High strength rails with head hardened by heat treatment
A group of industrial and metalworking processes used to alter the physical, and sometimes
chemical, properties of a material
Chemical compounds of iron with other elements, mainly oxygen, silicon, sulphur or carbon. Only
extremely pure (rich) iron-oxygen compounds are used for steelmaking
The International Standardisation Organisation’s standard for environmental management
systems
The International Standardisation Organisation’s standard for a quality management system
The Australasian Joint Ore Reserves Committee, which is widely accepted as a standard for
professional reporting of Mineral Resources and Ore Reserves
Thousand tonnes
The secondary metallurgy vessel used between steelmaking and casting operations to allow the
composition of molten steel to be brought to the required customer specifi cation
Lean is philosophy of managing the business that is based on a set of principles that defi ne the
way of work
Include bars, rods and structural products that are ‘long’ rather than ‘fl at’ and are produced from
blooms or billets
An underground mining process in which the coal face is dug out by a shearer and transported
above ground by conveyors
Lost time injury frequency rate, which represents the number of lost time injuries (1 day or more of
absence) divided by the total number of hours worked expressed in millions of hours
Iron ore between 6mm and 30mm in size. Lump is preferred in the blast furnace as its particle
size allows oxygen to circulate around the raw materials and melt them effi ciently
Million tonnes
Million tonnes per annum
A mine working or excavation open to the surface where material is not replaced into the mined
out areas
Oilfi eld Casing and Tubing Goods or Oil Country Tubular Goods – pipes used in the oil industry
An enriched form of iron ore shaped into small balls or pellets. Pellets are used as raw material in
the steel making process
The solidifi ed iron produced from a blast furnace used for steel production. In liquid form, pig iron
is known as hot metal
A fl at sheet of metal, a semi-fi nished product, sold to pipemakers to manufacture pipes
A long thin square shaped construction element made from slabs
A cost-reducing technique in iron-making, where cheaper coal is prepared to replace normal coking
coal in the blast furnace. The coal is pulverised into very small particles before injection into the
furnace
Include rails, rail fasteners, wheels, tyres and other goods for the railway sector
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 signifi cantly lowering construction costs
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Rolled steel products
Products fi nished in a rolling mill; these include bars, rods, plate, beams etc
Rolling mill
SG&A
Saleable products
A machine which converts semi-fi nished steel into fi nished steel products by passing them
through sets of rotating cylinders which form the steel into fi nished products
Selling, General and Administrative Expenses
Products produced by EVRAZ mines or steel mills which are suitable for sale to third parties
EVRAZ plc Annual Report and Accounts 2013
217
ADDITIONAL INFORMATION
TERMS AND ABBREVIATIONS
Continued
Term
Self-coverage
Scrap
Semi-fi nished products
Sinter
Slab
Slag
Steam coal
Tailings
Tubular products
Vanadium
Vanadium pentoxide
Vanadium slag
Defi nition
The raw material requirement of EVRAZ’s steelmaking facilities fulfi lled by EVRAZ owned mines
Iron containing recyclable materials (mainly industrial or household waste) that is generally
remelted and processed into new steel
The initial product forms in the steel making process including slabs, blooms, billets and pipe
blanks that are further processed into more fi nished products such as beams, bars, sheets,
tubing, etc
An iron rich clinker formed by heating iron ore fi nes and coke in a sinter line. The materials, in
pellet form, combine effi ciently in the blast furnace and allow for more consistent and controllable
iron manufacture
A common type of semi-fi nished steel product which can be further rolled into sheet and plate
products
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
All other types of hard coal not classifi ed as coking coal. Coal of this type is also commonly
referred to as thermal coal
Also called mine dumps, are the materials left over after the process of separating the valuable
content from the uneconomic remainder (gangue) of an ore. These materials can be reprocessed
using new methods to recover additional minerals
Include large diameter line pipes, ERW pipes and casings, seamless pipes and other tubular
products
A grey metal that is normally used as an alloying agent for iron and steel. It is also used to
strengthen titanium based alloys
The chemical compound with the formula V2O5: this orange solid is the most important compound
of vanadium. Upon heating, it reversibly loses oxygen
Vanadium slag produced from pig iron in the converter shop and used as a raw material by
producers of ferroalloys and vanadium products
218
EVRAZ plc Annual Report and Accounts 2013
ADDITIONAL INFORMATION
CONTACT DETAILS
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Registered Offi ce
5th Floor, 6 St. Andrew Street,
London EC4A 3AE
Directors
Alexander Abramov
Duncan Baxter
Alexander Frolov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Secretary
TMF Corporate Administration Services Limited
Investor Relations
Tel: London: +44 (0) 207 832 8990
Moscow: +7 (495) 232 1370
ir@evraz.com
Auditors
Ernst & Young LLP
Solicitors
Linklaters LLP
Registrars
For information about proxy voting, dividends
and to report changes in personal details,
shareholders should contact the Company’s
registrar:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Tel: +44 (0) 870 873 5848
Fax +44 (0)870 703 6101
Email: webqueries@computershare.co.uk
Unsolicited telephone calls and
correspondence
Shareholders are advised to be wary of any
unsolicited advice, offers to buy shares at a
discount, or offers of free reports about the
Company. These are typically from overseas-
based ‘brokers’ who target US or UK
shareholders, offering to sell them what often
turns out to be worthless or high risk shares.
These operations are commonly known as
‘boiler rooms’ and the ‘brokers’ can be very
persistent and extremely persuasive.
If you receive any unsolicited investment advice:
• Make sure you get the correct name of the
person and organisation.
• Check that they are properly authorised by
the FSA before getting involved by visiting
www.fsa.gov.uk/fsaregister and contacting
the fi rm using the details on the register.
• Report the matter to the FSA either by calling
0845 606 1234 or visiting
www.fsa.gov.uk/scams
• If the calls persist, hang up.
• Details of any share dealing facilities that
the company endorses will be included in
Company mailings.
Electronic shareholder communications
EVRAZ uses its website www.evraz.com as
its primary means of communication with its
shareholders provided that the shareholder
has agreed or is deemed to have agreed that
communications may be sent or supplied in
that manner in accordance with the Companies
Act 2006.
Electronic communications allow shareholders
to access information instantly as well as
helping EVRAZ reduce its costs and its impact
on the environment. Shareholders can sign up
for electronic communications via
Computershare’s Investor Centre website at
www.investorcentre.co.uk. Shareholders that
have consented or are deemed to have
consented to electronic communications can
revoke their consent at any time by contacting
the Company’s registrar, Computershare.
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EVRAZ plc Annual Report and Accounts 2013
219
NOTES
220
EVRAZ plc Annual Report and Accounts 2013
www.evraz.com